Support Services: A Post-Holiday ‘Gift’ From Your Freight Carrier1 Dec, 2013 By: Ayal Latz Response
Shipping rates are going up — again. At press time, we had a partial picture of pricing for 2014: FedEx has released only portions of their rate increases; UPS will likely follow suit; and the United States Postal Service (USPS) has asked Congress for various increases.
We do have enough information and experience to provide the annual warning for your financial and operational models. There are common-sense solutions you can implement in order to reduce, or at least minimize, your exposure to rate increases. Remember, the price increase details are not the important point. The key is to be aware and to take action to limit the effect on your business.
FedEx has revealed 2014 pricing only for FedEx Express package services, with an average increase of 3.9 percent. Unlike the past few years, this average increase is not being partially offset by a reduction in the fuel surcharge.
In addition to the rate increase, FedEx has announced increases in surcharges and accessorial charges, such as the Residential Address Surcharge, Delivery Area Surcharges and Address Correction fees. The average increase in these categories is 7.6 percent.
Price announcements for the other FedEx programs including ground, home delivery, SmartPost, retail and express will be released at a later date. UPS-published rates typically mirror those of FedEx. And USPS’ proposed increases are likely to take place.
What can marketers do to minimize the effects of these price bumps?
- Recognize and utilize the strength and experience of your fulfillment partner. They understand the carriers’ pricing methodologies. How are they trying to improve margins? What cost increases are they passing along? What services are they trying to grow? Bottom line, when you understand the rules of the game, you have a better chance to win.
- Quantify the impact of the increases on your current program. Remember, the announced rate increases are averages. Your rates may be vastly different. Are your shipping patterns skewed towards higher or lower priced zones? Do you typically ship light or heavy packages? Do you utilize services that are more or less susceptible to accessorial fees and surcharges?
- Explore alternative shipping methods with the current carrier. Your fulfillment partner can suggest other programs. A simple example is to trade down from a more premium shipping service to a lower-cost program. Understand the options — then you can decide if it’s worth making a change.
- Fulfillment operators get better rates than you do. Since fulfillment providers have volume from many sources, carriers are often willing to give them better discounts. If you currently fulfill in-house, consider outsourcing to a third-party fulfillment provider.
- Ship closer. Study where the majority of your customers are and situate fulfillment as close to them as possible, reducing the number of zones traversed, lowering freight costs and improving delivery times.
- Ship orders quickly. Same-day order processing gives you a decided advantage. Suppose orders are processed every 24 hours — so an order placed today is shipped tomorrow. If shipped via overnight service, the package will arrive two days after order receipt. Instead, process the order the same day. Then ship it via a two-day service. The package still arrives in two days but at a far lower cost.
- Consider alternate carriers. There is not one monolithic pricing program used by all carriers. Each carrier has its own set of dynamics and considerations that go into pricing structure. If your shipments place you in a high cost structure with one carrier, try pricing another carrier’s programs.
- Review your packaging. A prime determinant of shipping costs is weight. Shaving off a few ounces can result in savings in freight that can offset shipping rate increases and any costs you might incur with the re-packaging process. Another determinant for shipping costs is the concept of dimensional weight. Carriers use a combination of height, length and depth — along with weight — to calculate a shipping price. The formulas can change. So just because you nailed the package size last year doesn’t mean that you are safe this year. ■
Ayal Latz is the owner of Greensboro, Ga.-based a2b Fulfillment. He can be reached at (866) 843-3827 x118 or via E-mail at [email protected].