Last week the USPS proposed a record price increase. The proposed hike must
first be approved by the Postal Regulatory Commission. If approved, which is
expected, the higher rates will go into effect on Jan. 27, 2019. This will be the
biggest increase in USPS history.
Here’s just a few of the significant proposed 2019 USPS Shipping rate changes:
Changes include the elimination of Commercial Plus Pricing (CPP), where now
Priority Mail pricing will match Commercial Base Pricing (CBP). Many Ecommerce
& Subscription Trade shippers will be facing a painful price increase with the
elimination of CPP programs.
A conservative 5.9% Priority Mail increase is expected while First Class Flat Pricing
will change to zone-based pricing with an expected 11.9% increase. For shippers
with high proportion of outer zone shipments, the increase will be appreciably
higher to as much as 21%.
Most concerning is the pending reaction of UPS and FedEx as they re-evaluate
their “hybrid” postal delivery products that use the USPS for final delivery. Buried
in the postal rate change are increases ranging from 9% to 30% on the workshare
rate structures used by UPS and FedEx. For eCommerce and Subscription trade
organizations, steeper shipping prices have a direct impact on operating income
and profitability. Beyond the obvious impact to bottom line, shipping costs are a
key factor for driving shopping cart abandonment.
There’s been a lot of talk about Amazon. Amazon.com’s retail operating income
would take a 5% hit from shipping cost inflation if the new rates take effect,
according to predictions by Barclays analysts.
The bigger issue is what the market is going to do. The average through 35 lbs
(not weighted just straight) is over an 18% increase. No one knows what rate cap
UPS and FedEx have with the USPS but two things are for sure:
1. They are going to pass through a portion in January 2019
2. They are going to look at passing through more than their cap as the USPS
is “raising the roof”
So how then, can e-tailers protect current profitability and customer satisfaction
with shipping costs perpetually on the rise?
Here’s a few solutions to activate today:
Negotiate NOW for 2019
No doubt we’re approaching the height of the retail season, but you don’t want
your shipping rates left out in the cold come January. It’s crucial to take back
control of your shipping agreements by studying your shipping data in detail and
developing custom requirements that best meet the service and price needs for
your business. Organize a request for service and pricing response based on
specifics of what is meaningful to your business. Remember that every element
of your carrier agreements are negotiable. Be proactive with including all carriers
that meet your service requirements in your RFP process, as a competitive
process undoubtedly yields incremental savings. Model proposed rates &
surcharges to your specific distribution footprint, which is the only way to
measure the precise value of any proposal.
Vendor & Supplier Alignment
E-tailers receive inventory from many suppliers, and in most cases the e-tailer
pays for shipping. Requiring your vendors/suppilers to directly bill your account
helps your organization in multiple ways. First, it allows you direct visibility to
these shipping fees which are often hidden or “included” in vendor handling fees.
It eliminates the possible padding of any shipping fees. Second, the additional
revenue may for allow deeper shipping discounts. In addition, direct billing these
shipments to your account number allows for simplified accounting and invoice
reconciliation as carrier billing systems will subtotal these charges for you upon
Data, Audit, Analytics
Every year billions of dollars in guaranteed service claims and rating/charge errors
are never recouped as carriers don’t make it easy for shippers to audit parcel
invoices. No shipper is exempt from carrier billing errors.
Consistently performing invoice audits not only lend to 3-7% cost recapture, but
also lead to better understanding of your company’s distribution footprint and
service highlights/areas for improvement. Having command of your shipping data
through detailed analytics and management reporting puts you in a position of
strength when negotiating with carriers and controlling your bottom line.
This is a historic postal increase in both size and complexity to the market. If
there was ever a time to get the upper hand, it is now.
Reach out to see how an expert at Platinum Circle Partners can help you today.