The USPS service changes are just one of many supply chain disruption stories dominating the news. While the Postal Service’s adjustments are sweeping, they might not have much of an impact on your eCommerce business. We sat down with Red Stag Fulfillment’s Vice President of Client Relations, Tony Runyan, to better understand the change, potential threat, and lessons it offers to all eCommerce businesses.
Q: What USPS service changes are happening?
Runyan: The United States Postal Service announced plans to slow some of its mail delivery. The USPS service changes will primarily impact first-class mail — generally, anything sent out that’s under 16 ounces. The new service standards will see it take a few days longer for first-class mail to travel long distances. We don’t expect larger first-class packages to be affected, but that could change.
Editor’s note: The Postal Service has delayed the implementation of its revised service standards until after the holiday shopping season. It’s also important to note that this change is separate from the USPS’ temporary rate increase for the holiday season. Read more about the peak rate increases here.
Q: Why is it making the change?
Runyan: USPS has always been the cheaper option for small packages, typically under 5 pounds. Generally, USPS offered better rates than carriers like FedEx and UPS because, in addition to their base rates being lower, the Postal Service didn’t charge a residential delivery fee. Right now, that’s roughly $4 from other carriers. That makes it great for many lightweight shippers.
Unfortunately, the Postal Service is in trouble because of that (among other things). They’re not making enough money, and this is an attempt to address that. So, they’re cutting back on air transportation and using more ground, which will change the current one-day to three-day service standards to one to five days for first-class mail.
The change itself isn’t a big surprise. USPS had guaranteed service and delivery times, but because of COVID-19 and other things, they weren’t meeting it. So, they’ve basically just adjusted the guarantee to what they could deliver and afford. They’re admitting the fact that mail is taking longer. Businesses should think of it like the Postal Service is updating its SLA to be more accurate.
Q: Why follow the USPS service changes?
Runyan: This change comes at a wild time. Watching for price and service changes will help companies understand what could happen next. We’re at a point where carriers are struggling to perform well. Major, national brands aren’t meeting on-time metrics, but their pricing is at an all-time high. This is based on current supply and demand. People are trying to cram as many packages as possible into these networks.
It also follows major carriers not accepting increased business from some customers or simply pricing people out of the market. The whole supply chain is the same way. What used to cost roughly $6,000 for a container to go to China to Los Angeles is now costing over $20,000, hitting a new record. So, it’s basically: Are you going to pay to play? Businesses are looking at an industry where performance and serve levels are dropping while the price is increasing. And they’ll need to figure out how to respond.
Q: What will happen with U.S. carriers and their customers?
Runyan: The situation speaks to the need for carrier diversification for customers and opportunities available for new providers. I think that more carriers are going to pop up and create more competition. We’re already seeing that this year, like the launch of Pandion, created by the founder of Amazon Air as well as the expansion of territories from regional carriers like Lasership and LSO.
ECommerce volume continues to explode. The infrastructure from the national carriers is just not there to handle it. That’s going to push more people into the marketing to try and provide better solutions, but not everywhere at once. A lot of eCommerce volume is at 10 lbs. or less, so that’s where companies are going to start.
From our standpoint, it’ll be interesting to see if it will push a lot of this lightweight volume out of the FedEx and UPS networks as competitors come available. That’ll open more capacity for more oversized items, which could help companies with larger products meet order demand.
Q: What is Red Stag’s approach to this change?
Runyan: Red Stag is diversifying and moving some volume to regional carriers like LaserShip and OnTrac. But, in some instances, we couldn’t if we wanted. LaserShip, for example, doesn’t take anything over 50 lbs., so some things are off the table. And the national carriers offer incentives on additional handling surcharges — typically for packages above 40 or 50 lbs. Many regional carriers appear to be slow to offer any incentives here, so the rates aren’t competitive for these heavy and bulky products.
So, we’re trying to help our customers utilize regional carriers when it makes sense. We also track their growth and changes in service areas. LaserShip, for example, was focused for years on very specific regions of the country, but they’ve expanded their reach this year. LaserShip and others are expanding their infrastructure to take on more volume. Other carrier groups have been announced, but they’re very cloak and dagger, so Red Stag is paying attention to see if they could become an option.
For more about adding regional carriers to your network, see our post here.
Q: How can a 3PL help?
Runyan: A 3PL like Red Stag can help by giving your company access to multiple carriers and get you started sending volume to them to be prepared for the future. We’ve got leverage with carriers because of the volume that we ship in total. Red Stag can use that volume to pull in different options and negotiate agreements that benefit our customers. For eCommerce, right now is about planning for peak and further into 2022 in the same conversation.
Some regional carriers have told us that they want to get through peak season first with companies they know. They want our volume now and may offer things like additional discounts later to maintain the volume levels that they’ve added infrastructure to support. For FedEx and UPS, we’re a profitable client for them and they’re willing to stay at the table with us during peak when they’ve got more volume than they can handle.
A lot of that just doesn’t happen for a small business negotiating on its own.
Q: What should eCommerce companies tell their customers?
Runyan: Your eCommerce business should follow USPS here. The one big thing they’re doing is setting expectations. It’s the most important part of this process, whether you’re the seller or the postal service. It’s about being very clear and transparent with customers, so when they go to checkout, they’re not expecting one experience and then get something else.
Create messaging that lets them know there’s the potential for delay or change. What normally takes two to three days might take five days. So, ask if you’d rather set that expectation up front and then hope you overdeliver in terms of speed, or create a promise you can’t necessarily meet. We know that the minute that promised date passes and there’s no delivery or tracking number, your customer service will get slammed.
Focus on transparency, speed, and communication. Make sure you inform your customers all along about what they can expect. And tell them when a change happens. It goes a long way with people.
Q: What is Red Stag’s messaging around USPS service changes and more?
Runyan: We take communication seriously at Red Stag. The USPS change won’t impact many of our clients, but it does remind me of the supply chain issues everyone faced in Q4 2020. We try to send out the information we have as soon as we get an update. These can be events like if a carrier has a disruption because of demand or sorting delays. We send our customers a note when that happens, when the carrier expects it to get resolved, and when we have any updates.
Last year, the day after Cyber Monday, FedEx began enforcing shipping volume limitations at our Salt Lake City facility with no notice. The next day, similar limits were imposed on our Knoxville facility. FedEx did this with shippers across the U.S. As soon we were notified, our team wrote an email to every partner to explain what happened. We kept people informed about what we knew and how we were working to handle it.
This year, you’ve already seen some messaging around this same concern from us. Learning from the capacity crunch, we’ve been asking everyone to consider regional partners to help expand what’s available. Because if we have space on one carrier’s trailer but not another, unless you’ve already been using that available carrier, it will be much harder to move your volume over there.
We want to give you the most up-to-date information we have. Red Stag always views ourselves as an extension of your business. That means sharing information as soon as we know and working with you to handle whatever we face in Q4.