From a carrier perspective, what do you think is the most expensive segment in getting a package from a seller’s facility to the end-customer? Your options are: the pick-up, the hub sort, the line-haul/air shipping to destination city, or the ‘last mile’ delivery? If you chose last mile as your answer you are correct! This last mile delivery is defined as the carrier picking up your package from a local hub and delivering to your door.
The Last Mile Delivery Conundrum
So why don’t carriers like FedEx or UPS like the last mile delivery segment? Simply put, lack of density. It is expensive to deliver packages when you don’t have density of multiple deliveries in the same neighborhood or extended nine-digit zip code.
Let’s look at contrasting examples:
Ex. 1 – A FedEx Courier that has 100 deliveries spread over a 14-mile radius
Ex. 2 – A USPS Courier that has 100 deliveries in one neighborhood
It’s simple to see the USPS courier is going to be far more efficient than FedEx could ever be. The time for USPS delivery may be one minute per address while the time for FedEx delivery may be 4 minutes. Obviously, USPS can be wildly more efficient. They should be able to hire less couriers on a per address delivered basis.
Now what is the other big advantage of USPS? Contractually, the United States Postal Service must deliver to every U.S. address six days a week. Now this law, defined as a Universal Service Obligation (USO), was built on the idea of mail delivery. However, if USPS is going to your home every day except Sunday for mail delivery, they can very easily add package delivery to that equation for minimal cost.
The Other Side of the Coin
So, if we know USPS can dominate efficiencies of scale on last mile delivery what is the thing USPS struggles with? The answer is long-haul trucking. USPS certainly can take a package from New York to Los Angeles, but they often do broker out on other companies’ assets. USPS does not have near the cross-country infrastructure that FedEx and UPS have with their hundreds of sortation facilities. At one time USPS was FedEx’s largest customer as they bought tons of air cargo space daily from there (essentially renting space on FedEx’s planes and fleet).
What we are left with then is two extremely large and powerful companies in the delivery space. One specializes in last mile delivery. The other specializes in national transportation. Thus, SmartPost was born to be a cheaper alternative to other shipping services, including core offerings from both FedEx and USPS. FedEx SmartPost is a hybrid solution that takes the best elements of each company to provide shippers with cheaper shipping options. The reason it is a cheaper alternative is both companies are playing to their core strength instead of having to deal with the entire supply chain of package delivery. It is quite brilliant really.
Why is FedEx SmartPost So Cheap Compared to Traditional Services?
Even with exploding ecommerce volumes hitting all type of carriers: national, regional, and local it still is not enough to create density in non-urban areas. The rural areas are really what kills a carrier. Therefore, they often charge expensive accessorial fees to help drive the extra mileage and labor to deliver these sparse deliveries. It is bad enough that you must pay the freight, fuel, and a residential fee, but with FedEx Ground services destined to rural areas you are going to pay additional Delivery Area Surcharges (DAS). These charges can easily make up 20-30% of the total cost of the package. If those charges are being passed to shippers it can quickly erode margins, especially if free shipping is offered promotionally or on an ongoing basis.
Therefore, FedEx SmartPost is a perfect solution for shippers. FedEx is doing what it does best – providing low(ish) cross country transportation to USPS local centers that then do what they do best – deliver to your mailbox cost-efficiently. By having this partnership, the overall rate structure is much lower than traditional Ground services.
It is fair to point out you will not have the same delivery standards as you would with FedEx Home Delivery. You can add at least a day to all destination points, some more rural areas can see 2-3 additional days. Also, FedEx Home Delivery is a money-back guaranteed product (if you negotiate it in your contract). SmartPost is not a guaranteed service. If your package delivered when it was supposed to, or it delivered two days later than it was supposed to you can not file a service claim for a refund.
So How Much Cheaper is SmartPost?
Conservatively, it is safe to say SmartPost can be as much as 20% lower than your current Ground/Home Delivery shipping rates. There is no residential delivery surcharge like there is on Ground services. However, a few years ago FedEx did institute ever-dreaded delivery area surcharges with this service. There can also be fees for non-machinable and oversize packages. FedEx SmartPost is a contract only service. It isn’t open to the general public, but if you have enough minimum volume daily to warrant the service FedEx will work with you on discounted rates like they do with other contracted services. Bottom line: FedEx SmartPost is one of the cheapest shipping options on the market
Service Details of SmartPost
There are only a few service details to keep in mind:
- Transit: Delivery typically takes two to seven business days, depending on the distance to the destination. Longer transit time up to 20 days has been reported to Alaska and Hawaii.
