By Josh Dunham, Reveel
The holiday season is in bold on every retailer’s calendar; as everyone knows, it can make or break your company’s fiscal year. Traditionally, the holiday season ran from Black Friday to Cyber Monday, right up until December 24th. Last year, with consumers and retailers still dealing with the ramifications of the global pandemic, e-commerce was relied upon more than ever before, continuing the supply, labor, and delivery crunch that began in March 2020.
Because of the increased use of e-commerce for everything from groceries to clothing, not to mention gift giving, the carriers were at capacity and struggling to deliver everything on time. Many small and midsized businesses suffered, and many consumers didn’t have what they wanted when it came time to open gifts. All involved vowed that this year would be different.
Ghost Of Christmas Present
Fast forward a year, and things are different - but not necessarily in a good way.
In many locations, in-person shopping has returned - but that hasn’t dented the dominance of e-commerce yet. This year’s holiday shopping and shipping season is shaping up to be unlike any other, with the pandemic still causing supply chain issues, manufacturing delays and port closures; the demand for next-day delivery not abating; carriers like FedEx and UPS remaining at capacity; and a labor shortage that continues to impact companies across the board. These intertwined issues will be felt throughout many industries as we approach the holidays, but will be particularly acute for consumers, retailers, and the shipping companies that serve them.
So, the questions on the minds of retailers that rely on shipping to get their goods to customers are: What can I do to keep costs down and still provide on-time service to my customers? How can I ensure I get their gifts to them on time, so they remain loyal customers? Is there a way to accomplish this without jacking up prices?
The good news is that there are options available - but you need to quickly understand the situation and what’s possible so you can act now.
Playing The Role Of Scrooge...The Big Two
The big two carriers, as mentioned, are still at capacity. Because of this, they’re able to play Scrooge this holiday season by dictating terms to the market - and they’re doing so. FedEx announced holiday surcharges starting Nov. 1st, and the highest general rate increase since 2013, increasing to 5.9%. UPS also has announced an average increase of 5.9% on their earnings call with details to follow shortly. These are only the beginning of the charge’s companies must deal with in the coming months, as there are additional add-ons and charges for specific items, such as dimensional weight. Essentially, the big two carriers - which so many retailers and e-commerce companies rely upon completely - are telling you what you’re going to pay, and there’s nothing you can do about it if you want to remain a customer.
There’s Still Time To Change Your Path
Following along with the Scrooge theme, as the Ghost of Christmas Future taught us, there’s still time to change the path you’re on. Your destiny isn’t set in stone just yet. As it turns out, the big two carriers are still happy to work with you. Just remember that they’re still aiming to maximize profits for themselves, regardless of how willing to negotiate they seem. It doesn’t mean you need to accept everything they say without negotiating the best deal possible, but they are in a power position. To succeed, be sure to do your research, understand your existing parcel shipping agreement - and actual needs and expenses - and use it to your advantage.
Here are some key areas to pay attention to as you review your parcel shipping operations with an eye on mitigating the holiday cost increases and/or negotiating a better deal:
- Individual Shipment Cost
Put simply, how much do you spend on each package? Is the price increasing - and by how much? Can you cover that cost, or is it throwing your operations out of sync? You need to run the numbers and understand what it costs to ship a package - and how that has changed with carrier increases - to forecast correctly. Look at the average cost per shipment by service as well, such as international shipping, express shipping, and ground shipping.
How large a percentage of your overall shipping expenses are spent on surcharges? Has this number been increasing over time? Did it just make a massive jump this holiday season? Are the surcharges expected to expire after the holidays? Or remain in perpetuity? The big two like to hide price increases by calling them surcharges instead. Keeping tabs on this will enable you to challenge unexpected costs, or to have better information as you renegotiate.
- Total Spend
Some companies break this number down to spending per service, so they can track how the amount fluctuates over time and be more accurate in modeling their expenses. Another way to look at this number is as a percentage of your sales, i.e., how much are you spending on each sale.
- Minimum Price
What’s the price floor that was set? If you negotiate discounts, will they cause you to hit the pricing floor - and if so, negotiating for deeper discounts will not drive savings. It’s important to understand if you’ll be hitting the price floor regularly, and if so, whether you need to change your renegotiating tactic from discounts to something that will reduce your overall expenses.
Where are your packages traveling to and from most frequently? With the new FedEx general rate increase, the zone has become an even more important factor to pay attention to. If it becomes too expensive for your packages to travel a great distance, it may make sense to establish or work with a distribution center that cuts the distance down to a more manageable (and cost-friendly) expense. Many third parties are willing to do this for you if you don’t have the capital (or the interest) in opening a new distribution center.
What are the dimensional weight figures you’re dealing with? If the current size is costing too much, are there adjustments that can be made? How much does this add in expense to each package? Each shipment? Modern packaging technology can help you increase the efficiency of your packaging and boxing while lowering the weight. You may even be able to negotiate a different dimensional divisor with a carrier.
The end goal, of course, is to be able to manage the holiday (and post-holiday) price increases and surcharges while still maintaining the level of service your customers have come to know and expect - without destroying your bottom line. By arming yourself with the proper information, you’ll be a step ahead of the Scrooges this holiday season and can set yourself up for a Happy New Year.
About The Author
Josh Dunham cofounded Reveel in 2006 and is responsible for creating and advancing the corporate strategy and vision of the business. He directly oversees the technology and operations departments. Under his guidance, Reveel successfully acquired a technology partner and is now the industry leader in machine learning technology. Before cofounding Reveel, Josh served in several sales roles at DHL. He quickly became a top producer and remained in the top 1% of nationwide sales throughout his tenure. Josh has a Bachelor of Science in International Business from Pepperdine University. Josh serves on the board of Entrepreneurs Organization (EO) and will serve as the Orange County President next fiscal year. Josh finds passion in building. Whether it’s Reveels’ technology products, company culture, high-performing teams, strategy, vision, or a motorcycle or truck, he loves creating things and making them great.