November 10, 2010
Who said mo' money mo' problems?
If you”re a small-mid size business shipping from the US, you”ve probably heard UPS and Fedex announce the rate increases starting in January 2011.
Every year it's the same, and 2011 looks no different.
It is so consistent there is even an industry acronym for it "GRI" – General Rate Increase. Here is our post from 2009 GRI and 2008 GRI. Call it what you want, Slate called it a "sham" (see below) back in 2006 and it hasn't changed a bit.
Shipwire calls it "the shipping rate game". We hope you call their bluff and do something about it!
It's a two step dance, here is how you will get your feet stepped on!
Step 1: Announce rate increases in January, with very small discount in fuel surcharge. UPS is doing a 5.9% increase in base rates and a 1% "discount" on fuel surcharges. FedEx is also doing a 5.9% increase with a 2% "discount" on fuel surcharges.
Step 2: Sometime between May and June account new fuel surcharge rate hikes for the summer. Effectively claw back the fuel surcharge "discount" earlier in the year and hope nobody notices that the fuel surcharge will actually increase for the year.
Bonus Step 3: Hope everybody forgets by the holiday season so next years rate hikes can be announced and the dance can start over.
The concern I have as a fellow online seller (anybody want used Titleist golf balls?) – will this dissuade potential customers becoming actual customers as they see the increase in shipping costs? On the other hand, if you offer free shipping, then your costs of good sold just went up again. I'm reminded of times I've found creative ways to carpool over the weekend rather than renting a car and spending money on increasing fuel prices. Your customers may similarly find creative ways to go to a retail store (yes, I still see people driving to Best Buy) and purchase the products there.
There is a silver lining. Shipwire can help you not only survive the increase in shipping costs, but thrive. We can help you and your customers save on shipping costs. You read that right. As shipping costs continue their march upward, read on to see how Shipwire will help you cut shipping costs as shipping rates go up again.
Example: Let's say you have a current facility in Los Angeles, CA. Heck, let's say you”re using Shipwire's LA warehouse. With the 2011 GRI, that $20 shipping cost to Pennsylvania became $21 in 2011. If you're doing 2000 orders a month, that's a $2000 increase in your shipping costs per month. How can Shipwire help? Put part of your inventory in Shipwire's Chicago facility and that same shipment is $14 with the 2011. So in the midst of an increase in shipping rates, you just managed to save $6 on that one order. The trick to cutting shipping costs is to store inventory closer to your buyers and use FedEx and UPS last mile services less.
Lets Solve the International Shipping Rate Problem While We Are At It
If you ship from the US to Canada or vice versa, you're not in the clear here either as we expect a 4-6% increase in these costs as well As you know, international shipping costs are more expensive than domestic (although you wouldn't know it by its considerably lower mark on performance.)
Now's the perfect time to get your business set up in Canada and utilize Shipwire's Toronto and/or Vancouver warehouses to cut over 30% of your shipping costs to the local customers. It's interesting, that this model (move inventory closer to the buyer) can save up to 75% on international shipping charges. Make it easier for your customers buy product.
A $26 shipment to Canada from LA could easily be $12 from Toronto or Vancouver. If you are apprehensive about setting up and storing goods internationally, we can help. Maybe the increase in rates will act as the tipping point to take the leap and take advantage of Shipwire's global warehouse network.
- UPS 2011 rate increases
- FedEx 2011 rate increases
- Why fuel surcharges are a scam. Written years ago; but, why stop a good thing.
Blog post by Kenny. Dripping sarcasm and ire added by Nate during editing. Blatant allegations of rate collusion redacted out of fear of reprisal by the man!