How can some companies offer low shipping rates using FedEx?


6

There are companies that are able to ship a mattress with a shipping charge of $5. There are many, like Amazon, that are able to offer free shipping.

Logic tells me that you achieve this by negotiating with the carriers, in this case FedEx. I have been looking on their website and is not easy for me to understand how to achieve these rates.

Does anyone know the answer to this puzzle?

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asked Feb 6 '11 at 04:50
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Geo
268 points
Top digital marketing agency for SEO, content marketing, and PR: Demand Roll
  • HUGE volume and co-location with the shippers' hubs. – Tim J 8 years ago
  • Mattresses are a poor example. The margin on mattresses is insane. – Duffbeer703 8 years ago
  • When you open an account as a shipper with FedEx I believe the agreements/rates are discussed. If you start to become high volume then you will probably get some notice/calls. – Tim J 8 years ago

5 Answers


13

When a merchant offers "free shipping," that does not mean that FedEx is carrying the package for free. That just means that the cost of shipping, whatever it is, is already factored into the cost of the product. Or, to put it another way, the merchant takes it out of their profit margin. Or, to put it another way, the price of the product is actually a bundle that includes the price of the shipping.

When web merchants lower their shipping costs, it's not because they found a cheaper way to get a mattress to your house... it's because they decided that telling a consumer that the mattress is $500 + free shipping sounds better than $400 + $100 shipping.

Merchants will prefer to offer low base prices and high shipping prices if consumers are not looking closely at the shipping costs. On the internet, almost all the good price comparison engines factor in shipping costs, so there is no reason to do this.

To contrast, look at airline tickets. Because the price comparison engines for airline tickets don't tell you about add-on fees for luggage, etc., the airlines prefer to quote low prices and then charge you extra for luggage.

answered Feb 6 '11 at 11:14
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Joel Spolsky
13,472 points

6

It's All About Negotiation

I run a small business and ship steel target systems via UPS. I got to know the manager at the local distribution center. I asked him about reduced rates. He gave me a contact for a local rep. I contacted the rep, Chris, to see if there is anything he could do to help us reduce our shipping costs. He said he would analyze our account and pay us a visit at our shop.

The next day, he brought with him a pricing agreement that offered a 9% discount on the wholesale rate. He said the discount was justified because we were averaging between $50 and $200 per week in UPS Ground shipping costs. He said he would re-analyze our account once we maintain more than $200/week. He also mentioned that once we hit $500/week we would see some significant discounts, but didn't give specifics. He said it will depend on many factors.

The new rate we now pay is actually called the negotiated rate. When creating a shipment online, it actually states the wholesale rate and our neg. rate. We can also associate this neg. rate with our API key.

These UPS negotiated rates are unpublished. I'm not sure how Fedex works, but it's probably similar. Contact a local representative and start asking questions.

Side note - the same holds true for merchant accounts, which I found out recently.

answered Feb 7 '11 at 20:21
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Clint
695 points
  • Thanks Clint. Negotiation and volume. There is no negotiation if you cannot prove some kind of volume. But I got your point. Thanks. – Geo 8 years ago

5

As a previous sale representative who worked at UPS I can tell you that the 3 major carriers have 2 pricing structure. 1st is the retail rate that the average consumer will ship a package using FedEx or UPS by simply going into their website. The second option is what most people do not realize. The shipping giants have an office in pretty much ever city and state in the country. You can call and demand your rates to be discounted or to have a sale rep speak with you. Depending your level of shipping volume which normally start at $200 weekly in order for you to meet the revenue band to receive a minimal discount.

There are alternatives. A few amazing great companies have emerge in this industry that fills the void of reducing shipping cost while improving the customer service experience.

Hope this helps.

answered Jan 5 '13 at 14:20
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James
51 points
  • Welcome to the site, James. Please take a moment to read our [FAQ]. Particularly the section on self-promotion. – Zuly Gonzalez 6 years ago

1

I charge flat rate shipping on orders regardless of how much shipping actually costs. I eat the rest of the cost. For me, I must sign retail agreements with my wholesale accounts and part of those agreements are minimum pricing. So since I can not undercut competition on product price I can undercut them on shipping by offering low rates in comparison.

answered Jun 10 '11 at 00:32
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Earthy Crunchy Mama
40 points

1

FedEx offers different rates depending on your shipping volume and what you ship (package size, weight, and service requested). If you had a FedEx account and were shipping in any quantity, FedEx would have already contacted you with new shipping rates.

When you get to be the size of Amazon, you can integrate a specific shipper into your distribution center. In return for agreeing to only ship with that company, (ignoring the post office) and in huge volume, you get great discounts.

answered Feb 6 '11 at 06:34
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Gary E
12,510 points
  • @Garry, Thanks so much for your answer. That makes perfect sense. Basically, a small business will pay the regular price until volume is significant. Thanks. – Geo 8 years ago

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