At a time when many customers expect free shipping, small businesses are facing a trifecta of rising shipping costs.
UPS and FedEx raised rates in the past month, and the U.S. Postal Service recently instituted its own increases on shipping services, representing the first price bump in more than three years for commercial Priority Mail.
As a result, small businesses need to learn to ship smarter and more strategically.
“Businesses really need to understand what their shipping costs are, because it’s going to be taking a larger bite out of their sales dollar,” said Tony Nuzio, founder of ICC Logistics Services Inc., a Hicksville-based transportation and logistics consultant.
It’s customary for FedEx and UPS to institute annual increases, he said, but this year the Postal Service’s doing the same makes things particularly difficult.
“The impact of the three major players increasing their rates is going to play havoc on businesses’ freight budgets,” said Nuzio.
Roberta Perry, owner of Bethpage-based ScrubzBody Natural Skin Care Products, is already feeling the effects.
Perry, who sells in-store and online, ships to wholesale customers using FedEx, which raised rates, on average, 4.9 percent this year. On top of that, most of her raw materials come from vendors via UPS, which instituted average increases of 4.9 percent to 5.2 percent, depending on the service. As a result, some of Perry’s vendors have raised the threshold on their free-shipping minimums.
But the biggest hit will come from the Postal Service increases, says Perry, who uses USPS to ship orders to retail customers via Priority Mail. The cost of that service rose an average of 9.8 percent last week. As a result, she’s considering raising the order minimum on her own free shipping from $30 to $35.
“I’m torn between wanting to give my customers the benefit of inexpensive or free shipping, but I hate starting off the year losing money,” she says.
USPS spokeswoman Katina Fields said, “The Postal Service adjusts its shipping prices annually just like other shipping companies, and unlike other shippers, the Postal Service doesn’t add surcharges for fuel, residential delivery or Saturday delivery.”
It also hasn’t implemented any “dimensional weight” charges, something UPS and FedEx did last year. Previously the charge had only been applied to packages 3 cubic feet or larger, but now the billable weight for even small packages is based on whichever weight is greater — the package’s actual weight or dimensional weight (calculated using its box dimensions), explained Leah Hyland, marketing specialist at PartnerShip in Cleveland, Ohio, which provides freight and small-package shipping services.
This requires companies to pack smarter, eliminating any unused space when possible to reduce package size, she said. PartnerShip offers a dimensional weight calculator at partnership.com/dimcalculator.
With all these changes, it pays to talk to your carrier sales representative, said John Costanzo, president of Jericho-based Purolator International, a third-party logistics company that provides small-package shipping, freight and warehousing services.
Look at what you negotiated originally and what you’re paying now, and try renegotiating those terms, he advised.
“They may just renegotiate, because they’re always fighting for new business,” said Costanzo.
Also look at all the fees they’re charging beyond your base rate, such as third-party billing fees, he added. Interview the competitor rep and compare fees.
Beyond that, don’t pay for services you don’t need, said Nuzio. For example, many companies pay a premium for Next Day Air services (guaranteed by 10:30 a.m.) when the same package could be shipped as a Ground Package (guaranteed by 5 p.m. but usually arriving sooner), resulting in significant savings.
“Understand when the customer needs it and select the service that will get it there at the most reasonable price,” said Nuzio.
20.4% Percentage of e-retailers who said cost is the reason they’re considering changing their primary shipping carrier
2015 Internet Retailer Delivery Survey