Every Friday, we answer a common question about fulfillment, shipping, or business. This week’s question comes from one of the fans who entered our giveaway contest for a Roku. Today we will answer the following question: “how does the USPS make money on flat-rate shipping?”
This question caught me off-guard because I’ve wondered the same thing myself. How does the USPS make money on flat-rate shipping? We’ve talked before about how flat-rate shipping is a good deal and why businesses should use it. This raises a bigger question, though: what’s in it for the USPS?
Why Postage Can Be Expensive
Shipping can be expensive. For many eCommerce store owners, in fact, shipping expenses can outpace all other expenses. That leads many to question how postage prices are set.
As it turns out, we’ve talked about this before, but to recap:
The four main factors that affect shipping prices are weight, dimensions, speed of delivery, and distance traveled.
- Weight: this determines how much fuel is used to transport the package. Extra weight drives up of costs for carriers.
- Dimensions: this determines how much space is used in trucks, planes, and seafaring vessels. The bigger your package is, the less room there is for other packages in the truck, therefore meaning the carrier has to charge you more.
- Speed: delivering packages quickly means taking shortcuts. Bypassing the normal process causes the carrier to send your package through less cost-efficient routes in favor of speed.
- Distance: more miles means more fuel means more cost. This is pretty straightforward but still bears mentioning. The same package might cost $8 to ship in the US and $50 to ship to Australia.
How Flat Rate Boxes Cut Costs for the USPS & How They Pass Savings to You
Looking at the above, we know that flat rate boxes are beneficial for shippers because they do not charge for additional weight (up to 70 pounds). If it fits, it ships, they say. One would think that shippers would abuse this by shipping heavy packages through flat-rate boxes. However, this risk doesn’t seem to materialize for the USPS, and we attribute that to two reasons:
- Most items that fit in flat-rate boxes are not heavy.
- Even if the boxes are heavy, the extra cost in fuel is not as much as the cost of wedging unpredictably-sized packages into the back of a truck.
In short, flat rate boxes are a predictable size, so the USPS can easily fit them in their trucks. This makes shipping more efficient for them, and they can pass their savings onto the shipper.
Predictability is good for business. This is especially true in shipping where variables like package weight, size, and destination all impact the bottom line. By giving shippers flat-rate boxes, the USPS is encouraging shippers to behave in a more predictable manner, which saves them money!