Malvern's Shipping Software Blog

How to Beat Oppressive Surcharges

Posted on Mon, Apr 06, 2009 @ 07:37 PM

Many B2C shippers struggle to effectively manage (let alone reduce or eliminate) residential and delivery area surcharges.

Before discussing this further, let's consider the 2009 UPS Ground rates for a 1 lb package shipped from Malvern, PA 19355 to: 

A commercial address in Yorklyn DE, 19736
Rate: $4.34 

A residential address in Townsend DE, 19734
Rate: $9.27 

The combination of the residential and extended area surcharges result in more than doubling the shipping charges here. (Neither rate includes a fuel surcharge.)

These significant surcharges commonly trigger two negative scenarios. First, abandoned shopping carts are often the result of checkout sticker shock. That is, the consumer is about to make a purchase online but ends the transaction when the shipping charges are displayed.  The alternative, is to not pass along these fees to the consumer.  However, this directly reduces or even eliminates the profit built into the sale.

One proven strategy to avoid or eliminate these fees is to use a carrier that is optimized for the last mile. (The "last mile" refers to the final stage of the delivery-- from the nearest carrier facility to the final destination.)

The United States Postal Service maintains a significant advantage for many types of shipments bound for residential, rural and remote areas. This is made possible by the sheer number of vehicles and delivery personnel. As a result, several carriers now offer service levels which leverage the vast network of postal services trucks and postal workers.

The solution is to simply include the Postal Service (which does not charge any of these fees) when comparing rates for residential shipments. However, UPS, FedEx and DHL have all teamed up with the Postal Service now to offer composite solutions called: UPS Mail Innovations, FedEx SmartPost and DHL GlobalMail.

With these shipping methods, the primary carrier (e.g., UPS) transports the package most of the way and the Postal Service performs the last leg of the delivery. The advantage to these combines methods is the advanced tracking capabilities offered by UPS, FedEx and DHL and the low cost of the final USPS delivery.

So, for any business that ships direct to consumers, it is important to be aware that under many circumstances, the Postal Service and these other methods offer considerable savings when compare to standard Ground shipping.

Now, the trick to taking advantage of these alternatives is to implement a seamless process for selecting the most cost effective carrier or service. For real efficiency, you should consider a shipping system which can automatically compare and select the cheapest method without any user interaction, whether this might be USPS or a composite method.

Your shipping software should be configured with "business rules" to accommodate simple or sophisticated logic.  For example, a simple cost-based comparison might be to automatically choose the cheaper of FedEx Home Delivery and Postal Priority.  A slightly more sophisticated comparison might take transit time into consideration by comparing UPS Ground and Priority Mail for Zones 7-8 and UPS Ground and UPS Mail Innovations for Zones 2-6. 

A final note... because the composite services often use economy postal services for the final delivery, you should clearly indicate to your customers that they are choosing an "Economy" shipping method. Shipping options labeled "Standard" or "Ground" may falsely set your customers expectations.  So, if you choose to offer one of these methods, you should consider calling it something like "Economy (3-10 business days)".

Tags: Compare Rates, US Postal, DHL GlobalMail, UPS Mail Innovations, FedEx SmartPost