How Will the New Shipping Rate Increases Affect Your Business?
There’s no way around it: shipping is going to cost more this year.
All three major shipping carriers in the US—the US Postal Service, FedEx, and UPS—are hiking rates in 2018. In fact, UPS got a jump on the new year by implementing its new rates on Christmas Eve.
Here’s the lowdown on higher shipping rates, what you can expect to pay going forward, and how to keep your customers happy without losing money on shipping costs.
How much are shipping rates increasing?
The commercial carriers implemented the biggest average rate increases.
Already in effect as of December 24, 2017, UPS rates for ground and air shipments rose by an average of 4.9 percent. However, that’s just the average.
Trade publication Parcel took a detailed look at UPS’s shipping changes and found that UPS is changing its dimensional weight categories in a way that will raise rates for some packages by as much as 9 percent for Zone 5 deliveries. “If you ship primarily smaller boxes with UPS,” shipping consultant Dave Sullivan wrote, “you need to understand the impact that this will have on your business as it could amount to a substantial rate increase.”
Starting January 1, FedEx rates rose for most of its delivery services, including express, ground, and home delivery. Like UPS, FedEx rates went up an average of 4.9 percent.
But FedEx ground commercial rates for small parcels in many zones are up by more than the average, Sullivan wrote. Minimum net charges for ground shipping are going up, too, by 4.6 percent. Surcharge rates for oversize packages, additional handling, and residential delivery are rising by 10.3, 9.1, and 7.8 percent, respectively. And like UPS, FedEx is adjusting their dimensional weight categories for SmartPost packages under 7 pounds. The result is 2018 SmartPost small-parcel rate increases of anywhere from 12 to 53 percent.
Effective January 21, USPS charges more for First Class, Priority, Parcel, and International letters and parcels.
Standard one-ounce letters cost just a penny more per piece, and Priority Mail Flat Rate retail prices will only rise by 5 cents. But if you’re shipping parcels via USPS Priority Mail without using their flat-rate mailers, you’ll pay 3.9 percent more than in 2017.
Why are shipping costs rising?
The rising cost of shipping has been in the news for the past couple of years. There are a couple of trends driving the increases.
The first and most obvious is higher demand—as consumers buy more things online, carriers are handling far more packages than they did a few years ago. To avoid problems like the great holiday shipping meltdown of 2013 and to keep up with the rising volume of packages, UPS and FedEx have to be able to scale up their delivery capacity. They also have to deliver value to shareholders.
In the case of the US Postal Service, a spike in package deliveries comes when the cash-strapped carrier is just trying to stay afloat. For more than a decade, the USPS has lost money, but in 2017 its package volume rose by 589 million from the year before. The postal service’s rate increase isn’t so much about expanding capability and turning a profit as it is about survival.
How you can keep customers happy without taking (too much of) a hit
Consumers are often unhappy with shipping costs and wonder if they’re getting a raw deal from sellers. Sellers, meanwhile, feel pressure from customers to match competitors’ free- or low-cost shipping deals and their product pricing.
How can you stay competitive and profitable and get your customers their goods in good shape?
1. Compete on value rather than price.
There’s no way most small businesses can match or beat huge retailers like Amazon on price and same-day shipping options, so make sure you’re going the extra mile on customer service, unique product selection, and presentation.
This is a long-term solution, though. In the short term, you’ll need to do some homework.
2. Audit your packaging.
Set aside a few hours and gather your current packing materials and shipping boxes, a ruler, your postal scale, and updated shipping tables from USPS, UPS, FedEx.
Which carrier offers the best rate on the package sizes and weights you ship most often? Can you use smaller boxes and lighter packing materials to pay less per package? Will you save money if you switch to mailers provided by your carrier?
3. Consider other shipping-related costs.
Remember that shipping increases won’t just affect your shipments to customers. Your suppliers may soon charge you more to cover their own rising shipping costs.
And platforms like eBay that charge a commission on total sale price, including shipping, will take a proportionately larger cut of anything you sell there as shipping rates rise. Factor in those expenses.
4. Seek out shipping deals.
FedEx, UPS, and USPS all have small business resources that include discount options. It also pays to compare what you’ll pay to insure your shipments with the carriers to the cost of using third-party package insurance—third-party choices often cost a lot less.
Once you’ve got a clear idea of what your shipping costs will be going forward…
5. Adjust your pricing, if necessary.
For example, you may need raise the minimum purchase required for free shipping, as many retailers are doing, and you may need to update the shipping information in your store to reflect any rate changes that you’re passing along to customers.
6. Be upfront about your shipping charges.
Customers are likely to abandon their cart if shipping costs are a surprise at checkout.
You can avoid this by posting your free shipping minimum on each page in your store and providing an easy to read explanation of other shipping options and rates.
Nobody likes to pay more for shipping, but by doing your homework, comparing costs, and communicating any changes clearly with your customers, you can reduce the impact of rising shipping fees on your business.