The costs of running a business are important in determining the sustainability of a business. In today’s business environment, where customers have multiple choices and are highly price sensitive, there is little room for price differentials and increased margins can only be achieved by increasing efficiencies and reducing input costs.
Shipping-related costs constitute a considerable – and highly variable – component of costs incurred by businesses. In order to remain in control of profits and costs, businesses need to closely monitor shipping costs and changes that may impact the bottom line.
Shipping carriers review and revise their pricing periodically, factoring in changes in the cost of fuel, other variables, and also to align prices with industry demands. Most shippers usually implement such changes in January and 2019 is no different, with most carriers having already increased prices or have announced plans to increase rates marginally.
The United States Postal Service (USPS) has announced both an increase in prices and the methodology of calculating prices which took effect January 27, 2019.
USPS is implementing zone-based pricing for first-class packaging service, aimed at aligning prices to cost of service in a better way, and also to offer better value. For shippers, these changes mean the cost to ship is now determined both by weight of the package and its destination. (Previously, cost was determined only by weight, regardless of destination.)
Until a while ago, the primary goal of a logistics player was restricted to moving a parcel from point A to point B. But e-commerce has changed the old rules. This is the age of same-day delivery, scheduled delivery, just-in-time purchases, product lifecycle transparency and so on. Logistics is no longer a discreet business function restricted to few people, but an operation that has larger data visibility.
Conversely, USPS is eliminating balloon pricing for priority mail. Until now, balloon pricing applied for packages weighing up to 20 pounds, and with a size between 84 to 108 inches in combined length and girth, for shipping to zones 1-4. These packages will now be priced based on their actual weight.
The dimensional divisor for priority mail is being reduced to 166 and will now include all zones. Lowering the divisor means larger packages will receive a “heavier” dimensional weight which will increase the rate charged. Businesses shipping large but light products which cannot be compressed into a box smaller than 12 x 12 x 12 inches will pay more when sending products through Priority Mail.
The revised charges also mean First-Class Package International Service is set to increase by 3.7% on average and the expedited global express guaranteed (GXG) rates will go up by 4.9%. As an example, a first-class package to Zone 1 weighing 6 oz. that previously cost $2.92 will now cost $3.18, or an increase of $0.26 per package. A medium flat rate box which cost $13.65 in 2018 will see an increase to $14.35 in 2019, representing a 4.9% increase .
Overall, items shipped to Zone 1 and 2 more or less remain the same, and as such, there will be no significant increase in cost when shipping packages first-class mail, locally. Hoyear over yearwever, when the package weight gets close to 1 lb., and zone classification applies, the increased costs will come into play.
Standard postage stamps have also increased from 50 cents to 55 cents.
FedEx is set to increase prices by 4.9% year over year. There are also significant increases in surcharges. Additional handling surcharge is now $13.50 per package, up from $12 per package in 2018, an increase of 12.5% year over year. Likewise additional correction is $16, up from $15, and COD is $14.5 per package, up from $13.5 per package. Surcharge for oversize packages has increased to $90 from $80.
The Print Return Label service, which allows merchants to pre-print return labels for convenience, has doubled in price, up from $0.50, to $1.
Another area of focus in recent years has been “minimum billable rates” for various services. Many minimum billable charges increased by 4.9% or more, on average. For instance, standard overnight shipment rates are now $27.18, up from $25.79 in 2018, a 5.39% increase.
UPS increased retail shipping prices by 4.9%, on average effective December 26, 2018. UPS Ground increased by about 5.2%, on average, UPS 2nd Day Air increased by an average of 7.2%, and UPS Standard to Canada increased by 1.8%, on average.
DHL Express has increased retail shipping prices by 5.1%, on average across-the-board effective January 1, 2019.
Canada Post has increased domestic retail prices by 4% and international retail price by 2%, on average effective January 14, 2019.
Among the specific services, Xpresspost increased by 2.9%, Small Packet USA Air increased by 2.0%, and Tracked Packet USA increased by 2.0%, on average.
Bulk shippers and businesses engaging with shippers on regular basis may be eligible for discounted, negotiated rates. In many instances, the old rates may still apply, and the revised retail rates may not apply until the next round of negotiations. Businesses shipping in bulk or on regular basis may do well to negotiate custom rates with shippers, if not already done so.
For others, the actual increase in price may be only a few cents or dollars at the most per package, but costs can quickly add up, and make a significant dent in the bottom line.
Businesses offering free shipping would obviously need to absorb the increased cost of shipping, bringing increasing pressure on margins. Businesses seeking to preserve their margins would need to explore cost-savings elsewhere, or increase prices marginally to absorb the increased cost of free shipping.
