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December 6, 2024
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The landscape of small parcel shipping is poised for substantial upheaval, driven by expected USPS rate increases for Parcel Select services. In the latest episode of Parcel Perspectives, host, Glenn Gooding, who brings 37 years of expertise in the small parcel market, sheds light on the proposed changes and their likely repercussions. This blog dives deeper into the current scenario, analyzing the impacts on e-commerce and other stakeholders, and offers strategies for shippers to stay ahead of these challenges.
Parcel Select has long been a cost-effective choice for e-commerce shippers, especially for parcels under five pounds. Postal aggregators like DHL eCommerce, UPS Mail Innovations, OSM, and Pitney Bowes pick up parcels, sort them, and induct them into the USPS network as close to the delivery point as possible, typically at a destination delivery unit (DDU). This workshare program has enabled these companies to offer competitive rates by minimizing USPS handling.
The crux of the upcoming disruption is the USPS's proposed rate increases, ranging from 23% to 70% at the DDU level. This drastic rise threatens the viability of the postal aggregator model, as they would struggle to offer rates lower than USPS Ground Advantage or Priority Mail. Industry insiders, including Glenn Gooding, speculate this could force many out of business.
E-commerce relies heavily on cost-effective parcel shipping, with many businesses operating on razor-thin margins. A substantial increase in shipping costs would invariably lead to either higher prices for consumers or reduced profit margins for businesses. Here’s how the scenario unfolds:
With a potential 70% increase in DDU parcel rates, shippers face the dilemma of absorbing costs or transferring them to consumers. Either option has its drawbacks – higher prices may reduce sales, while absorbing costs could erode profits. Moreover, if aggregators shift to less favorable induction points, the increased handling by USPS could elongate delivery times, degrading the customer experience.
Comparable USPS Ground Advantage services are expected to see rate hikes in January 2025, influenced by the previously adjusted Parcel Select pricing. As USPS increases its rates, other providers like UPS and FedEx are likely to adjust their residential pricing, making cost-effective alternatives increasingly scarce.
In navigating these anticipated challenges, Glenn Gooding suggests several proactive measures for e-commerce shippers. Here’s a closer look at these strategies:
Shippers currently using services like DHL eCommerce and UPS Mail Innovations should engage in detailed discussions with their carriers. Understanding their plans and exploring all options is crucial. Although answers may be scarce until January 2025, early engagement and contingency planning are essential.
Utilizing services like FedEx Ground Economy or UPS SurePost could be a viable strategy. These services, though similar to traditional USPS offerings, often offer unique advantages like improved delivery density and, potentially, better rates. For example, FedEx Ground Economy, which leverages FedEx's ground network without handing off to USPS, could provide more reliable and streamlined services.
Regional carriers can also play a significant role in mitigating increased costs. These carriers might offer more competitive rates and better transit times for certain geographical areas, making them an excellent alternative if you have significant volume in specific regions.
As volumes are down and carriers are eager for new business, securing long-term contracts with favorable terms could insulate shippers from impending rate shocks. Multi-year contracts might offer steady pricing and potentially avoid the brunt of sudden market shifts.
The anticipated USPS Parcel Select rate increases signify a major turning point for the e-commerce shipping industry. For shippers, understanding and preparing for these changes is imperative. By engaging proactively with current carriers, exploring alternatives, and securing strategic partnerships, businesses can navigate this storm and maintain competitive alignment in an evolving market.
Glenn Gooding's insights remind us that in the world of shipping, adaptability and foresight are key to weathering any storm. Check out *Parcel Perspectives* for more expert advice and strategies to stay ahead of the shipping game.
Glenn Gooding, President of iDrive Logistics, is a seasoned expert in the small parcel space with more than 37 years of experience. He has helped drive strategy for clients ranging from Fortune 50 companies to startup e-commerce businesses, enabling them to navigate the complex and expensive parcel shipping market effectively.
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