Following in the footsteps of last year's rate increases from UPS and FedEx, the USPS enacted several rate increases of its own on January 27 this year. To help you estimate the impact on your business, we've outlined some of the key changes below:
Priority Mail Rates
Across the board, Priority Mail services increased by an average of 5.9%. Other changes of note include the elimination of balloon pricing for parcels shipping to Zones 1-4, and an average 3.9% increase for Priority Mail Express rates.
First Class Package Services
For the first time, First Class Package service rates will now be calculated based on Zone, similar to Priority Mail. Rates for this service will also increase by an average of 11.9%. First Class International rates will increase by an average of 3.9%.
Commercial Plus Flat Rates, and other services
Prices for Commercial Plus Flat Rate boxes and envelopes increased by an average of about 7% (but, if you disregard the very small 2% increase for Medium Flat Rate Boxes, all other flat rate containers actually increased by an average of 10%). In addition, Parcel Select Ground rates decreased by an average of 1.3%, while Media Mail rates increased by an average of 2.9%.
Changes to DIM weight pricing: Coming Soon
Originally slated to go into effect January 27, the USPS delayed the reduction in its dimensional weight divisor (DWD) from 194 to 166 until June 23 to provide shippers with more time to prepare. A package's DIM weight is calculated by dividing the cubic inches of the package by the DWD. The shipping rate for the package is calculated using whichever is greater - the package's actual weight, or its DIM weight. So, a lower DWD means that the DIM weight for all packages increases, making them more likely to incur a higher rate. However, that's not as bad as it sounds when you consider that both FedEx and UPS have been using a DWD of 166 since 2015.
It’s worth noting that although the USPS is raising many of its rates, it’s still an affordable option for lightweight packages traveling to residential destinations. Plus, the USPS doesn't add surcharges for things like fuel, regular Saturday delivery, or holiday “peak” season delivery – so it's still a valuable part of any shipper’s distribution mix. For a detailed review of all of USPS' prices changes, visit their website.
UPS announced changes to its rates for 2019 in December last year – giving customers a mere 3 weeks before they went into effect. With the holidays in full swing, the entire fulfillment industry was extremely busy at that time – so if you missed the announcement or didn't have time to process the details, you’re not alone. To help get you up to speed, we’ve highlighted the some of the most important changes in the list below. For full details and pricing information, visit UPS to read the official announcement.
- The rates for UPS® Ground, UPS Air and International services will increase an average + 4.9% (which follows the precedent set by FedEx's previously announced rate increases for 2019)
- The index for determining the Domestic Air Fuel surcharge increased +0.25% for all thresholds. In addition, fuel surcharges will apply to accessorials such as Additional Handling, Over Maximum Limits, Signature Required and Adult Signature Required.
- A new processing fee (+$2.00 per package) will be charged when Package Level Detail (PLD) is not provided to UPS prior to delivery.
- The Additional Handling charge for all packages will increase by $2.25. Any U.S. domestic package exceeding 70 pounds in actual weight (i.e. not DIM weight) will incur an Additional Handling charge of $4.00.
- The Address Correction charge will increase +$0.50, and the per shipment maximum will increase +$3.50.
- The Large Package Surcharge will increase +$15.00 for U.S. Domestic commercial packages, +$25.00 for U.S. Domestic residential packages, +$15.00 for International packages.
The cost of shipping is a major competitive differentiator in ecommerce. Shoppers will quickly abandon a cart or buy from a competitor if it means they will save money on shipping. To reduce shipping charges for your customers, you'll need to go beyond investing in cheaper dunnage or renegotiating with carriers for better rates. In addition to those strategies, here are some more holistic considerations for improving the cost efficiency and customer-friendliness of your packing and shipping operations.
Evaluate current packing materials and processes
From material and labor costs, to DIM weight optimization and customer experience – you may find there's a lot to "unpack" by doing a comprehensive review of your current approach to packing and shipping. Some useful questions to ask during this process include:
- How do factors such as total weight, dimensional weight, oversize charges, special handling, and the number of packages shipped per order affect your total average shipping expenses?
