Shippers have always known that free shipping isn’t really free. But in the age of Amazon Prime, customers have come to expect it — maybe not on all goods, but certainly on small parcels. Shippers still have to pay third-party carriers to move goods to those customers, so they find ways to build the costs of shipping into their pricing or other parts of their businesses.
That might finally be changing.
A recent report from Edge Retail Insight pronounced that free shipping is unsustainable. Authors predicted that within a year, businesses may be tacking shipping charges onto even small orders again. Other business leaders have suggested the same thing.
“Shoppers now expect delivery to be fast, reliable and – crucially – free. This is unsustainable in our view, and we are beginning to see the first signs of cracks in the system. A number of retailers, including Amazon and Walmart Canada, are quietly raising the minimum spend required to be eligible for ‘free’ home delivery,” Natalie Berg wrote in the Edge Retail Insight report.
Shoppers expect that shipping will be fast, reliable, and free. But they can only have two. And experts think “free” is most likely to go.
What is happening to free shipping?
Back in 2016, supply chain consulting firm AlixPartners LLP surveyed e-commerce consumers. They found that only 60 percent of consumers were willing to wait more than five days for packages to arrive, down from 74 percent four years earlier.
Relatedly, 18 percent of people said they would refuse to wait more than two days for their packages to arrive — up from just 4 percent in 2012.
To add even more pressure, customers were buying more online: An average of 15 parcels in 2016, up from fewer than 10 in 2012.
So customers want faster shipping than ever, and they’re ordering more and more packages online. To move more volume at faster speeds, shippers need to lean more heavily on air service and other short-term offerings from carriers. Those are more expensive than standard ground shipping.
Carriers face pressures of their own. The labor market for truck drivers is tight, and the economy is strong, which means wages for delivery people have to rise to stay competitive. Fuel prices are steady, but long-term trends point upward.
These tensions have been simmering for a while, and may finally be boiling over, the analysts at Edge Retail Insight say.
What are shipping strategies a business can use?
For shippers, this may come as good news: They can finally stop pretending that shipping is free, and pass those costs directly on to customers the way they used to.
But first e-commerce businesses need to retain their customers.
After all, everyone’s biggest competitor — Amazon — may have lost as much as $7.2 billion on shipping costs in 2016. That sprawling company can use profits from other sectors to subsidize free shipping. There’s no reason to believe it will stop doing so, at least not until long after other online sellers do.
So if free shipping does indeed disappear in 2020, what can shippers do to keep their customers from flocking to Amazon — which is already responsible for some 43 percent of e-commerce sales?
According to German research firm ECC Koln, customers value transparency and accuracy more than they value free shipping. Speedy shipment and reliable delivery help customers develop greater connections to brands. Researchers estimate that 90 percent of online shoppers want to know when their packages will arrive, and value the ability to pick a time and date for package delivery — not necessarily the soonest available, but one that works best for them.
The more clearly shippers can communicate to their customers, the more eagerly customers can anticipate their parcels, as they watch them travel across the country to their doorsteps. Loyal customers may even rush home to grab their packages as soon as possible.
Shippers can also use free shipping as an incentive. Many already do. For example, retailers frequently offer free shipping during a particular sale or season, which provides a reason to send an extra marketing email and drive customers to online stores.
Others offer free shipping when customers spend more than a certain amount, driving purchase of one or two additional items that more than covers the cost of shipping.
Still, others offer free shipping to members or other loyal customers, which can incentivize customers to engage more deeply with brands and their other products.
Nobody likes paying for shipping. But if that becomes the industry standard again — as analysts predict that it will — offering an exemption for special occasions becomes that much more powerful.
For years now, the dominant trend in shipping has been that free shipping will become more and more common until it is the norm rather than the exception. That the pendulum might be swinging back is good news for shippers, because it means the industry is acknowledging that such pricing is unsustainable.
Now, online sellers just need to figure out how to market this shift in a way that keeps customers coming back — and maybe even convince them that, rather than a rule, free shipping was a bonus all along.
The Reveel App uses AI and machine learning to provide an unparalleled look into what’s impacting your bottom line. Through invoice audits, peer benchmarking, and rate modeling/simulations, you can see the health of your operation and assess pricing changes from parcel carriers like FedEx and UPS. Sign up for a free Reveel account today to see how you can leverage automation to synthesize your data, ship more for less, and reduce the time needed to identify issues and action items.
