Retailers face fierce competition in today’s digitally fueled environment. People on the receiving end of shipments don’t just want their items fast, but also with no shipping costs. And since customer expectations have evolved to a point where “free shipping” is the norm, retailers must figure out how to absorb those costs. In most cases, this means developing a shipping process that is more efficient and less expensive but still maintains the reliability that customers have come to expect.
Popular carriers such as FedEx are paying attention to the feedback received from retailers about shipping costs. They realized that they needed to figure out an efficient way to drive down costs without taking a hit on margins. One area of great opportunity is that of the “last mile delivery.”
The last mile of delivery isn’t literally the “last mile”, but ranges from several blocks up to 100 miles or more. And because of all the variables that go into that last mile, it’s expensive. For example, if the last mile involves traveling to a rural location with few deliveries, the cost is much higher. FedEx created SmartPost to drive down costs for that last mile and, in turn, help retailers manage their shipping costs. But how does FedEx SmartPost work?
FedEx SmartPost: Understanding the Basics
Take a look into any retailer’s business and it’s easy to see the role that shipping plays in getting a product from production into the hands of the customer. And free shipping is a perk that customers expect. In fact, free shipping is said to be the most effective promotion a retailer can offer.
Twenty-eight percent of shoppers abandon their shopping cart if presented with unexpected shipping costs, and nine out of 10 consumers say free shipping is the No. 1 incentive to shop online. So it’s not surprising that offering free shipping is a priority for retailers. But somebody has to pay for it. And since it’s the retailers in most cases, they must figure out how to manage those costs.
As touched on previously, that last mile of delivery is a huge strategic opportunity to slash shipping costs. Yet how much is that last mile actually costing? Estimates show that the final leg of delivery can comprise up to 28 percent of a product’s total transportation costs. It’s not always efficient chugging that large, fully staffed FedEx truck to locations with low delivery volume or other factors that drive up costs, especially when there is already an organization that visits nearly every single address in the United States.
FedEx SmartPost is similar to UPS SurePost in that it targets the last mile and uses the same partner to drive down those costs. This hybrid model utilizes the United States Postal Service. FedEx takes the package for the majority of its journey, but that last leg of the trip, which is the most expensive – is handled by USPS.
In most cases, two separate carriers, both FedEx and USPS, handle the package. The US Postal Service visits most addresses on a daily basis; FedEx does not. By offloading this last mile to USPS, maximum efficiency is achieved.
But what are the potential savings, and how could it impact your bottom line? Many retailers are surprised to find that the savings can be significant when this last-mile cost is decreased.
Understanding the Potential Savings of FedEx SmartPost
Costs for FedEx SmartPost vary based on what you’re shipping, where it’s going, and other key factors, but in most cases, it’s cheaper than traditional FedEx ground service. But how much cheaper?
Estimates suggest that it can be 20 percent less expensive than FedEx’s Home Delivery Service. For large retailers, this number is significant when multiplied across shipping costs as a whole. One place that this savings comes from is by having “no residential surcharge,” which makes residential delivery cheaper. While this item doesn’t make up the entire 20 percent savings, it’s one area where you aren’t charged, because USPS is completing the last leg of the delivery.
For example, if a retailer spends $2,000 on shipping each month, saving 20 percent could add up to $400 a month, or $4,800 a year. A shipper that spends twice that on monthly shipping could save nearly $10,000 a year. For retailers shipping large volumes of packages, the savings of using a service that reduces last-mile delivery costs can have widespread impacts and free up money to allocate to other parts of the business.
The key to successfully using this service is understanding the benefits and the trade-offs. The savings can be significant, but what are the pros and potential cons? In many cases, the benefits outweigh the drawbacks, but it depends on your situation and customer expectations.
A Quick Look Into Service Details
How long will a package take to arrive with this service? When does the service operate? And what are the package size and weight limitations? These questions are bound to come up when considering whether FedEx SmartPost is right for you. SmartPost provides efficient residential shipping for customers with low-weight packages. The service provides 100 percent U.S. coverage and can deliver to destinations beyond the contiguous U.S., such as Alaska and Hawaii. Here is a look at the major service details.
- Delivery time: Delivery typically takes two to seven business days, depending on the distance to the destination. Longer transit time is reported for deliveries outside the 48 states.
- Service days: Service days are Monday through Saturday.
- Delivery exceptions: This service will not pick up packages that originate outside the contiguous United States.
- Package size and weight: Maximum is 70 pounds and 130 inches in length plus girth. Typical SmartPost packages weigh less than 10 pounds and are going to residential addresses
These details are a good place to start when learning more about this service, but there are a few more important details to consider, including several advantages and disadvantages of using this shipping option.