- What do your customer service and operations reports show about damages from improper packing or packing materials?
- What is the average labor cost on oversized items requiring special labor and materials to pack?
Consider the potential benefits of branding
Stylized packaging helps to create a memorable, positive experience for customers. When done well, customized packaging can improve your brand perception and boost your marketing reach through word-of-mouth and social media. Besides adding your brand messaging to packaging materials, interactive packaging inserts with social media instructions (“follow us at…”), post recommendations (“take a picture and tell us how excited you are to start using this product”), and hashtag suggestions are an inexpensive way to get more ROI from stylized packaging.
Right-sized packaging & kitting
Customizing your packaging to an optimal size and level of protection can save you money on shipping costs over the long-term. Right-sizing the cartons for each order will help get you the best DIM shipping rate every time. Customized dunnage that is lighter and less voluminous dunnage also contributes to getting better shipping rates. Depending on the level of variation in your typical order sizes, the best solution could range from onsite box-making equipment, to custom packaging and kitting services.
So, you've decided to partner with a third-party logistics provider. Compared to trying to juggle 100% of fulfillment duties in-house, you've most likely seen several KPI improvements since contracting outside help. However, do you have a methodology in place to more objectively evaluate your 3PL's performance – and make a case for either renewing that partnership or seeking out a new one? Although every ecommerce business has different goals and priorities, you can use these broad considerations to help determine whether the terms of your current 3PL partnership should be reevaluated:
If your company has grown significantly, it may have reached the point where in-house fulfillment management is finally viable. Or perhaps you may find that your current provider lacks the flexible space and staffing required to handle fluctuations in sales volume or product offerings.
For many e-tailers, fulfillment has become quite complex. You might decide to seek out a new 3PL in order to access strategically located distribution centers, better warehouse technology, or new customization capabilities to improve your fulfillment operations.
If warehouse space, labor, and/or shipping costs are having a disproportionate impact on your bottom line, it may be time to find a 3PL that can reduce your overhead in some or all of these areas.
Ensuring a positive experience for the customer should be your 3PL’s top priority. Inventory issues, inaccurate orders, and delivery delays are signals that you need a 3PL that does a better job of adhering to your expectations for customer service.
As your ecommerce business grows, the pressure increases to obtain more SKUs, staff, and facility upgrades. There are two paths you can take to invest in your growth: in-house managed expansion, or outsourced expansion through a third-party logistics provider (3PL).
Generally, your available resources, immediate needs, and planned rate of growth all factor in to deciding which path offers the better ROI. Since each strategy has its pros and cons, choosing between the two can be harder than it sounds. To help you decide which expansion path is best for your business and long-term strategy, you should consider the following areas.
Packaging & kitting considerations
Do your orders require simple packaging that can be prepared inexpensively in bulk quantities, or do they demand a more complex packaging procedure? If an intricate package is part of your product’s appeal or branding strategy, it may be worth keeping production in-house to maintain close control over the process and/or avoid transitional hiccups. But, if you have no such customization concerns, a 3PL may be a more cost-effective option. Although, depending on your customization needs and the 3PL’s capabilities, outsourcing may still be a good choice. For example, at Fulfillment Works, we have lots of resources to design and produce custom packaging for our clients at minimal cost.
Human capital considerations
3PL providers usually have all the resources needed to help clients start expanding right away. If you have a small staff or your executive team lacks the experience or availability to execute on growth initiatives in a timely manner, outsourcing is typically the better path for expansion.
Technology & equipment considerations
Upgrading to a new WMS or adding new equipment to distribution facility requires a sufficient budget and an integration strategy that minimizes operational disruption. The more complicated your expansion needs are, the more difficult they will be to accomplish entirely in-house. Since 3PL providers already have the technology and equipment in place, they may be the better choice for businesses that need rapid expansion of facilities or operational capabilities.