Sell Online? What You Need to Know About Holiday Shipping Surcharges

How Holiday Shipping Surcharges Can Impact Your Sales

UPS has announced it will tack on extra fees for shipments sent out during the week of Black Friday and Cyber Monday as well as the week before Christmas to help cover the costs of meeting high demand.

Analysts say the UPS holiday shipping surcharges—ranging from 27 cents to $2.99 for standard packages, depending on the shipping speed and date–will to hit small-to-medium online retailers hardest.

Here’s what you need to know about the new charges and how your business can stay competitive this holiday season.

Why is UPS raising its holiday shipping rates?

The holiday gift delivery season is an exceptionally busy time for shippers, with an average of 30 million packages a day moving via UPS during the 2016 holidays, according to Reuters. Besides huge volume, the combination of inflexible holiday deadlines and winter weather can snarl even the most carefully crafted logistics. To handle package volume and to meet retailer and customer expectations, shippers have to hire thousands of seasonal employees, operate and fuel more trucks, run more flights, and cover all those costs. Hence the holiday surcharges, which some writers have compared to surge pricing charged by ride-share services when demand is high.

How might the UPS move affect small online sellers?

Higher shipping costs during the holiday season may put smaller sellers at a competitive disadvantage. Amazon, Walmart and other major e-retailers can afford to cover the holiday surcharges, but most small businesses can’t—at least not without taking a disproportionate hit to their profit margins. Chain retailers that offer buy-online-pick-up-in-store can avoid the surcharges altogether on those orders, because UPS is only adding the surcharges to residential deliveries.

If you’re thinking of simply passing on the extra shipping costs to your customers, think again. Nearly 90 percent of online shoppers say free shipping is the incentive they value most.

If you can’t offer a great deal on shipping, your holiday shoppers will likely move on to the next retailer. That’s why it’s critical that you figure out your pricing, shipping, marketing, and cost-control plans for the holiday shopping season now.

What do the surcharges mean for your holiday pricing and shipping?

Now is a good time to review your store’s shipping options, but keep in mind that surcharges for holiday shipping may not be limited to UPS.

Although FedEx hasn’t announced a holiday price hike as of this writing, the Wall Street Journal has reported that some analysts expect the company to make a similar move. On the other hand, if you find a better deal with another carrier that won’t tack on a holiday sales surcharge, enjoy the advantage that comes with being a nimble small business – many large retailers are already locked into their shipping plans for November and December.

If switching carriers isn’t an option for you, consider adjusting your pricing ahead of the holidays to recoup all or part of the surcharges.

You may wonder why customers would accept a slightly higher price instead paying a shipping fee. It’s because of psychology. As Tom Popomaronis writes at Forbes, free shipping is “about the perception of saving money, feeling like you snagged a deal.” We want free shipping, even though we all know the cost is baked into the item price. So bake it in if you can do so without hurting your competitiveness.

What do shipping surcharges mean for your holiday marketing?

The situation isn’t all bad for smaller online sellers.

Your business has some advantages, especially the ability to develop strong relationships with individual customers and pivot quickly to explore new holiday marketing approaches right now. Here are some options to consider.

Focus on excellent service and individual attention to customers, especially repeat buyers and those who have sent holiday gifts from your shop in the past. Do you offer gift wrap, e-gift cards, or a yearly gift reminder service? Now’s the time to consider adding them.

Promote holiday deals ahead of Black Friday or from December 2 – 17 to work around shipping surcharges.

Work on your upsell strategy to make each order more profitable. Does your shop have a “you may also like” widget on your product and cart pages? Now’s the time to look into adding one.

Explain your shipping policies clearly on your site. Whether you decide to absorb holiday shipping surcharges or pass them on to your customers, it’s a good idea to let customers know what they can expect and why so they can make an informed decision.

Other holiday shipping tips

Kenny Kline at the Huffington Post put together a helpful list of shipping tips for e-commerce sellers that can help you cut costs year-round. They include:

• Pack orders with size, weight, and item protection in mind. The smaller and lighter your packages, the less you’ll pay. Just make sure that the items you ship are fully protected.
• Look for freebies. A friend of mine who owns a thriving online vintage jewelry business regularly puts out calls on social media for leftover bubble wrap and boxes. Her network gets to recycle their packing materials and she gets free supplies – win-win.
• Skip the carriers’ package insurance and go with a third-party insurance provider. In some cases, making this switch can make up for holiday shipping surcharges. For example, Shipsurance offers rates that are 44 to 97% lower than UPS and FedEx, who charge as much as $2.70 for a package worth up to $100. At 44% off, that’s a savings of $1.18 of $2.70 carrier-provided insurance.

What does your holiday shipping plan look like now? Let us know in the comments!