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Sunday 30 October 2005

Anatomy of a Customer Service Failure

I recently left my phone charger at the Hotel Los Gatos, in Los Gatos, California. I forget things in hotels all the time — probably because I wind up having to use every last electrical outlet in the room, most of which are behind furniture — so I’m used to the procedure: you call them up, describe what you’ve left behind, and then wait for a call back from the hotel.

I have never actually lost anything this way, probably because hotels have to be on the lookout anyway against staff pinching guests’ valuables. If you’re the kind of person who’s likely to steal cheap things left behind by guests, I’d assume you’re more trouble than you’re worth and you don’t last long in the hospitality business.

Anyway, so we called them and described the thing, and they called back saying they’d found it. We told them to ship it back to us ground service, no priority, etc. We have had the experience in the past, more than once, of something that costs $10 being sent back to us via the double-express, overnight, Federal-Express-waking-you-up, very expensive service, and we wanted to head this off.

The Hotel Los Gatos complied, I suppose, as best they could, and they sent it to us as a FedEx Express Saver letter.

Fedex Envelope


Los Gatos is in California, and Tino Manor is in Virginia, 2362 miles away in a straight line. This means that from Los Gatos, Tino Manor is in ‘Zone 8’ for FedEx rate calculation purposes — ‘Zone 8’ being as expensive as things get in the United States: there is no ‘Zone 9’ (though there are a whole raft of surcharges for shipments to Alaska or Hawaii).

So a FedEx Express Saver envelope from Los Gatos to Front Royal costs $10.05. There is, strictly speaking, no Express Saver envelope rate: the FedEx envelope just gets charged the one-pound rate.

There’s then a fuel surcharge of 15.5%, or about $1.55.

Then, since Tino Manor is a residence, and since FedEx hates delivering to residences because it takes them longer, there’s an additional $2.00 charge for that.

Then, because while Tino Manor is not quite in the middle of nowhere, but still not in the city or the suburbs, there’s an additional $2.00 surcharge.

Then, if the hotel had FedEx pick up the package rather than dropping it in a box or handing it over to them on a regular stop, there’s an additional $4.00 charge. I have no way of knowing what they did here.

All together, shipping this $10 charger from California to Virginia via FedEx cost between $16 and $20. We won’t know for sure until FedEx gets around to charging the credit card. (See UPDATE below.)

The customer service failure here? There are two or three of them.

The most serious failure is FedEx’s. It’s difficult to determine in advance just what a FedEx shipment is going to cost. Three or four surcharges applied to this shipment; if all four of them were applied, the surcharges nearly doubled the price. I can understand the logic of applying ‘fuel surcharges’ rather than changing your base price every month, but when the surcharges start to get close to 100% of the base price, these aren’t surcharges so much as the ‘base’ price is a lowball price.

FedEx is in possession of a quite valuable brand, though, and they exploit it to stay in business while providing what is frankly crap service; I tend to avoid FedEx whenever I have a chance, because that $2 surcharge for boonies delivery — we are all of 50 miles from Dulles Airport — typically comes with a day or two of delay as well. And don’t get me started on ‘FedEx Ground’; I’m lucky if that stuff shows up at all.

The other customer service failure is on the head of the Hotel Los Gatos. I have no doubt that they do all of their shipping via FedEx; if you sign a blanket deal, you get a discount — though the cost is still hidden from the employee holding an envelope in his hand and trying to decide what it’s worth to ship it. When they ship a lost-and-found item to a customer, they tell FedEx to bill it to the customer’s credit card, though, and so no discounts apply. As a result, the best they appear to be able to do for this kind of shipping is absurdly expensive. If they’re paying anything like these rates themselves, it leads to the Hotel Los Gatos growing more expensive or possibly losing money, which would be a shame because it’s quite a nice place and is recommended by Tino.

The U.S. Postal Service will ship an 8-ounce package overnight, with tracking and delivery confirmation, between almost any two addresses in the United States for $13.65. If you are in less of a hurry and need it there in three days (à la FedEx Express Saver), it’s $3.85 via Priority Mail. If you are even more casual and sure of the weight, you can send it via First Class Mail for $1.85 (First Class Mail is essentially the same service as Priority Mail but with different marketing).

So the markup, essentially, on the FedEx shipment over the USPS shipment, is anywhere from 146% to about 2000%: that’s higher than the hotel’s markup on room-service booze, and in the case of the shipping charges, the hotel is not itself getting any of that money.

Why do they do this? Why on Earth doesn’t the hotel charge a flat rate of $15 to return small lost items and then ship them Priority Mail or Express Mail and thus make a profit? The Hotel Los Gatos is the kind of place where you have to tip someone to get a bucket of ice (see more on this here), so I know they’re well attuned to the many and varied opportunities for wringing small sums out of their guests.

My theory is that while FedEx is widely seen as one of the engines of America’s productivity revolution, and while they are regularly touted as an example of industrial efficiency, they are in fact a huge efficiency sink. FedEx and its competitors do business largely by encouraging companies to sign corporate-wide shipping contracts at negotiated rates. Individual departments — the people who actually ship things — then have little or no visibility into, or say about, how things are to be shipped. (I have even seen some companies where departments that shipped things had their budgets charged internally for the full retail cost of the shipping — in an attempt to turn the mail room into a profit center for the company. These companies have all since gone out of business, since that kind of voodoo accounting doesn’t produce actual revenue.)

As a result, the vast majority of the shipping companies’ poor service and high prices are not subject to the normal checks of the market, and people like FedEx and UPS can stay in business.

UPDATE 2 November 2005: Quoth Amex: $19.61. So the ‘surcharges’ amount to 95% of the ‘base’ price.

Posted by tino at 13:53 30.10.05
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