Shipping: it’s the blessing and the curse of every e-commerce business. E-commerce is the fastest growing segment of the retail economy, and direct shipping to customers is the grease that keeps it moving. But that “last mile” of delivery — from a distribution point to your customers’ hands — can be especially challenging.
And it’s not getting any easier, or cheaper. The three most prominent carriers — UPS, FedEx, and the United States Postal Service — who recently raised their rates. Even more importantly for those who ship larger items, UPS and FedEx tinkered with their dimensional weight pricing, effectively increasing the shipping cost of millions of e-commerce packages. Both UPS and FedEx have also changed their policy regarding fuel surcharges, a move that will benefit their bottom lines.
Shipping costs are a profit-killer
Increases in shipping rates hurt e-commerce businesses in two different ways. For one, high shipping rates are the number one reason for shopping cart abandonment. Then there’s the fallout from another emerging trend: Most customers expect free shipping. Amazon set the bar on this, and now it’s become a huge expense for e-retailers to absorb if they hope to be competitive.
What does all this mean for e-commerce businesses today? In a nutshell, these rate increases and policy changes, coupled with free shipping expectations, will take a growing toll on your bottom line. Shipping expenses can increase by at least 3 to 5 percent in any given year, not counting fluctuations in fuel surcharges. If your business is impacted by the DIM divisor changes, your financial hit from shipping costs will be even greater.
Fulfillment by Amazon complaints
It can be just as expensive, if not worse, for companies that use Fulfillment By Amazon to handle their logistics and shipping.
The cost of Amazon’s free shipping policy lands squarely on the e-commerce business’ bottom line. And Amazon also tacks on other expenses, such as storage fees. It also controls the packaging of the items it fulfills, which strips you of the ability to use that package to market yourself and build your brand.
Calling the shipping shots
Because of the enormous growth in e-commerce and the limited amount of competition, shipping companies are able to call the shots on pricing and policies. They know that e-commerce businesses have few options. And given the pricing trends of the past few years, you can expect annual rate hikes will continue to bite into your profits.
So what can you do? Take a step back and look at the problem in a long-term, strategic way. Free shipping isn’t the only consumer expectation that is trending. A majority of customers also expect to have the option of picking up their items in person at a retail location or a pick-up center.
There’s a happy medium between these seemingly extreme expectations.
You can see that playing out with the nation’s largest retailers, such as Kohl’s, Home Depot, Walmart, and others, as they move toward an in-store pick-up model. One of the many key advantages of a pick-up center is it reduces last-mile shipping costs. It’s an important part of a long-term strategy by retailers to control their costs as they move further into e-commerce.
For e-commerce businesses, there is something to be learned from the national retailers’ e-commerce strategy. They are taking strategic steps to reduce shipping and provide customers with the omnichannel experience that they demand. Are you?