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Every Friday, I post a small insight into running Curio City and/or Blue Hills Editorial Services. My most recent posts are directly below. You can also start with the first post, or use the subject labels to the right to home in on particular topics. Feel free to comment on anything that interests you.
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Friday, December 28, 2007

The Arcane Art of Shipping

Last week was consumed with xmas, of course, and by my preliminary effort to tease some meaning out of the results. Since that's still in progress, and because something unexpected siphoned off my attention for a couple of days (I can’t write about that yet), today’s post is one that I’ve been chipping away at for a few weeks.

First, though, I’m pleased to mention that the last week of December was much stronger than expected. I have still not had a shutout since mid November.

I do 95% of my shipping through the post office. They do the best job of delivering packages in a timely manner and in good condition for a reasonable price. USPS is certainly more reliable than UPS or FedEx. But they do piss me off sometimes.

I buy my shipping labels at the USPS Click-n-Ship website so that I can just drop the paid-up packages at the post office and be on my way. Online purchases get free or reduced-cost delivery confirmation, and some services also earn a small discount off the walk-up postage rate. This is all well and good as long as you ship via priority mail or express mail.

Problem is, at least 75% of my customers choose the cheapest shipping method. That is usually first class mail (under 13 ounces) or parcel post – services that USPS doesn’t sell online. Why? Because they have sweetheart deals with Stamps.com, Endicia, and Pitney Bowes. If you want to access the full range of USPS services online, you have to pay one of those third parties for the privilege. That will set you back $16 per month for a convenience that the USPS could easily offer for free.

It offends my sense of fair play to bribe a third party for a service that ought to be free. I’m sure that the USPS gets a kickback from those third parties. So I usually upgrade my parcel-post orders to priority mail when that’s cost-effective, or I stand in line at the APC (automated postal center) when it isn’t. The APC offers most domestic services, but it soaks you 75 cents for delivery confirmation, and it can’t print customs paperwork for international sales.

The last resort is standing in line for a human clerk. There is nothing a postal clerk enjoys quite so much as telling you why you can’t do something, or that you have to fill out additional forms, or that your box is somehow below standards.

International shipping too often sends me to the counter. Packages under four pounds – most of mine – are cheapest via first class international, and guess what? You can’t buy first-class postage online. The price gap between first-class international and priority international is way too high to upgrade. And so I have to fill out the customs paperwork by hand, and wait in line for a surly clerk to scowl at my packages and look for reasons why I can’t ship them.

December’s frenzied pace made that $16 monthly fee at Endicia look so tempting that I finally overcame my inner cheapskate and signed up for their 30-day trial. From Dec. 4 thru Dec. 26, I shipped 78 first-class or parcel post boxes through Endicia. For each one, I paid 18 cents for delivery confirmation instead of 75 cents at the APC. That’s $44.46 that I saved, not to mention several hours of standing in line. Sixteen bucks for that looks like a bargain. Now I have until my trial ends on Jan. 4 to decide whether the time and money savings make sense during my slow months, too. Financially, probably not. For convenience and stealth, maybe so. I'm going to keep it through January and see how the numbers come out.

Stealth? Did I say "stealth"?

Endicia’s basic rate is only $6 per month. I'm paying an additional $10 to print labels that say “Postage & Fees Paid” instead of showing the actual amount. That’s called “stealth postage”.

I strive to keep my shipping charges neutral – to take in very slightly more than I pay out. Ideally, every single order would cost a few cents less than I collected. In practice, it’s very difficult to calculate shipping charges accurately. Consider the lighted cap.

One packaged cap weighs 10 oz. It’s simple enough to set the weight of one cap at 0.6 lb (9.6 oz) and charge those customers accurately. The problem is that packaging accounts for much of that initial 10 oz. The caps themselves actually weigh only 3-4 oz. If a customer orders two caps, the assessed weight of 1.2 lb takes them out of the first-class mail table and puts them on the 2-lb priority or parcel post rate. But the actual package weight is just 13-14 oz, which could go first class, or for the 1-lb priority rate. The more caps I put in a single box, the greater grows the disparity between the assessed weight and the actual weight, and the harder I soak my better customers.

My workaround is to add an invisible handling charge charge (currently 85 cents) to every order, and reduce the weight of each cap to 0.4 lb (6.4 oz), which is closer to reality. Now the single-cap orders remain pretty accurate, and multiple-cap buyers get a better deal. Careful analysis would let me optimize the handling charge and cap weight for my most common orders. This would be great if I only sold caps, but mixed merchandise makes it impossible to charge everybody accurately. So the best I can shoot for is overall balance. In December I collected $1408 in shipping fees and paid out $1353. I think you’ll agree that a $55 overcharge is reasonable and minor…unless you happen to be one of the unlucky customers who contributed to it (remember that some customers are undercharged, too, so there were actually more than $55 in overcharges).

Enter stealth postage. :)

While I’m complaining about carriers, here’s a new reason to hate UPS, too: A number of weeks ago a customer placed a telephone order just minutes before my 2 pm cutoff for same-day shipping. Literally minutes after the call, I had her box packed up and on its way. A couple of hours later, she tried to cancel the order. That's when I discovered that UPS has a package recall feature. You can intercept it prior to delivery and have it returned to sender. I told the customer that I was doing this, and that she’d have to pay return freight. She was displeased, but why should I take a loss because she changed her mind?

The return freight should be the same as the outgoing freight, which was $9.50. And it was -- plus a $10 intercept fee. Yes friends, it cost $19.50 to have that little box returned before it reached my customer. With the original shipping fee, it cost $29 to transport merchandise that she never even got.

Because that $10 surcharge was news to me, I ate it, and just charged her the $9.50 that she would’ve had to pay if she had returned the package herself. Everybody loses! Except UPS, that is.

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