Small and mid-sized businesses are used to this by now: rate increases that happen every year, like clockwork, across all major parcel carriers. FedEx and UPS usually announce their rate increases in January (they are so consistent that the logistics industry has given them an acronym; GRI, or General Rate Increase). However this time around, it’s the U.K.’s Royal Mail that is making life difficult for businesses. Starting in May, Royal Mail is instituting a product-wide price hike after Ofcom, the U.K.’s postal regulatory body, gave Royal Mail permission to increase prices by as much as they wanted.

At Shipwire, we have strived to always ensure the best service and competitive rates for all our customers, including those in the U.K. This is why despite parcel prices that have risen since 2008 by as much as 26% in some cases (250g first class packet), we kept our rates flat for all our U.K. customers.

However the increases being implemented this time around are too large, and unfortunately will affect Shipwire’s customers. For example, the price of a first-class parcel will now cost £2.71, up from £1.58. Shipping the same small packet to Australia will now cost £3.67, up from £2.29.

Royal Mail’s management have stated that this increase is in response to falling mail volume which is causing them to operate on a loss. Facing the choice of either cutting service, cutting benefits, or increasing costs, they chose the latter.

Needless to say, this causes concern among business owners as these price increases will affect their bottom line. Directly if they take the burden of the costs, or indirectly through decreased sales volume if they pass the shipping cost on to their customers.

So what can you do in light of Royal Mail’s price increase?

The best way to win the GRI game is not to play at all. The trick to cutting shipping costs is to store your inventory closer to your customers and only use carriers like Royal Mail for last-mile service. In doing so, you can withstand the rate increases and even thrive despite it.

While everyone will be affected by the rising prices, those shipping international packages will feel it the most. Here’s one such example:

For a customer shipping out of the U.K., sending a 2 lb. parcel to a customer in New York cost £11.95 for Airmail delivery before the price increase, or about $19.29 USD. After the rate increase the same shipment will cost £13.27, or $21.41. But if you were to put part of your inventory in Shipwire’s Pennsylvania warehouse, the same shipment would cost you $9.32 (see our Shipping Rate Calculator). With 200 orders shipped per month, the savings are $1,608. This means that during a price hike, you actually end up saving $12 per order.

We’ve written about this for UPS and FedEx customers in the past, and many of the lessons are applicable to our U.K. customers as well. In this post we talk about:

• Fuel “discounts” which will be announced alongside shipping rate increases, but several months later will rescind it and the discount will actually turn into a surcharge
• Discounts vs. retail pricing and how surcharges are a game played by the carriers
• The rules of order fulfillment, shipping and how true economies of scale work (aka How Top Online Retailers and manufacturers run their supply chains)
• Moving products closer to buyers to cut last-mile costs (Royal Mail, UPS, USPS, Fedex) forever. Especially for overseas/international shipments

These price hikes can be frustrating but the important thing to note, especially for Shipwire customers, is that there is a silver lining. By using a global network of warehouses to store your inventory closer to your customers, you can expand your business globally and save on shipping even when rates go up.

Spend two minutes with our Shipping Rate Calculator. See how many thousands of dollars Shipwire can save you.

You can also read more from Shipwire. Check out our manifesto on beating back the General Rate Increase from 2010, and 2009 and send us comments.

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