Businesses that pass on shipping costs to the customer also need to study the changes in-depth and communicate accurate shipping charges to customers. While the calculated rates displayed at checkout will automatically update to the 2019 rates, higher shipping costs, especially when the charges seem higher than what is promoted or advertised, could lead to abandoned shopping carts. Businesses may do well to offer discounts to keep total costs the same, or to reduce the impact of the hike until the new rates become the norm.
Businesses could seek a middle path by offering a free shipping minimum, a time-tested tactic to increase average order value. Margins from increased volumes could help offset the increased cost of shipping. Businesses offering flat rate shipping prices could think in terms of offering a higher flat rate on small orders and progressively lower flat rates as the cart sizes increase.
Customers who have to pay more invariably do so grudgingly. Increased rates almost always cause customer dissatisfaction and only businesses who tackle the situation head-on can mitigate or neutralize the damage
To know more about MAI's expertise in contact center and fulfillment services, please drop in an email now!
"The Bridgestone Firestone purchase resale program was initiated in 2000. The main objective of the program was to provide automotive dealerships, muffler and brake shops and general service stations with the support tools they needed to sell Bridgestone Firestone tires to end users."
- Bridgestone Americas
"We rely on MAI, an established provider of call center and fulfillment services, to deliver efficient service and unparalleled customer satisfaction. MAI has proven to be an excellent outsourced solution and a true business partner. The company’s background in marketing communications and brand support ensures we are being represented at the highest level possible."
- Tim Holody, Seta Corporation
"MAI recently completed its fifth season as Figi’s outsourced call center partner. We have gained incremental efficiencies year-over-year with regard to the program ramp up – not only from a human resources perspective, but from a technology and telephony standpoint as well."
Darcy Tudor, VP & Program Manager, MAI - Figi’s Gifts in Good Taste
"MAI developed, produced and monitored a direct mail initiative on behalf of ColeTaylorBank which has served the needs of Chicago area business for more than seven decades. The program achieved a 1% response rate and resulted in a sizable new account win, as well as valuable exposure to a group of highly targeted prospects."
- Cole Taylor Bank
"MAI had the I-PASS customer service/transponder fulfillment program up and running in half the time originally projected for start up. Within 90 days, call volumes increased 250% in response to a planned increase in tolls for customers without I-PASS transponders. Because MAI built the program for scalability, the increased demands were quickly taken in stride."
- Illinois Tollway Authority
"The information collected was invaluable in developing an advertising campaign that exposed the realities of the issues surrounding the‘health services’ provided by Planned Parenthood. I had the opportunityto monitor the survey calls on several occasions and was impressed with the Marketing Alternatives staff members assigned to our project. The interviewers were polite, respectful and very professional."
- Steven Brody, Executive Director, Dubuque County Right to Life
"MAI has always provided good reporting and it just keeps getting better. My team loves it. The best part is, they realize the relevance and value of the information that is now available and it’s being used to strengthen and improve our business."
- Nancy Barbee, Assistant Marketing Manager, Domino Foods, Inc.
"Firestone Complete Auto Care customers enjoy the convenience of scheduling service appointments online thanks to MAI’s creative thinking and outstanding IT capabilities. Not only do customers enjoy a higher level of service, we are now able to identify – and resolve – store issues that have resulted in lost opportunities in the past."
- Jim Stahulak, Manager, Database/Internet Marketing, Firestone
"Shipping product to customers quickly and accurately is a vital part of our business. MAI takes great care of all of our shipping needs, so I can focus on everything else that needs to be done. When we have a shipment with special requirements, we always know MAI will handle it without a problem."
- Christy Kaskey, Owner, Kaskey Kids, Inc.
"MAI conceived, designed and produced the Mohawk Tile Bottega within-a-store program. From creative through warehousing, fulfillment and installation, MAI acted as a single-source partner to make this concept materialize into reality."
- Mark Lorberbaum, Mohawk Industries
"MAI’s flexibility was a contributing factor to Mustela’s success in growing its business in the U.S. and Canada. Their active and forward thinking saved time and money while fostering great relationships with our retail customers."
- Amie Youngs, Senior Logistics Manager, Mustela US
"Excellence is the standard at Standard Coffee and we expected no less from our partnership with MAI. We’ve heard only positive feedback about them from the Standard Direct customer base – they truly handle our business as if it was their own."
- Stanley W. Eilers, Standard Coffee
"The lead qualification program MAI put together for Wilsonart Flooring helped our sales team enormously with time management. By prioritizing the leads, salespeople could focus on the strongest opportunities which, in turn, helped close more sales."
- Tammy Weadock, Wilsonart Flooring
