Reducing Shipping Costs for Low-Volume Merchants

The free-shipping age squeezes smaller merchants. They need to match the transport policies of bigger competitors, but they do not obtain the high-volume shipping discounts that the larger companies do. Smaller merchants must pay more, in other words, for offering free shipping.

There’s a business that provides high-volume shipping discounts to low-volume ecommerce merchants. The business is EquaShip. We recently spoke with its CEO, Ron Wiener.

Practical eCommerce: How can your company’s service help smaller merchants reduce shipping costs?

Ron Wiener:“Look at Amazon, Target and Walmart — those [big ] businesses — and ask how they are able to do free delivery. It’s because they are using postal consolidators. Today one out of six bundles is actually delivered by the U.S. Postal Service, but it had been picked up by FedEx SmartPost or UPS SurePost or Newgistics or Blue Package Delivery, among the postal consolidators. There are 13 of these in the nation now.

“All postal consolidators have had a hard and fast rule. You have got to have a certain quantity of volume — say 300 packs a day — before they will work with you. What they really want is trailers [filled with bundles ]. They appeal to the very, very large shippers. Consolidators give large shippers extremely low delivery costs compared to UPS and FedEx since the consolidators are using the Postal Service for the’final mile’ of delivery. The Postal Service, of course, stops at each house already daily. There are no residential or delivery area surcharges which you are used to seeing from UPS and FedEx.

“What we have done at EquaShip is we made a’first mile’ network to aggregate the volumes out of smaller shippers — even 1 package a day — to the very same vehicles, into the very same trailers, together with Amazon’s bundles and everyone else’s so they could have access to postal consolidation prices. For that reason, we are able to supply rates that are 40 to 80 percent lower than FedEx and UPS residential retail prices for ground delivery, for instance. The flip side of this is, it’s a slower delivery time. Especially in transport, you get what you pay for. It’s all ground transport but the savings are absolutely terrific. That’s what is going to let small and medium size merchants to continue to offer free delivery and not lose their shirts.”

What is a Postal Consolidator?

PEC: You mentioned the term “postal consolidators.” Please explain.

Wiener: “Sure. UPS and FedEx typically stop about every 20th speech in the U.S.. They really don’t enjoy residential deliveries. It is very expensive for them. The Postal Service, on the other hand, they are going to stop at each and every address each and every day. What exactly happened in the late 1980s is the U.S. Postal Service created a category named Parcel Select. It had been kept fairly quiet; some of the largest shippers in the country were using them, but we did not have large ecommerce businesses like Amazon.com back then. You might have experienced Sears and those Types of companies

“The idea was that the Postal Service is quite effective at picking up and delivering packages since they stop at each home every single business. However, the’middle mile’ was extremely expensive for the Postal Service compared to the carriers. So, the Postal service permitted these’parcel pick carriers’ — also called’postal consolidators’ or’zone skippers’ — to carry product, typically in trailers. The consolidators would sort it out and they would send it out into the five-digit zip code level — all the way down to the last post office for the area that client lives in — then they would hand it over to the Postal Service. From that point, the Postal Service would send it to the residential customer. The total cost of this is much, much lower.

“However, traditionally, that business has functioned large enterprise businesses. With the boom in ecommerce and the combination of bundles, we are now approaching 50 percent being residential deliveries. It was almost entirely business-to-business. What’s happened is Amazon and other significant sellers have pushed UPS and FedEx to enter this [consolidation] business, through acquisitions. Since about 2006 you’ve FedEx SmartPost, UPS Basic — today it is named UPS SurePost. And they lead the pack today alongside DHL International Mail, Blue Package Delivery and then there are nine others. This is a massive industry today and literally one from six parcels from the U.S. is picked up by a postal consolidator and then passed to the postal service in the last postal facility — in the five digit zip code level typically — and delivered from there. So, what we’ve done is make accessibility for smaller clients who do not have trailers full of these packages daily and we aggregate our parcels literally traveling in the very same trucks with Amazon’s parcels.”

PEC: Walk us through the process, please. Say I am an ecommerce merchant. I wish to use EquaShip. Let us begin with picking up a customer order from my place of business and bringing it to my client.

Wiener:“The procedure works very like what you are already used to with UPS and FedEx. When a client signs up with us, we ask them a few questions regarding pickup. If they send more than $100 per day, we do not charge anything for pickup. If they have less than $100 per day value of shipping charges then it is a $10 pickup fee. Currently we’re focused mostly on the U.S. East Coast except for the very largest shippers.

“They [merchants] go on the internet, they create their labels, typically through precisely the identical software they are managing their site with, such as ShipWorks. Certain ecommerce platforms such as Vendio have incorporated us.

“We do not attempt to compete with USPS’s Media Mail and Library Mail. However, with bread-and-butter ecommerce shipments, should they choose us, they print a label for us, they go online to schedule pickups. It is all very easy to do through our site. Then we show up and pick up the bundles. They’re transported to our sort facilities, intermingled with other important retailers — it could be Target, Amazon, whoever — then transported all the way through to the last destination facility and the client gets it into their mailbox or a postal carrier brings it to their doorstep.

“Around 40 percent of the time, with Postal shipping, it winds up in the mailbox as it is a little package. But, it will get a complete delivery scan code. A good deal of people do not know that. The USPS has been doing it for many years. You receive a full scan code which literally says it was sent to the mailbox or to the client by the postal carrier.”