FedEx SmartPost: Understanding the Advantages
Reliability is one key factor that is important when using SmartPost. Most users have an experience where they achieved the reliability that you would expect from FedEx. But since the last leg of the journey is covered by USPS, there are a few more advantages in addition to cost savings and reliability to consider, including the following:
- The ability to deliver to all USPS addresses: FedEx has limitations on delivering packages, and one of those limitations is not delivering to post office boxes. Yet many recipients may use P.O. boxes for their mail, which makes it inconvenient to have packages delivered to a physical address that is not typically used. SmartPost allows more flexibility in the delivery process, since USPS allows packages to be delivered to physical address or P.O. boxes. SmartPost can also ship to Alaska and Hawaii, although these options might not provide the price savings of other shipment options.
- No residential surcharge: A residential surcharge is common for delivering typical packages. SmartPost gets rid of this charge, which provides additional savings.
- Normal delivery pickup: Busy retailers need a pickup process that is easy and efficient. FedEx SmartPost packages can take advantage of the same regular shipments. For example, if you have large pickups scheduled through FedEx, you don’t need to change anything if you use SmartPost. The only things that change are that last mile of delivery and your shipping costs.
- Tracking abilities are unchanged: When using SmartPost, you don’t lose the ability to track packages. FedEx still provides a single tracking number, and you can use that number to monitor the package’s progress throughout its journey.
For many retailers, the advantages outweigh the disadvantages, but having a clear picture of the drawbacks makes for a more accurate decision.
What are the major disadvantages?
Retailers have many questions about using SmartPost for the first time, including questions about transit times, reliability, and tracking. Cost savings are significant, but there are some trade-offs.
- Slower transit times: Delivery times will be slower. Plan for an additional two to five days compared to ground and home delivery. Slower transit times can be worth the trade-off when packages aren’t time-sensitive and expectations are set with customers ahead of time.
- Shipping fees outside the lower 48 states are high: SmartPost can be used to ship to destinations such as Alaska or Hawaii. However, fees may be much higher – making the use of this service not cost-effective for these locations. In these cases, it might be best to ship directly through FedEx or a similar carrier. As a result, it’s critical to consider shipping location when figuring out whether this option is the best selection for you.
- Unified tracking is reliable but may confuse customers: A benefit of using SmartPost is that recipients can track the package even when it’s on the USPS leg of the journey. Shippers report that once FedEx hands off the package to USPS, it will indicate briefly that the package has been delivered. USPS is then responsible for the final delivery, and within 24 hours, the package tracking will show “out for delivery.” However, this process can create some confusion during that short 24-hour period.
In addition, it’s important to understand that a few of the traditional FedEx services are not available with the SmartPost option, including:
- Collect on delivery
- Money-back guarantee
- Declared value
- Signature proof of delivery
- Evening or by-appointment delivery
- Hazardous materials service
With SmartPost, USPS typically provides the last leg of delivery, but in some cases, FedEx does not transfer the package for the last mile. For example, if FedEx is already in the package area and it’s efficient for the carrier to complete the last mile, then USPS is not used. However, for the majority of packages, USPS is used with this service.
Weighing the advantages and disadvantages comes down to answering one question: What are the customer’s expectations, and are those expectations flexible? If the answer is “yes”, then using FedEx SmartPost might be a good option, especially if you communicate expectations clearly to the recipient ahead of time.
Moving Forward With Greater Savings
FedEx SmartPost is not for every customer. If a customer needs fast shipping, this is not the service to use. The speed, however, is reasonable for most customers who do not need expedited shipping. Additionally, if a delivery is going to Alaska or Hawaii, it’s wise to compare costs. These destinations are within the footprint of service but may not be the most cost-effective, so it’s good to check.
Overall, in most situations, SmartPost can be a cost-saving solution for retailers shipping a large volume of items to customers that need options for savings. FedEx achieves reliability with tracking and additional perks, such as Saturday delivery. And for companies struggling to make free shipping work with their bottom line, services such as SmartPost could be the solution.
Shipware delivers volume parcel and less-than-truckload shippers intelligent and innovative distribution solutions and strategies. Whether you ship with FedEx, UPS, USPS or regional carriers, our contract audit and negotiation services are guaranteed to reduce your parcel and LTL shipping costs by 10 to 30 percent, with no disruption of current operations. Our team of experts has over 200 years of carrier pricing experience. We have negotiated thousands of FedEx, UPS and LTL contracts and saved our clients an average of 19 percent.