Ho, ho, hum. With increased postal rates, supply chain problems and labor shortages, not even Santa and his sleigh can ease the holiday stress for subscription companies this year. These pricing and operational issues impact everything from subscription boxes and periodicals to subscribe-and-save auto-refill services. In this members-only article, we’ll break down the issues and share examples of how some companies are handling these issues during the holiday season amidst a pandemic.
Peak-season postal pricing
In August, the U.S. Postal Service notified the Postal Regulatory Commission (PRC) of a temporary price increase for “key package products” for the peak 2021 holiday season in anticipation of growing demand and extra handling costs. The peak-season pricing was approved by the Governors of the Postal Service for the period of October 3 through December 26, 2021. The postal increases specifically impact the following services:
- Priority Express Mail
- Priority Mail
- First-Class Package Service
- Parcel Select
- USPS Retail Ground
- Parcel Return Service
Pricing increases are as follows:
Full pricing details can be found on the USPS website. International postage and shipping costs are not affected.
“This seasonal adjustment will bring prices for the Postal Service’s commercial and retail customers in line with competitive practices. No structural changes are planned as part of this limited pricing initiative,” said the post office in an August 10, 2021 announcement.
In the announcement, the USPS said the organization’s 10-year “Delivering for America” plan is working toward reversing projected losses of $160 billion over the next 10 years. Postal rates are part of that plan; the post office relies entirely on the sale of postage, products and services to fund operations.
The National Postal Policy Council, the trade association for large business users of letter mail, primarily first class, filed a lawsuit against the U.S. Postal Service, fighting the rate hike. The NPPC represents companies like AT&T, American Express, Chase, Netflix, RR Donnelley, Sprint and Wells Fargo.
Earlier this month, the U.S. Court of Appeals for the District of Columbia Circuit upheld the price increase, reports Media Post. The federal appeals court ruled that the increases were not arbitrary or capricious, nor did the exceed the Postal Regulatory Commission’s statutory authority. The News Media Alliance, who represents nearly 2,000 diverse news organizations in the U.S., said it is “deeply disappointed” by the decision.
“The decision has serious consequences for news publishers, with the rate of increase on newspapers being nearly seven times the rate of inflation. This particularly harms small local and community newspapers, far too many of which are already struggling to survive. The Alliance will continue to work with Congressional leaders to find a solution that will help protect American news publishers and our communities’ access to high-quality journalism,” the Alliance said in a November 15, 2021 post.
Slower postal delivery
Along with peak postal pricing, the U.S. Postal Service is slowing things down, according to the Washington Post. Previously, first class mail would be delivered anywhere in the country within three days. After October 1, 2021, that will increase to two to five days, depending on where you live. Why the delay? More mail will go be transported cross-country by truck rather than by plane.
FedEx price increases
In September, FedEx reported price increases for FedEx Express, FedEx Ground and FedEx Freight. FedEx Express shipping rates will increase an average of 5.9% for U.S. domestic, U.S. export and U.S. import services. FedEx Ground and FedEx Home Delivery will also increase an average of 5.9%. FedEx Ground Economy will also go up, though FedEx did not say by how much. These price changes are to go into effect January 3, 2022. Other surcharges will begin in mid to late January.
However, there is one price increase that took effect November 1 that will impact holiday shipping. A fuel charge increase is being imposed on FedEx Express (U.S. domestic package and freight services), FedEx Group and FedEx Freight shipments. A full rate table is available at FedEx.com.
While the economy is attempting to rebound following a very difficult 2020, there is a significant labor shortage, causing problems for virtually every type of company. According to The New York Times, there are 5 million fewer people working now than before the pandemic, and 3 million fewer potential employees are looking for work. There are a number of reasons for that:
- People are reevaluating their lives and setting new priorities.
- Childcare remains a challenge for working parents.
- Health risks and COVID vaccine status have had a significant impact on employability.
The New York Times describes our current economy as a workers’ economy, with employees in a better position to negotiate than in the past. People want better working conditions, better pay and better benefits. They also want opportunities to advance and support for education and childcare. This shift in the labor force impacts everyone, including subscription companies who need workers at all levels, including everything from frontline workers at fulfillment centers and software engineers for streaming services to subscription box customer service reps and payment processor salespeople.
Supply chain bottlenecks
As if postal and shipping price increases and labor challenges weren’t enough, supply chain issues have created a bottleneck with demand for goods far outweighing the supply. Part of the problem is there aren’t enough workers or facilities to accept goods being imported from overseas.
