EquaShip CEO Ron Wiener

EquaShip, the delivery service that grabbed headlines last year, has suspended operations for the rest of this year because of problems with its transit network – a huge setback for the tiny startup that is trying to take on FedEx and UPS.

The shipping company, which launched its beta program in October, now must re-engineer its transportation network, CEO Ron Wiener said Wednesday. EquaShip targets smaller businesses that cannot get the same shipping deals that larger companies, such as Amazon, get with FedEx and UPS.

Wiener said the company had an exclusive deal with the St. Paul-based transit service Blue Package Delivery but will now have to find additional vendors and build an automated system to create the efficiencies it needs to provide customers the delivery times they require.

“After 10 weeks of operation, they weren’t meeting the transportation requirements of our customers,” Wiener said.

Transit times were not lining up with what EquaShip promised its customers – and what those companies promised their buyers, in turn – which led to negative online reviews that ultimately affected the sellers’ business.

“These days, if your user ratings are knocked because of slow transit times, it can destroy your business,” Wiener said.

The company will spend the next year re-negotiating its transportation contracts, moving from one exclusive carrier to multiple carriers.

Wiener said he has laid off his sales and customer service team (he would not give numbers), and that he is in the process of hiring programmers to build software that will manage the two-tiered transportation network he intends to put together.

“We have ideas for ways to do it better than the current carriers. We want to implement features that are more friendly to the merchant" than typical package-tracking systems, Wiener said. “There’s a lot of complexities in the current system. We really want to do it right.”

Realistically, he said, EquaShip will not be resuming shipping services until after this year’s busy Christmas season.

“We could rush it through, like we did last time, launching in middle of Christmas, Wiener said, “but for retailers, that’s not the time to launch something new.”

EquaShip made a splash last year when it raised $1.5 million in funding from investors, including Newell Rubbermaid. The company was nominated for a TechFlash Newsmaker of the Year Award, in the newcomer category, though it didn't win.

Wiener said he intends to resume fundraising to support the software design phase and was optimistic, saying that angel investors have been more open to capital-intensive projects like EquaShip now that the economy has begun to improve.

Wiener said late last year that EquaShip planned to launch an international shipping service in January and that he hoped to be profitable last year. However issues with transit have delayed those expectations.

“We didn’t want to start international service until we had things working fully on the domestic front. When we do come back, will have international, same day and overnight deliver services,” Wiener said.

EquaShip's concept is to cut costs for customers by providing them access to transit companies that usually serve only larger shippers like Amazon, which can negotiate large contracts. UPS and FedEx increase rates for smaller shippers yearly, while cutting costs for larger shippers, he said, creating a market for EquaShip to serve smaller companies.

“Rates have gone up drastically for small customers. Amazon pays a fifth as much as a small customer,” he said.

But Wiener said even in the short time EquaShip has been providing services, UPS and FedEx have taken notice, creating sales pitches for customers that go after EquaShip’s business model, while still charging more.

“It was a classic duopoly,” Wiener said.

Emily Parkhurst covers technology for TechFlash and the Puget Sound Business Journal. She can be reached at 206-876-5441 or eparkhurst@bizjournals.com. Follow her on Twitter: @emilyparkhurst.