Any entrepreneur who ships worldwide has experienced the battle of shipping carriers first-hand. When choosing the best carrier for the job, the decision usually comes down to the big three: FedEx vs UPS vs USPS based on the price, delivery time, and reliability.
We look at the strengths and weaknesses of each carrier and what you need to do to negotiate the best possible deals. You don’t want to miss our high-level look at shipping and the strategies for shipping around the world with the most reliable and lowest cost carrier.
Andrew: Today I’m talking about something that everybody that’s got a store has dealt with, has kind of dove in deep for better or for worse on, and that is shipping carriers; USPS, UPS, FedEx. And it may not be the sexiest topic in the world to talk about, but it gets pretty sexy when, if you’re using the right guys, you can increase your profits 30-40%. So it’s an important thing to talk about.
Joining me to dive in is Mr. Bill D’Alessandro from Rebelceo.com. Bill, how’s it going, man?
Bill:: Going well. Thanks for having me on.
Bill: I have spent the last couple of months negotiating hard with all of the carriers since we just opened our warehouse here in North Carolina. So I’m up on this stuff.
Andrew: Do you have like a little back room where they come in, and you lead them into this dark room and good cop/bad cop style and just lock them in until you get the rates you’re looking for?
Bill: Yeah, I just club them over the head.
Andrew: Do they actually swing by seriously?
Bill: Oh yeah, absolutely. Yeah, they come by. They’ve got reps in person. Sometimes they come by unannounced because they’ve got a coverage area. So my UPS guy comes in a lot, and then the Postal Service, this is one of the things that took me aback about the Postal Service. They have sales reps, which it never really occurred to me because I just thought that they were a government utility. But there are sales reps for the Postal Service that will come into your warehouse and help you evaluate which boxes you’re using and which class of service you’re using, just like a UPS sales rep would. And try to get you to spend more with the Postal Service. So it’s exactly great. You can negotiate rates with them. We can talk all about it.
Andrew: Very cool. We’ll get into all this stuff. So let’s dive into it, the three carrier smack-down. Let’s get into the details. So, Bill, I figured we could start out with good old Uncle Sam’s USPS, the U.S. Postal Service. Of course, most people know this, but it is an entity run by the U.S. government. Maybe just do a simple strengths/weaknesses for all these guys. USPS, they’re fantastic for anything lightweight, and they’re going to be a killer choice. Oversized, especially with a lot of the dimensional weight changes that happened about a year ago now with UPS and FedEx. I found they’re cheapest for international shipments, at least, smaller ones. And those are the big three things. We’ve changed over probably early this year. I think we mentioned in an episode in the past from doing a ton of UPS to almost exclusively doing USPS because the savings were substantial.
Bill: Yep. That’s been my experience too. We ship out of our warehouse here about 90% of our packages are Postal Service packages. For the specific reason you mentioned, lightweight is especially one of them because we sell a lot of face creams and single bottles of shampoo and things like that. Let’s put some quantification around what lightweight means. Typically in my experience, it’s two pounds or less. The Postal Service is pretty damn hard to beat price-wise and service level-wise. You can use first class mail and priority mail, under two pounds, and it’s going to be there in two to three days anywhere in the United States for a couple bucks essentially. Even UPS and FedEx will tell you point blank they can’t compete. They don’t want to. They can’t make any money in those packages.
Andrew: They’re like, “We don’t have a taxpayer base that can subsidize us. We can’t compete on this.”
Bill: They say that. They say that straight to your face. They go, “We’re unsubsidized. We have to make a profit. We’re not competitive on it.” I mean, they’ll take those packages, but it’s more expensive. We do ship some international Postal Service because it is dramatically cheaper. I mean, you can get stuff overseas for $10-15 versus FedEx is going to be 30 bucks or UPS would be 30 bucks. But my trouble is with the Postal Service when you ship international with the Postal Service, they basically take it to the foreign country and hand if off to the local Postal Service in that country. And then you are subject to all of the reliability or lack thereof of the international government variety Postal Service. So I tend to, if I ship Postal Service internationally, we lose, just gone, theft, whatever it may be, 3 to 5% of packages that we ship Postal Service internationally.
Andrew: Yeah. It’s interesting that you talk about that. But yet, I think it’s still a fair point. You still use it, and I think a lot of times when you’re comparing which carrier to use, obviously you want the best service and the cheapest cost. But sometimes, even if one service has a little bit lower reliability like in the USPS in a lot of cases, if they’re dramatically cheaper and it comes to the point where the savings you make, that you see based on using them, allow you to spend two or three extra packages completely out of pocket per month and you still come out way ahead, it’s a no-brainer to keep doing it.
