• on Jul 6th, 2015 in Delivery & Collection | 2 comments

    It’s Christmas in July for the retail industry. Holiday decorations might not hit stores for a few more months, but retailers are now working on their 2015 holiday plans. 

    And you can bet that shipping strategies are a big part of those plans. Online sales made up about 10 percent of the $616 billion in holiday sales last year, so shipping plans are a top priority for retailers. In addition, more and more retailers are eyeing the international market, which means cross-border shipping is part of the mix as well.

    As for its plans, the shipping industry is likely to heed the ghost of Christmas past to avoid repeating mistakes. UPS reportedly just started informing certain retailers that it will not give discounts on oversized items, such as furniture and grills, this holiday season. These items don’t move on the company’s automated conveyor belts and require more costly manual handling.

    UPS is especially anxious for a spotless 2015 holiday season after 2 years in a row of missteps. In 2013, a surge of last-minute online orders and bad weather led to delivery failures. This past year, UPS spent too much money on extra hires and added automation to avoid the same mistake. While service was strong, the company reported disappointing financial results. 

    For the U.S. Postal Service, our recent audit report provides some insights into what worked well in the 2014 peak holiday season and what could be improved this year. By most accounts, the Postal Service had a successful 2014 holiday shipping season. It processed a record 865.4 million packages during the December 2014 peak period with strong service performance. While the number of packages increased by more than 88 million, delayed packages decreased by 1.8 million compared to the previous year. In addition, service improved in six of the nine package categories the Postal Service measures. 

    Still, it could do better to ensure packages are processed on time so as not to put revenue at risk. Package processing machines should be timely installed and fully utilized during the peak season. In addition, enough temporary workers should be hired to meet peak demand.  

    How soon do you plan to start your holiday shopping this year? Do you expect to do more online shopping this year? If you used online shopping last year, how was your experience?  

  • 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 | 4 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? 

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