May 2, 2008, 12:00 AM

Retailers challenged by rising postal rates and fuel surcharges

As shipping rates and fuel surcharges challenge online retailers with additional order fulfillment costs, the U.S. Postal Service is beginning to offer incentives in discounted rates to companies that ship more efficiently.

By Paul Demery

With increases in both fuel prices and shipping rates, these are challenging times for online retailers.

The fuel surcharge alone on many shipments, particularly those that use air transport, can vary widely month to month and has recently been as high as 18%, says Matt Monteleone, chief operating officer of CD Universe, an e-retailer that averages more than 100,000 shipments per month.

Combined with increases in basic shipping rates, CD Universe and other retailers are forced to search harder for the best deals from multiple carriers. “We try to be as dynamic as possible to come up with shipping options,” Monteleone says.

Moreover, in addition to rate increases this year of about 5% from major carriers UPS, FedEx Corp. and DHL, the U.S. Postal Service is rolling out a new zone-based rate schedule effective May 12 with a combination of higher rates and incentives for lowering costs. “For the first time, we’ll be offering pricing incentives to make us more competitive with other shipping companies,” a spokesman says.

Shipping rates for Priority Mail and Parcel Select, two U.S.P.S. services commonly used by online retailers to ship parcels weighing up to 70 pounds, will rise an average 6% and 5.7%, respectively. But Priority Mail, used to deliver products typically within two to three days, will offer lower rates to shippers who use services such as the Postal Services’ online Click-and-Ship pick-up scheduling service and PC Postage online postage services from third-party vendors like Endicia and Pitney Bowes.

Parcel Select requires shippers to bring packages to either a local post office or a bulk mail center, after which the Postal Service provides the final leg of delivery to local addresses. To encourage shippers to bring packages closer to their final destinations, the new rate schedule will offer reduced Parcel Select rates when shippers drop off packages at a local post office instead of a bulk mail center.

For package returns, the U.S.P.S. is raising the average overall rate by 2.2%. But it will offer rate incentives for packages returned to a direct delivery unit instead of a bulk mail center.

paul@verticalwebmedia.com

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