Bill: That’s exactly how I feel about it. Yeah, we’re going to lose some packages, but net-net, the ones we have to reship aren’t costing us as much as it would cost to send everything UPS, for example.
Andrew: In terms of another strength for USPS, is going to be their delivery time, at least in terms of economics. Of course, you can get anything overnight if you’re willing to pay for it, of course, but a couple things go in USPS’s favor. The first one is Saturday. I mean, Saturday is a business day for the USPS in transit. And so, just by default if you’re shipping something three day mail on Friday, if you ship it UPS, Saturday one, Monday two, and Tuesday is three. It’ll get there Tuesday, whereas UPS, you know it’s not going to get there until the next day, until Wednesday because they don’t work on Saturdays unless you’re paying extra.
And secondly, two to three day priority like you were talking about, and it can get real expensive again it’s different, but for most items a lot of times it’s a lot cheaper than, let’s say, UPS three day or their second day air service. And it’s gotten more reliable too, which is cool.
Bill: They changed, I think, it was two to three years ago. They changed priority mail where they give you a guaranteed time frame when you ship the package based on zip code. So when you ship the package you’ll see now it prints on the labels, one day priority or two day priority or three day priority. So we sell shipping by class of service on our websites, not exact carrier and method. So we’ll sell two day shipping, and if we need to we’ll send it UPS, but oftentimes two day shipping just goes priority mail. And the Postal Service gets it there in a couple of days. We pay $5, and the customer paid $19.99. We talked more about that in the free shipping episode, about how to structure that.
Andrew: Yeah. So definitely USPS has got some awesome, awesome strengths if you know how to use them correctly. But, of course, it’s the USPS. They’ve got some downsides too. First one, I’ll just throw it out there, Bill, and maybe let you take it from here if you’ve got any stories or experience. But the tracking I have found is…UPS will say, “It’s in the warehouse in the northwest corner being attended to by Lavon at this moment.” You know exactly where it is, right? USPS says, “Currently your package is in the western half of the United States,” and that’s about all you get.
Bill: Right, right. It’s a little weak, and also like the delivery confirmation is a little bit tough because UPS, I found the drivers will actually take it to the door a lot of times, especially in apartment complexes. We have problems with if we ship with Postal Service that people call and go, “I never got my package” and they’re like, “It’s not with the manager.” I’m sure it’s somewhere in the building. Whereas UPS and FedEx typically like hop in the elevator, go up to the unit, and leave it right at the door. You get better delivery confirmation, I found too, with the private carriers.
Andrew: Speaking of delivery stuff not getting there, USPS, a lot of times if you hop on the phone, and this is something I’ve heard a lot of times secondhand through either our suppliers or our own team. It’s kind of a nightmare getting somebody in terms of customer support to track down a package and get it resolved, whereas UPS, it’s still not fun but there’s a lot more ownership and a lot easier to get someone to take responsibility and get the ball moving on a resolution versus the Postal Service.
Bill: We actually decided a while ago just, if a Postal Service package is lost, we don’t even try to find it. We just reship it.
Andrew: Wow. That’s pretty bad.
Bill: You know, it’s 30, 50, 80 bucks a product, and it’s going to take me an hour to track it down, whereas, you know, I’m just going to reship that. It’s just a nightmare. I’m going to lose my hair that way plus all the therapy.
Andrew: And then finally, it’s the mirror image of the pro, USPS is, of course, cheaper on the light side. But once it goes over two pounds, like you mentioned Bill, it’s terrible, a terrible choice for really heavy stuff. You know, if you’re shipping trolling motors or gun safes, not the choice for you, of course.
Bill: So true. Small caveat to that though. If you are shipping very heavy, very small things, like liquids or jelly beans or something that is small and dense, the Postal Service has this thing called cubic pricing you can get where they don’t charge you on weight at all. They only charge you on volume, and it can be very, very economical for small, dense heavy things. But yes, for large things they kill you.
Andrew: Yeah, the same thing goes along with their flat rate boxes, right? Like they’ve got those boxes. You could put uranium, stuff it full of uranium. The guy could barely pick it up. They’re not big, but they just go flat rate. I think my father-in-law actually, as a prank, mailed a couple of boxes of rocks to his aunt or something in those. I think he annoyed not only his aunt but the USPS reps as well as the delivery man as they delivered it.
