How a 10% USPS rate hike affects online retailers

As reported by Internet Retailer:

The U.S. Postal Service increased rates this week on several shipping products used by online retailers, including Flat-Rate Priority boxes.

A recent United States Postal Service rate hike that went into effect on Jan. 17 is affecting some online merchants, especially those who rely on specialty shipping options like flat-rate priority mail services, retailers and experts say.

On average, rates increased 9.5%, according to the U.S. Postal Service. This is the first time in three years the government carrier has raised prices on commercial Priority Mail.

Online retailer ScanMyPhotos.com, which relies almost exclusively on the Postal Service’s priority mail flat-rate boxes, saw its bill go up 9.8% starting on Monday, says founder Mitch Goldstone.Shipping costs are a major concern for the merchant because its business requires three shipments per order instead of one, like most e-retailers, and it prides itself on offering consumers free shipping on all purchases.

“Our crazy low prices and free shipping are huge for us,” says founder Mitch Goldstone. “I really didn’t want to change that.”

ScanMyPhotos.com, which generated about $5 million in sales last year, converts photographic prints into digital format, so when a customer places an order to have photos scanned, the retailer first ships a flat-rate box to the consumer’s home. The consumer then fills that box with photographs and ships it to the retailer. Upon completion of the scanning process, the retailer sends those photos back to the consumer, along with a CD-ROM or thumb drive with the digital prints.

Each way, shipping costs the merchant $11.88 as of Monday, $3 more than before the rate hike. Still, Goldstone acknowledges the U.S. Postal Service rates on these types of shipments are far cheaper than anything other commercial carriers could offer.

“On average, our boxes weigh about 17 pounds,” Goldstone says. “That would cost about $40 without the flat-rate box.”

One shipping expert echoes that sentiment, acknowledging that small merchants are likely to be impacted the most by the hikes, as they don’t have the buying power that larger players do to negotiate discounted pricing contracts with the carrier. But still, the government-backed carrier will still be cheaper than other carriers for many shipping options.

“Any type of rate increase around shipping, the farther you go downstream, the smaller the merchant, the more dramatic the effect will be,” says John Kruzan, senior director of global business development for Pitney Bowes, the postage meter maker and global e-commerce services provider. “The small players will be impacted, but this is really the first time in over three years there has been a rate increase across the board in the parcel service. The average charge per parcel goes up $5.50, but that’s not as dramatic as it sounds when you compare these priority mail services to FedEx or UPS. The USPS is still a good value.”

The below chart shows new shipping rates for customers of Stamps.com for various USPS services:

Goldstone of ScanMyPhotos.com says the nearly 10% increase in costs is tough to stomach, but he refuses to pass along the increase to consumers. Instead, starting Monday, he began running a sitewide sale to drum up enough additional sales volume to offset the impact of the increased shipping costs.

ScanMyPhotos.com is offering 50% off all orders more than $300. Sales are up 48% this week versus the prior week, Goldstone says—a jump plenty large enough to cover the increase in shipping costs.

Small housewares e-retailer MoreThanKitchen.com, on the other hand, has decided to pass along the roughly 10% increase to customers directly. “I will have to build that into the price of products since I have such a small margin anyway,” says owner Sonja Hoffman. “Only about 10% of my products are shipped priority mail though, so it won’t be a major change.”

Ken Wood is the founder of LJM Consultants. LJM helps clients negotiate “Best in Class” UPS/FedEx agreements. LJM was recently named the “best parcel auditing company in America” and was also inducted into Inc. Magazine’s Top 500/5000 fastest growing companies in America for 2013. To learn how LJM Consultants can help your company get the parcel contract you deserve, call 631-844-9500 or email kenwood@myLJM.com.