- Delivery Days: Service days are Monday through Saturday. It is possible some local USPS stations deliver on Sundays, but not a stated delivery day.
- Package size and Weight: Maximum weight is 70 pounds. Maximum dimension is 130 inches in length plus girth. Typical SmartPost packages weigh less than 10 pounds, are in a shoebox or smaller container and fit in most mailboxes.
In addition, many value-add services are not available with SmartPost:
- Money-back guarantee (service claim)
- Collect on Delivery (COD)
- Signature proof of delivery
- Declared value (insurance)
- Timed Appointment Delivery (Home delivery offers)
How Does SmartPost Look to Customers?
If you were to ask this question several years ago the answer would be clunky. However, there have been significant improvements on timeliness and accurateness of scan events (mostly improvements on USPS’ part). Your customer can track his/her package on FedEx.com for the entirety of the delivery cycle, including USPS’ portion. Also, once USPS has the inbound event in their system you can track the package on their website. In the beginning of this partnership it required two different tracking numbers. However, everything is now unified under one customer visible tracking number.
The main thing to be cognizant of from a customer perspective is the perceived slow service level. This service is not for every type of business. For example, Lessgistics partnered with a golfing company one time. They were shipping expensive drivers and other golf equipment. They tried going with SmartPost but then soon realized their product offering was too premium for potential slower and non-guaranteed deliveries. The same could be said for companies that require signature required due to high declared value items. However, majority of consumer products would work just fine for SmartPost. We are of the belief if you clearly communicate and deliver by the expected delivery date customers usually are acceptable in most industries.
The Future of FedEx SmartPost
Most of what you read thus far has been saying FedEx SmartPost should be a no brainer if the service offering matches your value prop to your customers and your items ship in a shoe box size or smaller. However, there are some recent developments that should be pointed out.
In 2019, FedEx Ground ran a pilot in ten markets to have SmartPost packages delivered by their contracted Home Delivery couriers vs. having USPS complete the last mile. The pilot was wildly successful with increased density volumes of 25-100%, dependent on the market. Couriers were thrilled with the additional package volume, even though they were paid about 40% less than what they would be paid to deliver a standard Home Delivery order. FedEx was already paying a discounted rate to USPS, so they are trying to keep a close apples-to-apples pay model. Though the couriers are not making as much on a blended package delivery per stop they are making far more overall. FedEx is now aggressively moving towards rolling this plan out across their network in 2020.
One important distinction here between FedEx SmartPost and UPS’ comparable offering SurePost. UPS is unionized and has agreed amounts of SurePost packages that have to be passed to USPS. FedEx is non-unionized and contracts their couriers. If tomorrow FedEx wanted to move all SmartPost deliveries in house they could without contractual ramifications. UPS, on the other hand, cannot make a massive change like this without union approval. They have made concessions in the most recent labor negotiations and more packages will be delivered by UPS on a go-forward basis, but still majority of their SurePost packages will be delivered by USPS.
The future of SmartPost is not a sure thing, however. FedEx has already stopped investing in their existing SmartPost infrastructure, which includes roughly 30 hubs across the United States.
FedEx is dedicated to moving at minimum 2 million daily SmartPost packages into their Ground delivery network. Once that transition is complete, whether that is one year or three years, we could see a future where SmartPost and Home Delivery are merged possibly into a new service. FedEx already announced seven-day delivery would be nationwide by the end of 2020. They are setting the stage for a consolidated service. It is likely that service will be at increased price vs. current SmartPost shipping rates.
All this said, Lessgistics is a strong proponent of using Postal Consolidators. Whether that is SmartPost, SurePost, Newgistics, OSM Worldwide, or one of the many other consolidators, it is still one of the cheapest shipping methods available to sellers.
Are you using SmartPost or another Postal Consolidator? Would you like help in learning how to optimize your supply chain and save money on every package you ship? We would love to use our expertise to help you achieve cost savings!