Flat-Rate Shipping Wars Rage On as Carriers Court More SMB Business

In an effort to attract more business from small-to-medium-sized ecommerce shippers as the holidays loom, UPS and FedEx continue to expand their competitive offerings in flat-rate shipping, offering more options, customization and economy.

Such programs aren’t as economically attractive to large enterprise shippers, who can leverage their shipping heft to extract volume-based discounts.

UPS is the late comer to the flat-rate shipping game, rolling out its Simple Rate offering in September and formally announcing it this month. SMBs can use it to ship packages up to 50 lbs. by UPS 2nd Day Air, 3-Day Select or UPS Ground to anywhere in the U.S. for a flat rate. It offers larger packages and five rate options, and customers don’t have to enter package weight or dimensions or look up shipping zones.

FedEx has been offering its OneRate program since 2013, while the U.S. Postal Service has been doing so much longer, since 2004 with Priority Mail. While UPS had a competitive advantage for a while by allowing shippers to use their own packages and branding, FedEx is closing that gap by adding that capability this month in a pilot phase, according to FreightWaves.

UPS Simple Rate has also said its maximum volume for flat rates is higher than FedEx and USPS — up to 1,728 cubic inches for UPS, compared to 1,452 cubic inches for FedEx and 900 cubic inches for USPS. The USPS accepts packages up to 70 lbs. for, compared to 50 lbs. for the other two carriers.

One other differentiation between FedEx and UPS’s flat-rate shipping programs is that the latter has options for longer transit times, while FedEx is geared more toward express service and doesn’t offer a ground option.

Rob Martinez, founder and co-CEO of shipping consultancy Shipware, said both UPS and FedEx are extremely interested in growing their market share among SMB shippers. It’s a higher margin business, and flat-rate shipping boxes are generally much easier for them to handle in the highly automated sortation networks they’ve spent millions to build.

“The simplicity of an unlimited weight, flat-rate product, and the elimination of accessorial charges like residential delivery, delivery area surcharges, fuel surcharges and dimension-based pricing holds strong appeal to this market segment,” Martinez said. “For the carriers (UPS and FedEx), faster sortation and less human touch means lower operating costs and higher margins. Flat-rate products also eliminate billing complexity, requiring less customer service which again improves margins.”

Melissa Runge, vice president of analytical solutions for supply chain consultants Spend Management Experts, said UPS Simple Rate is well named as it offers domestic shipments to the lower 48 states for a flat rate, while FedEx charges based on three zones.

“Right now, the USPS is a more cost-competitive product to both UPS and FedEx, but for USPS’s 1-3-day flat rate time in transit guarantee, from some zones it requires a shipper to purchase a more expensive air option,” Runge said. “And the offering from the major carriers is a guaranteed product, where USPS is not, so that’s a big difference.” She added UPS and FedEx may consider discount programs in the future to be more price competitive with USPS.