A particular outlet I order from seems to be more mom-and-pop than corporate institutional. I don’t have proof of this, of course, but I just suspect.
I have ordered things from this internet store, and they offer free 2-day air UPS shipping. The bulk of their business is in shoes, so I suspect they do this to remain marginally competitive with Zappos, Endless, etc.
I’ve ordered things from them other than shoes, and I cannot imagine that the margins on these things is great (I’m talking like items under 10, 20 dollars) to begin with.
I guess my question is more focused on the rates businesses pay for UPS shipping than anything else. Are they paying out their nose (as I would if I shipped something 2-day air) for providing free 2-day UPS shipping, or are they getting severely discounted rates/rates based on the cost of the good shipped?
I don’t feel that bad about it - after all, if it was a big deal, they could always limit the free 2-day to shoes, or over a certain $ amount. But I’m curious, and if it seems like I can help them out by ordering many things at once (as compared to ordering one small thing at a time), I would consider it.
So… how much less do businesses pay UPS for their shipping services?
This is anecdotal evidence, but when I was preparing to move from the UK to Germany, I looked into the international rates of various parcel companies to send stuff over. It seemed to me that most international shippers had specifc business rates. The way it worked was, essentially, that you’d set up a business account with the parcel company that would oblige you to spend a minimum amount per month on shipping. In return, you’d get hugely reduced rates on all the shippings done under the account. The particular rate of discount would depend on your type of business account, i.e. your monthly spendings, but it would be nowhere near what a one-time private customer would pay (I think I vaguely remember an offer for a business account that as a third of the regular rate, but don’t take my word for it, it depends on so many circumstances).
From that perspective, the shipping cost to your mom-and-pop shop are probably manageable, since their marginal costs of sending an additional parcel on top of all the other parcels they send each months are not that high.
For many online retail operations, “free shipping” is rapidly becoming a normal cost of doing business. When the big guys starting doing it many smaller companies had to join in or risk losing business.
My guess is that the most businesses have increased their prices just enough to make up for the added cost of free shipping so that they don’t take a big hit in most cases.
For one small business I know, the actual cost of UPS 2nd day is $15 to $25 for small items. However, if you are shipping in-state or to nearby states, UPS Ground will make it there overnight, and that would be quite a bit cheaper.
I’m sure different businesses have different deals with UPS. Amazon obviously has a good shipping deal, with a $75 per year Prime membership I can have them ship me a $2 item 2nd day and somehow Amazon still makes money.
you’re kind of circling back on the question itself, though. I realize free shipping isn’t free. What I’m interested in is how much are they paying for the service, since if I go by UPS rack rates, based on what I’m buying they cannot be upcharging me an amount that would put anything but a scratch in UPS 2nd-day-air rates and they may indeed be losing, substantially, on the transaction.
Because my assistance would be cost free to me (i.e. ordering multiple items, instead of doing what one poster says he does with amazon prime - ordering one 2 dollar thing and getting it 2nd-day and then doing it again for another 2 dollar thing [for the record, i do it too, not being judgmental])
Also because, as **dolphinboy **puts it, many smaller retailers are being forced to offer this in order to remain somewhat competitive with larger retailers. I don’t have a problem with supporting smaller businesses.
I don’t know how good the volume discounts go, but a business that does enough with UPS should be getting about 15-20% off the published rates. These published rates are already 20% below what you’d pay in a UPS Store.
There may also be other discounts. FedEx routinely offers 10-20% off to members of certain organizations, and I’ve seen credit cards give you 3-5% back on UPS or FedEx shipments.
But… many online stores are still operating in the dot-com mentality: If you lose $1 per sale on 10,000 sales, just think how rich you’ll be when you lose $1 per sale on 1,000,000 sales!
It’s not free to you. You have an opportunity cost to to set up a system to gather your purchases and order them together instead of the method your currently using, which is apparently more convenient to you. Time and convenience are worth something.
On a small transaction like $10 or $20, they would certainly be losing money, to answer your question. It takes quite a large volume ($250K+ per year) before UPS is going to start offering discounts significant enough to bring air freight under $15 into play. My business was doing around 200K per year with UPS, we got a sweeter offer from FedEx thanks to a group rate for an association we are part of, and UPS watched the revenue walk rather than match it. They are very serious about not handling packages they take a loss on, it seems.
Of course, this assumes they are actually shipping by 2 Day Air. You say they are advertising it as such. But all the carriers’ transit times have improved over the last several years, and the two-day ground delivery area is fairly large from most locations. If they could ship it ground and still get it to you in two days’ transit time, they would be better off. But on a $10 or $20 purchase, I bet they are still losing money.
Actually, on low-weight packages USPS Priority Mail offers the best bang-for-buck on delivery times, often beating UPS or FedEx rates by near half and delivering just as quick as 2 Day Air (not to mention delivering on Saturdays). My business starting shipping (some packages) by USPS a few years ago, when the residential surcharges from UPS and FedEx starting getting out of hand. The residential surcharge alone is something like $2.95, and some addresses get an extended area surcharge that amounts to another $2.50 or so. (Again, these shippers don’t mess around. If it’s expensive for them to go there, they are going to collect.) The published rate of six bucks sounds good, until you realize you paid twelve.
So that’s why the USPS is getting a lot of my business these days. They are operating at a loss, though, which perhaps gets back to the original question.
I’m surprised people are fighting the hypo so much and just checking to make sure that I’m smart enough to make sure that when I write “they’re sending me things 2 day air” I’m not actually receiving it by ground.
Sigh. Yes, it’s being sent by 2 day air. It’s coming from California, and I am assuredly not within their one or two day ground service areas.
Because maybe he doesn’t want that business to suffer financially. Maybe he wants to keep doing business with that person. Relationships, including business relationships, are not necessarily fungible. If a service provider you like goes under, you aren’t guaranteed to find another one who satisfies your needs in the same way.