• on Mar 2nd, 2015 in Mail Processing & Transportation | 5 comments

    If you’re a shipper, you may have noticed your fuel surcharge fees aren’t going down in step with the declining price of oil. That’s because both FedEx and UPS tie their fuel surcharges to the price of diesel, which hasn’t dropped as far or as fast as gasoline prices. Furthermore, both shipping giants recently adjusted how they calculate fuel surcharges, resulting in surcharges that won’t drop as much as they would have under the previous calculation. In some cases, fuel surcharges are even going up.

    Fuel surcharges are common in the transport industry, from taxis and airlines to moving and delivery companies. Many of these industries instituted fuel surcharges to smooth out costs when fuel prices were skyrocketing. But in times of low fuel prices, like now, customers see these surcharges as a blatant money-grab.

    Right about now, you may be noting the U.S. Postal Service doesn’t have a fuel surcharge. It also didn’t go all in on dimensional weight pricing (See our previous blog). And it’s not likely to chase the next big thing in pricing: “surge” or “peak” pricing. For the 2015 holiday season, UPS said it plans to follow the Uber model and hit shippers with “peak” prices on its busiest days. This comes after UPS said it experienced higher-than-anticipated 2014 peak season expenses. FedEx is expected to follow suit. For consumers, this could mean the end of free shipping, at least on last-minute orders around the holidays.

    So, the Postal Service might look even more attractive these days with its relatively straightforward, consistent pricing. Of course, the Postal Service isn’t a public company, so it’s not under the same pressure to deliver profits as UPS and FedEx are. But customers are not too interested in the whys and wherefores – they just want low-priced, reliable, fast delivery.

    Do you think the Postal Service is well-positioned to lure away commercial package business from FedEx and UPS? Does the lack of a fuel surcharge put the Postal Service at any kind of a competitive disadvantage? Or is it only advantageous? Do you see the Uber surge or peak pricing model getting a foothold in other industries? 

  • on Jan 26th, 2015 in Pricing & Rates | 3 comments

    Steve Jobs was famous for the ingenious simplicity of his designs. And, of course, his single button iPhone, now the standard in smart phoning, is a great testament to the value of simplicity.

    As in design, simplicity in pricing, and a related simplicity of choices, are appealing to consumers. There is even empirical evidence that consumers will buy more when they aren’t overwhelmed with too much clutter and too many choices.

    The U.S. Postal Service has enjoyed some success with simple pricing. The best example is the Flat Rate Box. The combination of uncomplicated messaging – “If it fits, it ships” – and ease of use – a handful of shape offerings, each with a single price attached to it – have made the Flat Rate Box a critical piece of the Postal Service’s growing package business.

    And so far, the Postal Service is sticking primarily with weight-based pricing for packages, and not introducing any further dimensional (DIM) weight package rates. FedEx and UPS both just moved to the more-difficult-to-calculate DIM weight pricing scheme on ground shipments.

    Still, most Postal Service pricing is far from simple. There were 8,779 different package prices alone in fiscal year 2014, up 22 percent from two years earlier. Of that total, a quarter are retail prices and three-quarters are commercial prices. Furthermore, nearly 1,100 Parcel Select prices are not used, and 5,840 prices for packages weighing more than 20 pounds are never or rarely used. We recently looked at package pricing at the Postal Service and found its complexity might intimidate customers. We urged the organization to consider eliminating prices that are rarely or never used. We also suggested periodic evaluation of market demand to see if it makes sense to introduce other Flat Rate products.

    But, it’s also worth considering whether pricing can be too simple, at least for commercial customers. While individuals welcome pricing that’s easy to calculate, businesses that ship large volumes can benefit from a range of options, which gets them closer to customized pricing. It also helps them shave off every possible penny of shipping expenses. And, of course, some degree of complexity is necessary so prices appropriately reflect costs. Such is the case with zoned rates for Priority Mail, because packages traveling across regions or zones cost more to deliver than those moving within a zone.

    So, turns out pricing simplicity may not be quite that simple.

    Do the Postal Service’s pricing options meet your shipping needs? Do you find pricing too complex? Or, do you wish there were more options? Should the Postal Service introduce more Flat Rate Box or other specialty packaging items? 

  • on Nov 3rd, 2014 in Delivery & Collection | 11 comments

    For the major express companies, preparation for the next holiday season started right after the last one ended. If you’re one of the many Americans whose packages arrived after Santa did last year, you are undoubtedly glad to hear this. In 2013, an unexpected surge in online orders, combined with winter storms and sparse airplane capacity, resulted in FedEx and UPS missing deliveries for Christmas.

    While online retailers certainly share some of the blame – they promised more than was reasonable – UPS and FedEx are investing heavily this year to avoid a repeat of last year. For the first time, UPS will operate a full domestic air and ground network on the day after Thanksgiving (not just its air network). It’s also adding 95,000 seasonal workers and 6,000 package delivery cars, plus increasing its available aircraft. FedEx recently announced a sharp increase in its number of seasonal workers.

    Retailers are also making some changes, including in-store pick-up options and better “distributive fulfillment” efforts, which lets them ship from their brick-and-mortar stores rather than distribution centers. These offerings reduce the distances packages travel.

    The U.S. Postal Service came out of last year’s holiday season smelling sweet. A Business Week article called the Postal Service’s performance stellar, noting that it made adjustments throughout December – including adding deliveries on three Sundays in the month – to accommodate package surges. Of course, the Postal Service doesn’t operate its own fleet of airplanes like UPS and FedEx. So it’s not necessarily the carrier of choice for overnight deliveries.

    Still, many pundits believe the Postal Service could win some new customers this holiday season due to its strong performance last year. The Postmaster General recently told USA Today the Postal Service expects an 8 percent increase in packages over last year. Further, the Postal Service’s recent lowering of commercial Priority Mail prices may have already convinced some companies to switch. However, unpredictable weather close to Christmas and increased volume could pose challenges similar to last year. Would a less-than-stellar holiday performance from the Postal Service hurt its potential in the coveted commercial package market? How can the Postal Service prepare for these potential challenges? Will the changes retailers are making help? 

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