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EcommerceBytes-NewsFlash, Number 3712 - November 16, 2015 - ISSN 1539-5065    2 of 4

Sellers Say January USPS Rate Hike Threatens Their Business Model

By Ina Steiner
November 16, 2015

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One of the biggest fans of the US Postal Service is uncertain whether he can continue to use it once new rates for parcels go into effect in 2 months. Mitch Goldstone, CEO of ScanMyPhotos in Irvine, California, credits the flat rate Priority Mail box with inventing his entire business, and said so in a USPS video last year.

But Goldstone pointed to a 10% increase in his costs under new rates taking effect in January, telling EcommerceBytes they jeopardize the benefit of the USPS partnership and threaten his business model.

The USPS is raising rates for shipping services on January 17, 2016. The PRC approved the rate increase on Friday, despite acknowledging the concerns of small sellers. It's important to note that the cost of a stamp and other "market dominant" services are not rising. The impact of the higher rates vary by class of mail and by package weight.

Above: PRC chart summarizes the average USPS rate increase for domestic shipping services going into effect January 2016.

Ross Gordon, CEO of subscription-commerce site MysteryTackleBox.com, told EcommerceBytes the proposed rate hike would increase his costs by 23.5%. Each month, his company sends its tens of thousands of customers a package of fishing products using the Parcel Select Lightweight class of mail. His packages weigh between 12 and 15 ounces.

"The proposed rate increases will reduce our profit current profit margin by about 20%, which is quite substantial," he said. "If you include the approximately 10% increase we already saw last year, you can see that these rate increases have a pretty large impact."

MysteryTackleBox.com has offered free shipping since it started 3 years ago, but Gordon said he is strongly considering passing the costs on to subscribers. However, he said, "Charging shipping will likely impact our subscriber numbers and ultimately lead to fewer shipped packages via USPS."

He said he's looking into other shipping options outside of USPS, but fears that might slow delivery times for subscribers.

So what's a seller who relies on USPS shipping services to do? The first thing they should do is start planning early, according to Katie May, CEO of ShippingEasy. Get an understanding of selling and shipping margins, she advises - analyzing shipping costs across carriers, zones and weights is a good starting point.

ShipRush Product Manager Rafael Zimberoff also advised sellers to get started right away - in fact, he said it was probably appropriate for some merchants to start ratcheting up shipping and item costs now. "Perhaps do it in small phases, perhaps 3 or 6 steps," he said.

Zimberoff said the USPS plans for Commercial Plus is a big deal. Commercial Plus prices as a whole will receive a 13.3% increase in January to bring them within three percent of Commercial Base prices. And the USPS will eliminate Commercial Plus Pricing altogether at some point in 2017 - "to reflect the industry standard of publishing only one set of commercial rate tables," the agency explained.

Merchants who don't use an online shipping service but instead rely on the USPS Click-N-Ship site to print postage online are also in for some disappointing news in the New Year. Currently, shippers receive Commercial Base discounts when using the USPS website, but as several service providers pointed out, the USPS is eliminating that discount as of January 17, 2016.

"Click-N-Ship is moving to Retail rates," said Jessica Foth, Endicia Senior Product Marketing Manager, "so low-volume shippers moving to an electronic postage provider will benefit from Commercial Base Pricing discounted rates."

Eric Nash, Senior Director of Online Marketing for Stamps.com, said for sellers using Priority Mail with Commercial Base rates to ship packages between 1 - 10 pounds, the average increase is 5.99%. That's not as dramatic a rate change faced by ScanMyPhotos.com and MysteryTackleBox.com, but it is bad news, particularly for sellers with low margins.

However, Nash noted that rate increase is similar to the rate increase private carriers are imposing on Ground packages in January, and he pointed out that UPS and Fedex are increasing their residential delivery surcharges by 15 cents for 2016.

What about the impact on micro sellers, such as those who sell on eBay? Spokesperson Ryan Moore told EcommerceBytes that eBay currently negotiate rates with USPS and said it would continue to do so in the future on behalf of its sellers. "We will continue to leverage the shipping volume our sellers generate to secure great discounted rates off retail prices, without a subscription fee," he said. "In the months ahead, we'll be sure to provide sellers with updates on rate increases and our negotiated rates and ideas on how to minimize the impact the USPS rate increase could have on their businesses."

As for Gordon of MysteryTackleBox.com, he was so concerned about the rate hike, his company sent a letter to the Postal Regulatory Commission. MysteryTackleBox.com called the proposed rate changes crippling to its small business, writing, "We'd be forced to evaluate alternate providers and employ drastic cutbacks. We've been happy with the reliability of USPS and would highly prefer to keep our business with USPS."

The PRC acknowledged the concerns of small businesses in its approval of the rate hike on Friday, stating it "understands that increases to competitive rates have real-world impacts on and directly affects those businesses."

But, it wrote, "Due to the competitive nature of these products, it is unavoidable that some price increases may lead certain customers to switch from products and services offered by the Postal Service to a competitor, such as Federal Express or United Parcel Service, Inc."

EcommerceBytes has more advice from shipping experts about what to expect in January and how to cope with the changes - stay tuned for additional coverage this week.

Update 11/17/15: Experts offer tips to sellers on preparing for the January rate hike in this article from Tuesday's Newsflash.

Related Stories
USPS Responds to Questions about the 2016 Rate Change - February 15, 2016

Postal Service Looking to Grow Experimental Delivery Business - January 22, 2016

Sellers Quiz eBay Shipping Team on USPS Rates and Wrinkles - January 22, 2016

Sellers with Sticker Shock Get Surprise from Stamps.com - January 21, 2016

Some Sellers See 'Catastrophic' Rise in International Shipping - January 21, 2016

About the author:

Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to ina@ecommercebytes.com.

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