Andrew: So let’s transition into UPS, and the caveat here with UPS talking about the UPS strengths and weaknesses, it’s funny, Bill, I sent this over to you. I was writing up the original outline. I sent it over to you, and in the FedEx section on strengths and weaknesses, I wrote “I have very little experience with FedEx. Hopefully, Bill can weigh in here.” You wrote back and you said, “I don’t have any experience with FedEx either for the most part.” So, it’s funny. We can get into this a little bit more, but a lot of these are going to be very similar, the strengths and the weaknesses of UPS and FedEx kind of go hand in hand, just so people know.
But maybe when we get down to this and we can wrap up, why more people aren’t using FedEx in the eCommerce world?
Bill: I don’t know why, but we said earlier before this call, it seems to me about three quarters of people in the eCommerce world go UPS. I’m pretty sure Brandon Ealy [sp] from the forums, he’s a FedEx guy or was. But for the most part I feel like most people use UPS, I don’t know why.
Andrew: Yeah, it’s crazy. So strengths of the two big guys, UPS notably with some carryover. Great technology like we’re talking about. I mean, tracking, the call tags. You can print out call tags. It’s super easy to give them back to people. They’re prepaid. I mean, heck, this isn’t necessarily as applicable to us, but I’m sure you heard the story, Bill, about how the UPS trucks are programmed to take as few left turns as possible, and their routes are all designed to take right turns to be able to make them go as fast as possible. Have you heard that?
Bill: Yes. And also I just read an article two days ago. They go so much farther beyond that. So you know those little things that you sign when you get a UPS package, you think it’s just like a signature capture thing, it’s not. That thing is GPS enabled, and it tracks everything. It tracks when the engine was turned off in the truck, when the doors were open, how long the doors stayed open, how long the driver was out of the truck, like everything. They track everything, and the drivers get metrics based on their efficiency. So if your UPS driver shows up and you want to chat with him, he’s not going to like you very much.
Andrew: You gave me a wonderful, evil idea for the next time he rolls up.
Bill: So they track everything obsessively at UPS.
Andrew: That’s amazing. I wonder. It would be fun to have a UPS driver on the podcast.
Bill: That would be awesome.
Andrew: Yeah, just tales from a UPS driver. If nothing else, for the human interest stories I’m sure you’d get out of it. That’s amazing. I didn’t know that. More advantages, of course, and a lot of these are going to be inverse to the USPS, so we won’t dwell on them too much. But great for shipping heavier items, of course. They tend to be the better choice. Not a government run agency. We mentioned that’s always a plus.
And, Bill, maybe you can speak to this. I know you negotiate with all your carriers. Are they easier to negotiate better pricing with than USPS? Are they more open to that, more hungry for your business?
Bill: They’re very open for it. I would even say, if you have not negotiated your rates with UPS or FedEx, whoever you are using, you are getting ripped off hard. The retail rates are expensive because they expect to discount them 25%. So you should be able to negotiate major, major discounts with UPS or FedEx just by calling them. We ship all UPS. We don’t use any FedEx, and that’s because every year we pit them against each other. I call the FedEx rep, and I go, “What can you give us?” And I really don’t want to switch to FedEx, but he gives us good pricing. And then I take it back to the UPS guy and go, “Here’s what FedEx has. You’re going to need to beat it,” and they do. You can call UPS, like we ship a lot of five gallon buckets of shampoo, you know, heavy. Typically from California to North Carolina about 40 bucks.
Initially, it was costing us 60 bucks to ship those, and we were able to negotiate discounts, specifically from that zip code to our zip code on certain size packages down to $37 now, is what costs us to bring one of those in. So they can super granular with their discounts, even on to and from zip codes and certain service ranges and classes. If it’s two day or if it’s ground, you can get very, very granular with your negotiations with UPS and FedEx.
Andrew: This is something I’ve never done before because we drop ship most of our stuff. And so our suppliers are the ones that negotiate directly with the carriers. When you do that, Bill, how does that work? Do they have a sheet where it’s just like here’s the rate sheet. Here’s what you get, and then you negotiate for a percent off the different services at the different price rates. Because there’s obviously so many variables. How do you approach negotiating all those different moving parts?
