As the number of online shoppers during the holidays continues its upward trend, it’s only natural for shipping providers to raise rates. But unlike the 4.9% overall increase announced in 2016, UPS announced 2017 price increases for ground shipments by 27 cents between November 19 and December 2, as well as December 17 to December 23.
Holiday e-commerce thrives
In the UPS rate hike announcement, they set the stage for why this was necessary and the numbers were astounding. While non-peak delivery days saw an average of 19 million packages shipped, the peak 2016 holiday season saw over 30 million packages shipped on certain days. Keeping eCommerce running costs UPS a significant amount during the holidays in terms of nearly 100,000 seasonal workers, extra trucks, and increased warehouse space. This year’s rate hikes will require retailers shipping to residential addresses who sell at a high volume to share that cost.
The UPS decision to raise rates during prime time holiday shopping shows that they know that they can get away with it. Luckily the rates didn’t jump by too much. During this key shopping period, UPS rates will go up between 27 and 97 cents for retailers delivering to residences. Bloomberg reports that UPS made $7.97 for the average ground package last year. Therefore, the 27 cent increase only accounts a 3.4% jump in price. That might seem like a small increase, but when you take into account the 712 million packages UPS delivered worldwide during the peak holiday season in 2016, we’re talking about a serious increase in revenue from these shipments.
How promotional calendars can help
What can retailers do to offset higher shipping costs? Raising free shipping minimums or absorbing the fees with slightly higher prices sound like they could lead to decreased sales and loyalty. Shoppers won’t want to shoulder any of this UPS imposed burden, so the only way for retailers to keep sales high and costs at bay is to encourage shoppers to check out earlier than usual or in the two week break between rate increases.
For retailers who got flustered reading the UPS announcement and any other retailer aiming to cut costs, it’s very possible that promotional calendars will be shifting back even further this holiday season. And that’s saying something because holiday items and sales showed up before Halloween last year.
Last year Amazon started promoting Black Friday Deals before Halloween and started promotions on November 1. Wal-Mart followed suit and started holiday promotions online and on their app on November 10th. The Wall Street Journal reported that in 2016, retailer ads about significant deals came out three days earlier compared to 2015. And the number of emails retailers sent to subscribers jumped 15% between October 1 and November 19, 2016.
Understanding when competitors started their promotions in previous years can help retailers determine when they should start sending promotional emails and set deals live across channels. The trend has been to start them earlier and earlier, and this year we most likely will see all of this start in October. UPS has given retailers an extra incentive to get a jumpstart on holiday promotions in order to minimize the surcharges they have to pay on each package they ship during key shopping periods.
Closing thoughts
It’s clear that the fall will be heating up faster than anyone expected in retail. While these new UPS fees are no one’s idea of fun, the best time for retailers to combat them is now. Digging into historical competitor data to see when they started promotions, on which products, and where they promoted them will give retailers a solid footing for climbing their way to the top this holiday season.
Even if FedEx copies UPS and raises their rates as well, retailers will already be prepared to start promotions on hot items earlier (or during the two week period without a fee) to get customers shopping when it will cost the retailer a little less.