In a Vox/Recode article titled, “Shipping is broken. Here’s how to fix it,” Rebecca Heilweil said that the ports of Los Angeles and Long Beach, California accept more than 40% of all U.S. imports, but there aren’t enough workers to unload the containers and not enough space at the ports or nearby rail yards or warehouses to hold the goods received. This impacts virtually everything that is imported, including critical medical supplies, but also less necessary items like holiday gift shipments.
One potential solution retailers are trying is chartering private cargo vessels which can cost $40,000 a day. Walmart, Home Depot and IKEA are using these methods to try to get goods to their stores and to their customers before the holidays, reports NBC News.
“Walmart has served customers across economic cycles for more than 50 years. Each one is unique and they require us to adapt. In this latest cycle, the pandemic caused shifts in how customers and members shopped and what they purchased. The long period of sustained demand for goods has stretched supply chains, resulting in out-of-stocks and inflation. Fighting inflation is in our DNA. Sam Walton loves that fight and so do we,” said Doug McMillon, president and CEO, in the company’s November 16, 2021 earnings call.
“I want to thank our truck drivers, merchants, replenishment teams, our associates that move inventory through the supply chain and our suppliers. They’re working together creatively and quickly. We have lots of variables to manage to deliver everyday low prices to customers and simultaneously strong financial results for our shareholders. We continue to make progress on our strategy.”
How these challenges impact subscription companies
Any subscription company that does shipping or mailing, has employees or utilizes logistics and the supply chain have significant challenges to overcome this holiday season. Though no one is shouting this from the rooftops, companies will need to either absorb the costs or raise subscription fees to cover their increased costs. Here are just a few of the types of subscription companies that will fee the sting of postal and shipping price hikes:
- Subscription box services
- Subscription clubs (e.g., wine clubs, book clubs)
- Subscribe-and-save auto-refill services like Dollar Shave Club, Billie, Amazon, Chewy
Some of these services, particularly the auto-refill subscription services, offer free shipping on purchases over a certain amount. For example, Chewy offers free shipping on purchases over $50, including auto-refill subscriptions of pet food, treats, accessories and more. Will they still be willing to offer free shipping if their costs increase? Maybe they will have to raise their order minimum to offer free shipping, or they change their product pricing to absorb additional shipping costs.
Billie, a razor refill and body brand subscription service, notified subscribers in October of a price increase of $1 per pack of razor blades. They still offer free shipping, but they said their costs had increased, and they held off sharing the higher costs with subscribers as long as they could.
Dinnerly announced a price increase in July, though it is not directly related to the postal and shipping price increases. In an email to subscribers, Dinnerly said their beef and chicken costs had increased 50% between December and May. Shipping container shortages caused supply chain delays on important goods like tomatoes, sauces and pasta.
Changes in the labor market were another factor in Dinnerly’s decision to increase pricing. Employees are harder to find and, because there is competition for employees, wages have increased. The ability to get paper goods like shipping boxes has also been a challenge with demand exceeding supply.
While people like to berate Amazon for being an ecommerce behemoth, these changes will have a big impact on them too. Millions of Prime members signed up to get free two-day shipping, but Amazon can’t keep that promise anymore. The supply chain is so backed up that they are encouraging people to shop early and to select a specific Amazon delivery day to batch packaging and delivery. They’ve also switched to boxes made with less material, which is great for the environment, but not good for the products inside the boxes which don’t always survive shipping.
The major impacts to subscription companies include daily operational challenges due to staffing shortages and logistics bottlenecks, inflation which will increase costs and consumer costs, and ultimately their bottom lines as higher operational costs eat into margins. Simply put, things are tough all over. Subscription companies of all types and sizes are affected, potentially changing the customer experience, pricing and retention.
How subscription companies can mitigate the impacts
These are basic principles that we always recommend to subscription companies, but they bear repeating:
- Be transparent with your subscribers. If their subscriptions are not going to be delivered on time, let them know as soon as possible. Much of this is beyond your control but communicating is completely within your power, and they will appreciate you for it.
- Carefully consider price increases. If you are a subscription box company, and the postal and shipping increases are significant, it is likely that a price increase is warranted, particularly since rates are not going down. But tell your customers why you have to increase the price. You may lose some, but those are price sensitive customers you might not have retained long term anyway.
- If you have to increase the price, consider how you can add value for your customers that won’t cost you anything. Can you somehow improve their experience?
- Make sure your customer service team is prepared to handle an increased volume of questions and complaints. Empower them with the ability to solve problems, pause subscriptions or cancel their membership if you aren’t able to honor a subscriber’s request.
- Apologize for the inconvenience and accept cancellation requests graciously. How you handle a subscriber’s exit speaks volumes for your company’s values. It could potentially bring them back when circumstances change. And if you handle a cancellation badly, know that that subscriber is not only never coming back, but they will tell their friends about you.