Bill: It’s pretty much all. They think of it as discounts off of retail rate, and it’s a whole matrix based on…it also fluctuates based on how much you spend. So if you spend $1,000 a week, you’re going to get a different discount level than if you spend $2,000 or $3,000 a week. But you negotiate it all at once. And so just as your spend goes up, your discount goes up. It’s based on, I think, like the trailing four weeks. Don’t quote me on that. It’s basically the more you spend, the more you save with UPS, and I don’t know if FedEx is the same way. But I’m sure they are.
Andrew: Which is why Amazon pays like $1.50 to send a safe across the country.
Bill: Exactly, exactly. So, for example, hands down if you’re going to negotiate with your carrier, gather your data and get your rep in, your local rep. There is a local rep for the post office and for UPS and for FedEx. They will come to your office. Sit with them and go, “Here’s what I pay with…” Let’s say you’re shipping all Postal Service. Just bring your UPS guy in and say, “Here’s the facts of the case. Here’s how much we’re paying with the Postal Service. I would love for you to make yourself competitive on some of these two pound plus packages. What can you do for me?”
Bill: I don’t play games with them. I just show them what my rates are from the other guys. And I say, “You know this is all about cost.” And they’ll try to give you this crap about service level and the brown trucks and how nice their drivers are and all this stuff. But I just say, “Look, I mean, it’s all about money right here, and if you can get my packages there reliably and cheaper, I’ll use you.” And they seem to respond pretty well to that.
Andrew: Final UPS strength, the uniforms, man. Anything classier in the world than a brown UPS uniform?
Bill: That’s true. This is my one UPS, sort of, uniform story. Our UPS driver in Denver, Colorado, we were on the third floor. So it was a third floor walk-up to our office, and he would come up and he was just this jacked guy and the short sleeve UPS. He had a lot of tattoos, but he had on his fingers…have you seen Boondock’s hands where he has veritas, equitas in the movie? Our UPS driver had those tattoos on his gun fingers. And so he would hand you the package, and he would hear the Boondock’s dance music. And he would look at you sideways, and you’re like, “Please don’t hurt me.”
Andrew: That’s awesome, man. If only we all had such an awesome delivery guy.
Bill: He was very nice, but he was a little scary.
Andrew: Maybe this is a bad time to go into UPS weaknesses, if he’s listening, but we’re going to do it anyway. Now, a lot of these maybe, again…we won’t dwell to much on them because at this point they’re just the mirror opposites. But UPS, super expensive for light, lighter oversized options. We ship a lot of antennas which are super light. I mean, they weigh less than a pound, but they’re five feet long. And so based on the DIM pricing we get killed on those. You pay extra for Saturday shipping, for fast shipping a lot of times, USPS rather. Priority mail can be a little bit more cost effective, and they have fewer drop points.
I don’t know about you, again, Bill. It’s a little bit different. You’ve got a warehouse. You’ve got a UPS guy showing up every day, but as a drop shipper I get stuff back to my house almost weekly that I have to send back to my suppliers. And it’s a huge pain because I have to take it, repackage it, put a call tag on it, and then drive to a UPS store somewhere and drop it off. USPS is everywhere. They’re going to every house every day which is really nice.
Bill: That is cool, especially if you’re a home-based business. Your mailman will take your packages if you ship Postal Service as many as you want. You can hand him a hundred packages, and he will do it.
Andrew: Bill, there’s a hybrid service that’s called SmartPost for FedEx and SurePost for UPS. It’s where the big guys, FedEx or UPS, they get it most of the way there and then hand it off to the post office. It’s not something I have a lot of experience with, but could you maybe talk quickly about how it works and why somebody would want to use it?
Bill: Yeah. So these services are really for the bigger merchants out there. They come with minimum spend levels. UPS and FedEx, these are discount services. So they’re making such little money. They really require you to be spending a lot in postage, and I think when I say a lot, I mean, five to six figures every year in postage with UPS or with FedEx before they will give you access to these products.
I used to be in outsource fulfillment before we opened our own warehouse, and they were a FedEx shop so they spent double digit millions every year with FedEx. So they had access to FedEx’s product which is called SmartPost, and the way it works is FedEx basically runs the tractor-trailer to the local post office, and then the postman takes it the last mile to the house. Because FedEx and UPS aren’t going to every house every day, whereas the Postal Service is. It costs them a lot to add curbside, door to door service, whereas the Postal Service is already doing it.
