One of the great things about online shopping has been the free shipping, often via retailer promotions (‘free shipping over $50’) or programs like Amazon Prime.
Isn’t it terrific? You can be prancing around doing whatever one does when one prances, and should a random thought pop into your head like “man, I really need a Teflon fly-swatter”, you can just go online, order it, and before you know it, like Bugs Bunny waiting at the mailbox for his order from Acme, a Teflon fly-swatter arrives at your doorstep, typically in a box big enough to hold a microwave oven.
Long Haired Hare (1949)
Well, you may want to get your impulse shopping Jones satisfied now, because the sad news is that free shipping as we know it is likely to be changing. Reality bites.
This past week FedEx announced it was changing its freight policy to include not only weight, but also the dimensions of the shipped product. This will result in increased shipping costs on about 1/3 of items, particularly large but lightweight products (e.g. toilet paper) that fill up trucks or planes but don’t represent as much revenue (or profit).
Similarly, Groupon, which also sells a few things from time to time, has increased its free shipping threshold from $20 to $25.
Why the changes? Well, the short answer is that you can’t download stuff you order online.
Amazon might have the most amazing distribution centers, but stuff still has to be shipped with pre-internet technology like TRUCKS and AIRPLANES and HUMANS. And the cost of fuel of all of these mechanisms is going up, as are fees, taxes and everything else. Like a bridge that goes 99% across a river, that final 1% really makes or breaks the whole program.
– there are related impacts as well: retailers will likely now need to stock more box sizes (to reduce over-sizing), which carries inventory costs.
SO – someone has to pay for these increased costs. And ultimately you know who that is: you and me.
It’s well known that there’s a high rate of cart abandonment – by one measure about 65% – -and that 44% of these are due to high shipping costs. (cool infographic here). So retailers are loathe to add or increase shipping charges.
What is likely to happen is that costs will be increased throughout the system, for example:
– Shippers like FedEx incorporating package dimensions to increase fees (and UPS likely to follow)
– Retailers raising thresholds for free shipping (like Groupon)
– Retailers increasing prices in other ways (Amazon Prime going from $79 to $99)
– And plain old increased costs of merchandise to cover shipping
There will very likely be increased use of shipping as a promotional tool, but over time costs will inevitably need to increase. There’s just not enough profit in the system right now.
Until some equilibrium is reached, however, you may still notice overt signs of covering costs – – like $50 for a $2.50 order of screws (actual cart total – – and yes, it was abandoned). So keep your eye on the ‘shipping cost’ line for the time being.
The Armchair MBA 