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Higher costs may cause firms to raise free-shipping thresholds

Christine Laureano, founder of Hampton Bays-based Ba6 Botanicals,

Christine Laureano, founder of Hampton Bays-based Ba6 Botanicals, says postal service price increases will likely force her to moderately raise some product costs. June 23, 2014. Credit: Newsday / Audrey C. Tiernan

Shippers are faced yet again with a trio of price increases going into the new year.

Both UPS and FedEx have announced 4.9 percent average rate increases, and the United States Postal Service announced it will also increase prices, including a 3.9 percent average increase on most shipping services.

Shipping experts say increases may be higher for some shippers depending on what and where they ship, so they should prepare to incorporate the increases into their operating costs and look to negotiate cost savings where possible.

“As shippers continue to face constant carrier increases, they need to ship smarter and be mindful of the different ways they can decrease costs,” says Rich Michals Jr., president of Farmingdale-based Parcel Management Auditing & Consulting.

The average increases the carriers announced may not reflect the true impact, he says.

“They take a blended average,” says Michals, noting that most shippers ship packages between 1 and 15 pounds, which is where some increases could be greater in certain categories.

For example, for 1-pound, next-day packages the average increase from 2017 to 2018 is 7 percent for UPS, and for FedEx 1-pound priority shipping the hike is 7.4 percent, according to a chart provided by Hicksville-based ICC Logistics Services Inc.

Fees for oversized packages have increased 10.6 percent for additional handling from UPS and 9.1 percent for additional handling for FedEx, according to those same charts. UPS will add a second increase to this fee on July 8, says Tony Nuzio, founder of ICC Logistics.

“The key is understanding what you ship and where your products fall within the percentage increases,” he says.

Some other notable changes coming: Starting Jan. 22, FedEx will apply a dimensional weight factor of 139 to all SmartPost packages (an economical service that uses the Postal Service for last-mile delivery), according to Trevor Outman, president of Shipware LLC, a San Diego transportation management firm. Previously, FedEx didn’t apply dimensional weight billing (calculated using a package’s box dimensions rather than actual weight) to this service.

Also changing for UPS: Its dimensional weight divisor on packages measuring less than 1 cubic foot will be decreasing from 166 to 139, resulting in higher shipping costs, Outman says.

“The majority of shippers are unaware of the true financial impact from the announced 2018 general rate increases,” says Outman.

FedEx senior vice president Patrick Fitzgerald said in a statement: “This change will align FedEx SmartPost dimensional weight pricing with FedEx Express and FedEx Ground dimensional weight pricing. Dimensional weight pricing is a common industry practice that sets the transportation price based on package volume.”

UPS in a general statement said: “Our rates reflect many changing business conditions, including costs, but also demand for our services, the competitive landscape and investments in new innovations and technology that will help our customers run their businesses better.”

The USPS didn’t institute any dimensional weight changes, which can give it a competitive edge, say experts.

But Christine Laureano, founder of Hampton Bays-based Ba6 Botanicals, a maker of handmade aromatherapy body care products, says the USPS increases will likely force her to moderately raise some product costs, particularly since some of her suppliers also have increased their shipping costs.

Laureano, who ships via priority mail and offers free shipping on orders of $75 or more, says while she’s grown accustomed to annual shipping increases, “it’s very trying.”

Some sellers may have to raise their free-shipping thresholds, says Nuzio, noting it’s important for companies to have continuous discussions with carriers to negotiate pricing.

Shippers may also consider having a package/box size analysis done to see if they’re using the right-sized boxes and look to reduce padding material where possible, says Michals.

Top incentives cited by consumers to purchase more online:

Free shipping: 80%

Fast shipping: 54%

Source: Walker Sands Future of Retail 2017 study

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