So you’ll pay a SmartPost or SurePost rate to UPS or FedEx, and they will run it, they’ll pre-sort it, and then take everything for one neighborhood that’s going SurePost. They’ll take it to the local post office, and the postman will take it door to door. It typically adds one to three business days to the ground time. So it can be anywhere from 7 to 10 business days in transit, but it’s cheaper than ground, and it eliminates your residential delivery surcharges if you’ve ever experienced that with UPS or FedEx. It can be a nice hybrid where you can get cheaper rates out of the private carriers because they lean on the Postal Service to do the last mile delivery, and they kick them back some unknown percentage of the postage. The drawback is 7 to 10 business days, and you can’t really get into it if you’re below a certain spend level.
Andrew: I wonder why they have those requirements. I wonder if it’s they just realized that…obviously if people can just use their in-house service completely, they’re probably making more money. So I wonder if it’s just they don’t want to give up that margin unless they have to, but they know that the most price sensitive people are the big guys that are going to be spending the most money. Maybe that’s the rationale.
Bill: That’s what my reps have told me. It’s just a low margin product, so they don’t want…the small guys, they want them on. It’s adds a tax on them to deal with you. Just to deal with one incremental business. So if you’re a small business, they need you to be higher margin. If you’re a larger business, you can be a lower margin and they can still make money on you. So I think that’s why they save it for the bigger boys. I had, when I was doing the outsource fulfillment, we had some mixed experiences with FedEx SmartPost. Because with tracking, by the time they handed it off to the Postal Service, it was dubiously tracked and it took two weeks sometimes. It was cheaper, but it wasn’t great. It was nice for a three to four pound package, like you could get it there for five, six bucks.
Andrew: Versus what would it be if you just sent it FexEx?
Bill: Oh, 12 plus.
Andrew: Wow. So significant cost savings.
Bill: Significant. Again, the Postal Service has gotten more competitive a little bit, but definitely a significant savings but I have heard the UPS product, SurePost, is better trackable. And they advertise, at least, my rep has said to me. “Their SurePost product is ground plus one day.” So for whatever that’s worth, they seem to be convinced that the UPS SurePost product is stronger than the FedEx SmartPost product. You know, you be the judge.
Andrew: So in wrapping up, I want to come back and touch quick on FedEx, you know. And, again, we commented on it earlier, but why it is that I use UPS for most of my non-Postal Service packages. Same for you, I know you used it a little bit when you were outsourced, but just in the forum and in the community that’s probably three quarters is a safe bet. It was funny because I got online before we were doing this and did a bunch of research, you know, UPS versus FedEx. A lot of it was the same.
There was some details that came up. For example, FedEx apparently has more airplanes. UPS has a better ground fleet, and a couple handful of places said FedEx was slightly cheaper in some cases. But again it’s all based on the package, and your rep and what you can negotiate. So in terms of size, UPS is a little bit bigger, maybe by a third or so, but roughly it’s not like two or three or four times as big. So I wonder what it is about eCommerce and UPS that makes them be the de facto choice or get used more often. It’s weird.
Bill: I don’t know. I think part of it might be their website is a little bit better.
Andrew: How so? Just more…
Bill: As far as onboarding. I think it’s easier to get signed up for a UPS account.
Andrew: Okay. Interesting.
Bill: I don’t know when the last time it was you signed up for a FedEx account, but when I did mine it was a real pain in the butt.
Andrew: It’s been a while.
Bill: And harder to integrate too. If you want to integrate FedEx with ship station, there’s like a bunch of hoops to jump through, whereas UPS, it’s a little easier.
Andrew: Interesting. Well, if you’re listening and you love FedEx and you don’t work for FedEx, head on over to eCommerceFuel, and we’ve got the show notes. We’ll have them all posted up on the blog there. Let us know in the comments. It’d be interesting to hear your experience and what it is that we’re missing because I’m sure it’s something. So a couple of articles I want to leave you with, one from Steve Chou, of course, a long time member of the community, wrote a great blog post on the cheapest shipping option; USPS, FedEx, or UPS. We’ll link up to that as well as a Practical eCommerce article comparing all the different carriers.
So, Bill, you know a ton about this man, and just even apart from that, fun as always bantering back and forth. Thanks so much for coming on.
Bill: Any time. Talk to you next time.
Andrew: That’s going to do it for this week. If you enjoyed the episode, make sure to check out the eCommerceFuel private forum, a vetted community exclusively for six and seven figure store owners. With over 600 experienced members and thousands of monthly comments. It’s the best place online to connect with and learn from other successful store owners to help you grow your business. To learn more and apply, visit eCommerceFuel.com/forum.
Photo: Flickr/Katia Sosnowicz