Every year, the U.S. Postal Service changes rates on some of their services. However, the rate increases that are taking effect next month will have the biggest impact on shipping costs that we’ve seen in years. To make sure your e-commerce business survives this postage cost hike, you’ll need to make sure you understand what’s changing and how your business will address it.
What’s happening:
The Postal Regulatory Commission (or PRC) approved of a postage rate increase to take effect on January 17, 2016. A number of service changes will go into effect that day at 12:01 AM. These changes include renaming of some services, elimination of others, international service changes, and — arguably the most important of all — significant changes to postage prices that are available to businesses.
Commercial Plus Pricing Elimination
The biggest impact on high-volume shippers will be the changes USPS is making to its CPP tier of postage rates. Commercial Plus Pricing, or CPP, is a deeply discounted postage price package available to qualified shipping accounts. CPP discounts are usually only made available to high-volume shippers, but can be offered through the accounts of services like SKULabs, since we lump the volume of all of our participating customers under a single account.
Historically, CPP has offered an attractive discount over Commercial Base Pricing, or CBP, due to the difference in shipping volume required to be upgraded from CBP to CPP. However, USPS has decided that in 2016 it will eliminate most of the CPP discounts and move those postage rates up to the CBP discount level. Other CPP rates will be brought within 3% of the 2016 CBP rates.
For shippers using CPP discounts every day, the reduction or removal of these discounts has a huge impact. Reducing CPP rates to the CBP level will lead to rate increases between 3% and 9% per package, depending on how heavy the packages are and where they are being shipped to.
USPS has made clear that it plans to eliminate CPP entirely in 2017. Competitors like FedEx and UPS only work with a single commercial pricing tier, and USPS believes that following that industry standard will be beneficial.
First-Class and Priority Mail Rate Increases
In addition to nearly eliminating Commercial Plus Pricing discounts, USPS will also be raising many of the postage rates available to Commercial Base Pricing accounts. Some of the most notable rate increases affect two of USPS’s primary services, First Class Package Service and Priority Mail.
All Commercial Plus Pricing discounts for First Class packages will be eliminated in January, making Commercial Base Pricing the only discounted option for business shippers. While the increase amount will vary by package weight and the distance it’s traveling, we’re looking at an average First Class rate increase of about 7.6%, or $0.13 per package.
Commercial Plus Pricing discounts for Priority Mail will be brought within 3% of Commercial Base Pricing. This is likely a sort of transition method as USPS gears up to eliminate CPP entirely in 2017. Retail rates for Priority Mail are increasing by about 4% within zones 1 through 8, 20% for zone 9, and 4-14% for flat rate packages. CBP is seeing a similar rate increase, with a 2.4% average increase in zones 1-8, 25% for zone 9, and 3-16% for flat rate shipments.
CPP’s rate increases for Priority Mail is quite a bit more impactful. Shipping within zones 1-8 is going to be 19% more expensive on average (about $5.13 per package). Zone 9 shipments are going to cost about 33% more on average (or $24.43 per package). Add in the 7-14% flat rate increases, and Commercial Plus Pricing took a big hit all-around in Priority shipping value.
What to do:
To make sure these increases in shipping costs don’t harm your business in 2016, it’s important that you make a plan now on how you might change your shipping strategy. With careful planning and adjustments, you can use the tools available to continue shipping out your orders profitably.
Calculate Your Rates and Margins
First, you need to figure out how much these rate increases are going to cost you. Take a look at some of your recent USPS shipments and jot down a few example postage costs. Be sure to note the package dimensions, weight, and zone distance (USPS has a neat zone calculator to help with this).
Once you have a few examples, take a look at the pricing tables for Priority Mail and First Class Package Service to see whether or not you are currently paying CBP or CPP postage rates. From there, you can use the average rate increases described earlier in this post to see roughly how much more you’ll be paying after January 17th.
An important factor in shipping costs for e-commerce businesses is the effect that shipping has on their profit margins. This is especially true for stores that offer free shipping, as they aren’t offsetting their shipping costs by charging the customer for shipping. If the projected rate increases are going to cut too deeply into your margins, it may be time to consider other shipping options.
Compare Shipping Rate Options
The post office might have a monopoly on some things, but package delivery isn’t one of them. As a commercial shipper, you have plenty of options to compare every time you ship out an order. No matter where the package is going, FedEx, UPS, and DHL will almost always have competitive options alongside USPS.
Take those shipment examples you jotted down before and compare them with UPS and FedEx’s advertised rates. Generally, FedEx Ground and Home Delivery can come very close to USPS Priority rates, and UPS and DHL often have USPS beat when it comes to express packages.
While UPS is generally the cheapest option for lightweight packages, and for packages being shipped locally, competing carriers can gain the edge in value when shipping heavy packages over longer distances.
To aid you in executing your new shipping strategy, there are a number of multi-carrier shipping solutions out there, including SKULabs. Click here to see the shipping partners we currently support, and sign up for a free trial if you haven’t already.