E-Commerce Feels The Squeeze With USPS Rate Increases

By: Daniel Imbellino
Nov 18, 2015

Sellers on e-commerce platforms like Amazon and ebay are already feeling the squeeze from a sluggish economy, graphic of a beige colored credit cardbut with USPS planned priority mail rate increases things could get a whole lot worse! If approved, the newly proposed rate hike of 9.8% will go into effect January the 17th, giving e-commerce platforms and their sellers a little breathing room until after the Holidays; but sellers across major platforms will soon feel the squeeze afterwards. As you're about to see, the newly proposed rate increases are likely to do more economical harm than good.

For one, buyers on ebay's platform have already shown they have no appetite for rising shipping costs on the goods they purchase. Often the blame for such extravagant rates are put on the sellers themselves. To add insult to injury, sellers have to pay final value fees to ebay on the total price of the sale, including shipping costs.

For the typical seller, the fees run an average of 10%, with top-rated merchants averaging 8% for final value fees (although fees are less for some categories). This doesn't include the average 2.8% fee charged by Paypal as well. Add in the proposed USPS rate hike of 9.8%, and you have a recipe for e-commerce disaster. What this means is rapid inflation for the prices of non-essential goods purchased online starting in the beginning of the year. With a battered economy where consumers are already reluctant to buy, where manufacturers claim we're already in a newly found recession, its more than likely both Amazon and ebay alike will fall flat on their faces.

The fees for Amazon merchants are even higher, topping out at a whopping 20%. What the platform's and USPS alike need to realize is that there's no way consumers are going to pay more for shipping than what they paid for the actual item. Depending on a buyer's location, shipping rates can be really high, such as is the case with shipments to the north eastern states, or the western coastal regions, in which the shipping costs can match the cost of the item being purchased in many cases. One thing to consider here, weight is still a defining factor among shipping costs, even more so than package dimensions.

This also marks a time when USPS remains in the red with a $5.1 billion net loss for fiscal 2015, as was noted in this article from The Wall Street Journal: USPS Posts Annual Loss, Though Revenue Rises.

Little does the self supporting federal agency realize that raising rates in a slugged to death economy isn't going to increase revenues at all, but rather cause them to shrink exponentially.

Unless a rapid economic boom lays just around the corner, ebay with its excessive vulnerabilities will likely be the first to take a hit. At present, both ebay and Amazon alike rely on a mere handful of larger sellers for the bulk of their revenues, without them, they will start to fall apart completely. To make matters even worse, ebay's discussion forums are awash with a never ending stream of posts regarding what merchants are calling the biggest slowdown in the e-commerce giant's history they've ever seen.

Ebay itself has been losing larger sellers at a rapid pace over the prior year, and to combat the potential migration of these sellers to Amazon, the company's chief Devin Wenig recently proclaimed that ebay is "all about their sellers." With no doubt there is some truth to these claims, as the platform recently announced a more objective seller performance rating system that's slated to be released in Feb 2016. The new performance standards will be geared more towards focusing on how well sellers handle problems with buyers, and much less on buyer opinion.

However, not all recent changes that sellers currently face are positive. For one, ebay now charges its non-store owners a whopping $0.30 per listings, vs. the previous $0.05 per listing fees they averaged before. The only alternative for sellers is to cough up more cash for an ebay store, or close up shop. Although, ebay has been providing sellers without a store subscription a lifeline of additional free listings that will carry them thru the Holidays.

With sellers already facing higher fees from ebay itself, the new postal rates will dramatically raise the cost of doing business on the platform. Also, USPS proposed rate hikes are hardly justifiable, especially since the cost of oil is at an all time low, and gas prices are likely to remain thin as consumers spend less and less at the pump. Lower prices for fueling up should be a good enough reason for USPS to lay off the higher priority mail shipping rates, at least for now.

Likely what the USPS needs now isn't higher rates for shipping, but rather better management of its resources. One of the biggest issues keeping USPS in the red are the current federal pre-funding requirements for future employee health benefits, which some critics claim are much too high. Congress wants the USPS to fund 75 years worth of benefits within an estimated 10 year time span! This would help to explain that, while USPS overall revenue has increased dramatically over the prior year, they still sit on a mountain of debt. You can read more on the pre-funding debate from this article at the Des Moines Register: Retirement pre-funding puts Postal Service in red.

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