Busiest Time for Changing Shipping Industry

Dec 21, 2011

At The Mail Center on Madison Avenue, Mark Weber pours foam peanuts into a box of Christmas gifts. Weber is the only one working this Saturday. He’s also the owner. There’s a steady stream of customers, but Weber can handle it. He says years ago the shop was more frenetic.

“At various times we’d ship 400 or 500 boxes a day out of here,” Weber said. “And let me tell you—with six or seven employees running around—and peanuts everywhere—it was nuts! Pandemonium!”

Weber opened up almost a decade before Amazon started hawking a cornucopia of goods on the Internet. When he started most people weren’t buying things from online retailers—they were buying them from catalogues. And when they lamented those catalogue purchases, they came to Weber’s store and they paid to send them back. Weber says he had lines of customers out the door, all holding regretted catalogue purchases.

But as online retail giants like Amazon, Apple, and Walmart grew—and grew—more and more of the industry was taken up with moving their stuff.

“The shipping business has gotten to be a lot more of a commodity business,” Weber said.

Getting stuff from online retailer’s to their customers is the fastest growing segment of the shipping industry. Weber doesn’t do much of that. Most of it gets handled by big companies like UPS and FedEx, and, to a lesser extent, the U.S. Post Office. Weber is a licensed carrier of all three, which means he ships things for his customers using all three. But he can’t compete with them for the business of a big company like Amazon.

Of course, even in the age of the Internet, there are still returns. While I’m talking to Weber, a woman walks in with a box from Zappos.

The box already has a shipping label on it. She printed it out for free at Zappos.com. Weber’s “customer” just puts the box on the counter and leaves.

Weber doesn’t make much money off a return like this. He says he’ll probably get a few pennies. It’s a part of his deal with both FedEx and UPS. He gets a discounted rate with both carriers, but he has to handle their returns, like the Zappos box, if customers bring them in.

Weber says he feels like he’s caught up in a fight—but it’s not his fight. It’s a fight between online retailers and brick-and-mortar stores. Offering free shipping on returns helps the online retailers compete with stores. And big carriers like UPS and FedEx are willing to handle returns because they want the much larger front-end business of shipping purchases to customers. But when it comes to free returns Weber says he’s losing out, “Consumers love that. And the carriers love that. But as a retailer there are costs associated.”

And shipping prices go up every year. This year UPS and FedEx are both raising their prices on the same day—January 2—by the same amount. Why, you might ask?

“The correct answer to that question is because they can. We’re now down to what I refer to as a Duopoly,” said Gerard Hempstead. He’s a parcel consultant who helps companies save money when they ship. He’s been in the business about 40 years and he says when he got his start there were hundreds of companies for his clients to choose from. Now there are far fewer. And there are only two big ones—UPS and FedEx.

“And so, as one goes up, the other one goes up,” Hempstead said. “They are just not pricing to pull away the other carrier’s customer. They’re far more interested in what, both of them, publicly say is yield improvement. Meaning they are just content to keep handling the same packages they are handling today and just charge more for them.”

The Department of Justice has an open investigation into anti-trust activity at both FedEx and UPS. But Hempstead says he doesn’t think there is anything illegal going on. And there doesn’t have to be.

“You can use the public stage—press releases—to telegraph to the other that which you are doing. So, UPS announces that ground rates January second will go up 5.9 percent,” Hempstead said. “But they’ll reduce the fuel surcharge by one percent. And then that allows the other company to see their press release, and pull down their rate tariff, and see exactly what they are charging and—low and behold—publish the exact same rates for a pound package. Totally coincidental I am sure,” Hempstead said.

For his part, Weber at The Mail Center, calls this process “osmosis.” But he says he doesn’t want to indict the big carriers. He thinks their price increases are justified.

“They have increasing costs just like everyone else. I mean, they have employees and lots of them. Those employees all want a raise every year,” Weber said. “And obviously they have to make a profit to make their shareholders happy.”

Every year Weber passes the price increases at UPS and FedEx onto his customers. He says it’s the only way he can stay open.

As he rings up that box of Christmas gifts he packed, both the FedEx price and the UPS price flicker on his screen. They are exactly the same. And both are more than $50. Weber says, “I hate that it costs so much.”