Online shipping costs set to rise further amid pandemic

Shipping costs have risen across the country, according to a report from Jefferies, and are expected to continue as the pandemic continues, creating a serious headwind for retailers.

“The recent growth in shipping costs has been fueled by the surge in e-commerce penetration, which has created a significant imbalance between supply and demand and limited the capacity of carriers,” Jeffries analyst said. Janine Stichter in the report, which was based on a call Dean Maciuba, a former FedEx executive who is currently managing partner for North America at consulting firm Last Mile Experts.

Consumers expect fast and free delivery, but it is a growing burden for many retailers, especially those affected by extended shutdowns during the Covid-19 pandemic. Mid-size retailers are particularly at risk, as many lack the capacity to implement a strong and efficient enough shipping strategy to meet the demand for fast deliveries.

Much of that pressure comes from companies like Amazon, famous for its two-day, one-day, and same-day Prime shipping options. This has led consumers to expect fast and free delivery, even if some don’t want or even need it, Stichter said.

Online shopping during last year’s holiday season did not peak as high as expected, according to Maciuba. He suspects that the shipping lines are looking to make up for the financial losses as they have invested in building infrastructure for increased demand that never materialized. On the other hand, retailers could benefit from lower than expected shipping costs.

However, the holiday supplements that carriers like FedEx and UPS implemented to prepare for the influx of orders are not going away. These supplements will likely become the new normal in the future, on top of the 5% to 6% annual increases that are typically seen, Maciuba predicted.

FedEx recently announced new, state-of-the-art express and residential ground shipping surcharges for customers with a weekly volume of over 30,000 packages. The 30-cent per package surcharge went into effect Monday.

Maciuba told Jefferies that the best solution for shipping carriers to tackle pandemic and vacation losses is to adopt alternative delivery methods such as online shopping, in-store pickup services, curbside pickup and use of third-party delivery apps like Doordash or Shipt.