Shippers can avoid parcel rate increases by auditing supply chain operations.
United States parcel carriers have announced a 5.9% general rate hike this year, higher than last year’s 4.9% increase. Some shippers are paying in excess of 9% when factoring in FedEx and UPS’ adjustments to their surcharges for fuel or oversized package handling. Carriers are attempting to keep up with deliveries in a time of growing demand while navigating a challenging operating environment. They believe that the rate increases will help.
The United States Postal Service filed with the Postal Regulatory Commission (PRC) for planned changes to competitive shipping services earlier this year. The USPS also announced a 6.5% shipping rate increase for First Class Mail along with the cost of a stamp rising to 60 cents.
Postmaster General Louis DeJoy said in a statement that USPS’ shipping costs have been severely damaged by at least 10 years of a defective pricing model. In today’s inflationary environment, one or two annual increases wouldn’t be enough to justify the last decade of pricing models.
A Q&A with Kasia Wenker, director of supply chain solutions at ITS Logistics
We sat down with Kasia Wenker, who has worked at ITS for 15 years and holds extensive experience in logistics management. She answered some of the top-of-mind questions we have for the future state of today’s parcel marketplace, shipping strategy, and the current shipping rate increases.
How would you describe the current state of today’s parcel marketplace?
KW: The parcel marketplace is undergoing massive shipping cost inflation as a consequence of global issues and the rising cost of fuel. Shanghai came out of a huge lockdown, the diversion of vessels from major ports has helped to mitigate this issue for now, however additional fallout is inevitable. With the predominant element of rising costs, carriers are being selective of the volume they want to handle. There are new fees on large package deliveries that the industry hasn’t seen before. Geography plays a hand and fees fluctuate based on distances. Bigger costs with a scarcity of capacity – it’s basically a nightmare scenario.
How will the upcoming shipping rates affect current supply chain disruptions (i.e., ports labor negotiations, demurrage/detention fees, lockdowns in Asia, Ukraine conflict)?
KW: Okay, I know I said nightmare scenario, but I also believe there is a positive outlook. The rate increase will hopefully cause everyone to take a closer look at their supply chain and how to optimize. Historically, you optimize for storage first and then transportation follows. There are now constraints on every element of the supply chain (especially ocean freight), so traditional methods won’t work anymore and businesses must evolve.
At ITS, we recommend not optimizing for the carrier but laser-focusing on your operating margin. Build your operating margin from production to final customer delivery and return. Understand every component from the creation of your product to it landing in your customer’s hands and build a projection. Rather than creating a volume and fulfillment forecast that is driven by revenue requirements, look at your manufacturing capabilities. Take into consideration what you can actually produce and sell, then build out operating margins from there.
Thinking about the shipping process well before it happens will save you in today’s market. Too many organizations made the mistake of waiting until they ran out of product, or the customer placed an order to follow this strategy. Don’t fight against your own operations, plan based on unit-level operating margin. And don’t forget about the unboxing experience – even the smallest details make the biggest difference. The customer journey is now king!
What are some of the biggest lessons learned from the pandemic for shippers, and what changes are likely to become permanent?
KW: This may be an unpopular opinion or not, but the market generally overreacted to the pandemic. The biggest lesson a shipper can take away is not to get caught up optimizing each element independently. Distribution centers started opening up all over the globe and the market flipped so quickly we all still have whiplash. But there is no more need for panic planning, supply chain contingencies from the pandemic are not here to stay. Now’s the time to challenge every step of your supply chain.
How are market conditions affecting service, and what role is the current state of the US economy playing?
KW: As mentioned previously, the rising costs of fuel and freight rates are impacting every link in the supply chain. However, with a saturation of new warehouses, things could now flip the other way and capacity could start opening back up. There is now this giant network, so we see capacity easing back up again soon. Assets will soon adjust to operating levels.
What advice do you have for parcel shippers in the rest of 2022?
KW: One lasting effect we have seen from the pandemic is the evolution of consumer values. Different demographics and generations are shopping differently than they did before 2020. Now you can order from an app, pick up in store, have it delivered, or shop in a physical store. Consumers get every option – and that will not change. I believe the future is a massive digital marketplace where smaller brands will utilize existing infrastructure while partnering with larger brands and legacy retailers. Anyone can ship from anywhere, utilizing any retail store or postal location because of this lack of capacity. How will this impact carriers with smaller brands now coming into play? We aren’t sure yet, but I think it will lead to more opportunity for regional carriers.
Rate shopping to reduce shipping cost
The United States Postal Service is increasing shipping rates by 5.9% this year (2021 was a 4.9% increase). Some shippers are paying up to 9% higher YoY when factoring in FedEx and UPS’ adjustments to their surcharges for fuel or oversized package handling. The parcel marketplace, like many other industries, is amid massive inflation and carriers are being selective of the volume they handle.
Partnering with an ecommerce fulfillment provider like ITS Logistics is the best way to reduce shipping cost. By providing customers real-time rate shopping software and analyzing a merchant’s order history, an optimum shipping strategy can be crafted despite unfavorable conditions.
Below is a summary of the USPS rate changes:
- Eligibility requirements for Priority Mail Commercial Plus Cubic will be removed, so that all commercial customers can use Priority Mail cubic pricing.
- Classification changes will be made to increase insurance to $100 for Priority Mail and to extend the inclusion of $100 in insurance to Priority Mail Returns.
- Cubic pricing will be introduced for Parcel Select Ground.
- Price changes for Outbound International Insurance and International Money Transfer Service (IMTS)-Outbound will be made, in response to recent directives from the Commission in its FY 2021 Annual Compliance Determination.