What Are the Actual Savings?

PEC: You mentioned that when the delivery volume is less than $100 per day, there is a $10 pickup fee. You have also alluded to the significant savings per shipment or per package. Can you give us an idea of what those savings could be for a merchant?

Wiener:“For industrial and rates from USPS, we overcome those in a minimum of 22 percent. Even FedEx SmartPost, we beat their prices between 24 and 60 percent. It depends upon the weight obviously. But in the 1 pound to 5-pound variety, we will save 24 to 60 percent. On FedEx and UPS Ground residential, our support is 40 to 80 less expensive.

“Anybody can visit our site at EquaShip.com and look at our pricing table at the pricing tab or download what we call the’Savvy Shipper’s Secret Weapon Instruction Manual’, which is really our pricing guide. They’ll see dollar-for-dollar comparisons against everything from Parcel Post to FedEx Ground to DHL International Priority Mail. There are a few flat rate products such as the USPS flat rate envelopes and flat rate small box that we do not usually compete well against. But, on moderate size boxes, large boxes, or on the zoned Priority Mail product, we could be around 70 percent more affordable.

“We’re rolling out our national network of drop off locations. Smaller shippers usually do not want to do pickups as they might have a day job — they are not home to have a pickup — they do not need to cover the home pickup fees that FedEx and UPS impose or they do not need to leave it out on their doorstep. Consequently, they generally will drop it off in a post office or a UPS store or FedEx office on the way to work the following day. We’re building our own network of drop off locations.”

PEC: How can a merchant cover your services?

Wiener:“It works exactly like Endicia or Stamps.com, which just about every ecommerce shipper is acquainted with. They place a credit card on file with us and they place a minimum account balance and then the recharge amount. It automatically tops off when they hit their minimum account balance — let’s say $20. And they can put up to $300 at a time onto a credit card fee. If they wish to do over that they could use an ACH transfer. It automatically takes care of itself.

“One thing I should note that’s truly quite different between EquaShip and the way the other carriers have a tendency to work, we’ve got no additional surcharge fees in any respect. Our prices are just as you see them. There are no DIM weight charges, residential delivery charges, rural delivery fees, address correction fees or anything like that.”

Shopping Cart Integration

PEC: How does this incorporate in a shopping cart? Do you provide an API to get a merchant that wants to tie in directly?

Wiener: “We do. If a merchant goes to our home page, he or she’ll see dozens of platforms we have already integrated with. So if they are on an ecommerce platform such as Volusion that does not actually have a delivery module, they will see software packages like ShipWorks already support us and join to Volusion. Tons of different platforms are already incorporated or will be incorporated within the upcoming few months.

“We also have our own API accessible because the larger the player receives, very often they have written their own software in order that they need to perform their own API. We have had lots of clients do this as well. It is pretty straightforward. I also should mention that you could also visit our website in EquaShip.com and use the software that is there.”

PEC: Let us talk about other possible competitors. The point you make on aggregating several merchants to get volume discounts is a similar to third party fulfillment companies. Does your service compete with third party fulfillment businesses?

Wiener: “No, not at all. We have heard from a lot of these because we have launched and what we hear a great deal of is that quite often they allow the merchant choose whether they would like to utilize their own account or they would like to join the group account from the fulfillment company. With the exception of fulfillment by Amazon — that is an entirely different story — most third party satisfaction houses give customers the choice. What we’re hearing, at least in those that have contacted usis that a large part of their clients use their own accounts.”

Not for Each Merchant

PEC: Are there any merchants that wouldn’t benefit from EquaShip?

Wiener: “Yes. There are merchants that send nothing but DVDs with the USPS Media Rate. That is a subsidized rate. It’s something which the post office still supplies. It’s a fantastic deal for folks that are sending pure media. We don’t attempt to compete with that. As I mentioned, Priority Mail letters and Priority Mail little box — it is based upon the weight — we do not compete with too.

“On the flip side, we’ve got clients who use us only because of our insurance. We are the only parcel carrier to provide real insurance — what is known as open peril insurance — on parcels. There are no other carriers which do this. UPS, USPS, and FedEx all provide what is called DV coverage — declared value coverage — that merchants are familiar with.”

PEC: Tell us a little about EquaShip. When was it founded? Who owns it?

Wiener: “Sure. We had been founded about two and a half years ago by a bunch of individuals who came from the ecommerce space, in addition to the logistics industry — former FedEx, USPS, UPS, and DHL people. We’re funded by private investors and a few angel investors. But also our biggest investor is a Fortune 500 firm named Newell, which happens to possess Endicia.com. So they’re very knowledgeable about this space. We’ve got a very tight connection with Endicia and USPS — a strategic connection all the way around as a result of that. We’re a private company so we do not disclose our earnings or profits.”

PEC: Anything else?

Wiener: “Yes. I think what people really have to realize is that we built this business quite specifically not to take enterprise clients. FedEx and UPS have been in a race to the bottom, providing 80 percent reductions to the largest shippers and increasing rates 7 to 10 percent annually efficiently to small and medium sized clients. This created lots of unintended consequences. Here comes ecommerce and the entire ecosystem is threatened for small and medium sized shippers to live online. So part of our business plan is’do not take enterprise clients’. We won’t need to subsidize enormous reductions by charging a lot more to smaller clients. That’s primarily how we are able to accomplish the economics that we’ve got.”