Glenn Gooding [00:00:02]:
What does that mean ultimately for the consumer? In 2025, I think the days of subsidized shipping programs are going to be very challenged. Free shipping on orders less than $50, free shipping on orders less than $25 are going to be very, very challenged. The consumer is going to feel what I would call hyperinflation, and it's going to change the entire residential market.
Glenn Gooding [00:00:33]:
Welcome to Parcel Perspectives, the podcast dedicated to small parcel shippers. I'm Glenn Gooding and each episode we dive into insights best practices and strategies to help you navigate this complex, costly market. Join me as we explore ways to strengthen your long term partnerships with your chosen carriers and stay competitively aligned.
Glenn Gooding [00:01:00]:
Hello everyone. Thanks for tuning in to another episode of Parcel Perspectives. Today I'd like to offer some opinion and some ramifications of an announcement that just came out. Friday, August 9 Pitney Bowes global e-commerce has exited the market. What does that mean? And is that a harbinger for things to come in the marketplace? Well, Pitney Bowes made bold entrances into the marketplace for parcel consolidation, aggregation as well as acquired newgistics some years ago who had developed quite a nice and unique reversalist logistics solution out there with the hopes of carving away a big chunk of that lightweight e-commerce business. So what happened? Well, first I'd like to explain a bit about a postal aggregator from a cost perspective, so everybody has an idea of what they're up against. I want you to think of three different pillars of cost if you're a postal aggregator. One is the cost of your network, the cost of picking up, the cost of transporting from pickup to induction point into the post office.
Glenn Gooding [00:02:10]:
The second is your labor. What do you have to pay for, or technology for that matter, to sort either automated or manually mail pieces into consolidated bags or gaylords for induction into a postal network. And lastly, and one that I think a lot of people lose vision of is the postal rate that they have to pay the parcel select rate that they build in the workshare program with the USP's. Now, when you're a postal aggregator, your value proposition is simple. You have to provide those three core services and you have to do so in a way that provides a cost competitive advantage to USP's ground advantage product while offering a similar time and transit experience. That right there, folks, is exactly why you don't see the same type of fuel surcharges applied in postal aggregators as you do in the parcel carriers. The fully integrated asset based parcel carriers fuel surcharges, if applied, would push them above that magic threshold of value or being cheaper than grind advantage in those areas, margins are razor thin and they work very hard to try to win key business. Your proximity to an operator's operation is critical to their cost structure.
Glenn Gooding [00:03:31]:
So that brings us to what happened in my very first inaugural podcast on parcel perspectives, I offered some opinion around what Louis Dejoy, as the Postmaster general is doing with regard to a vision on parcel select postal aggregators. And I think a longer term vision of ground advantage. This is a direct result of those actions. So just as a quick refresher course, USP's is proposing profound parcel select price increases for aggregators, meaning workshare program. If you were inducting at the DDU level or the DSCF level, you were going to be imposed on the huge increases. In addition, the USP's is getting away from less than a pound or per ounce pricing structures. The go forward will be an eight ounce and a 16 ounce offering. So if you're a postal aggregator out there, your entire business model was just upended.
Glenn Gooding [00:04:32]:
So that kind of leads to a question that I had originally asked. Is this a harbinger of things to come? Yes, I believe it is. So exactly what will happen? This is what I think is going to happen. One is Pitney Bowes is the first lever to fall. I think there will be others that are going to see profound challenges and changes in the coming year. So don't hold your breath there. Ultimately, the less than a pound shipments are going to be under tremendous cost constraint and they won't find a home with a postal aggregator. The natural move is going to be to ground advantage.
Glenn Gooding [00:05:10]:
If you are in the process or in the habit of shipping nine and ten ounce t shirts and polybags, the increase could be even more profound for you. If you were to still use an aggregator that would be now billed at 16oz and that rate alone is taking a massive increase. So if you are a company that uses a lot of light weight shipping options and you've gotten used to the low cost provider, aka the postal aggregator model, you're in for a route awakening. That business model is going to go away and you're going to have to find a home. For those less than one pound parcels, your first option will be ground advantage. That is what Louis DeJoy is counting on. He built out an entire ground advantage ground network to move that volume coast to coast and he wants to fill it up. The next step in that maneuver, in my opinion, will be that ground advantage rates will begin taking significant increases.
Glenn Gooding [00:06:06]:
Don't forget the USP's is highly unprofitable. What does that mean ultimately for the consumer? In 2025, I think the days of subsidized shipping programs are going to be very challenged. Free shipping on orders less than $50, free shipping on orders less than $25 are going to be very, very challenged. The consumer is going to feel what I would call hyperinflation and it's going to change the entire residential market. For those of you who don't realize, the USP's is essentially the waterline or the tide that raises all ships in the small parcel residential market. So as these changes move through and impact the supply chain, you can expect that UPS, FedEx, ontrack other regional carriers. Couriers are going to take full advantage of that with their cost structures as well. My advice to you work proactively, find a home, get contract terms that are favorable to your shipping characteristics, and get some rate certainty in effect in the coming years.
Glenn Gooding [00:07:10]:
It could very well be the difference between you offering free shipping and your competitor or not. Thanks for tuning in. Look forward to giving you more information shortly.
Glenn Gooding [00:07:25]:
Thanks for listening to parcel perspectives. Hosted by me Glenn Gooding. I've been in the small parcel space for 37 years, starting with a deep and broad background, working for one of the major carriers as an operator and industrial engineer, later managing pricing at the highest level for the largest, most complex shippers in the world. Since then, I've been a national thought leader and worked to help drive strategy for clients from Fortune 50 companies to startup e-commerce businesses, helping them more competitively align in this complex and expensive market. If you enjoyed the show, please subscribe and share with friends. Join us next time for more expert advice and strategies to stay ahead of the shipping game.
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