Amazon Prime has an estimated 80 million customers in the U.S. That means about one in every four Americans are accustomed to free, two-day shipping — and they’ve come to expect it for every package, every time.
But what the customer wants — free, fast shipping — is fundamentally opposed to carriers’ business. Costs are constantly increasing for FedEx, UPS, and other parcel carriers.
Typically parcel carriers would pass those expenses on to their business clients, who would in turn pass them onto their customers. Customers are no longer willing to pay those rising shipping fees.
What’s a business to do?
This problem — weighing increased shipping costs against consumer demand for no shipping costs — is a solvable one. The better businesses understand what, where and how they ship, the more efficiencies they can discover, reducing costs on both ends.
Problem 1: Online Shoppers Want Fast, Free Shipping
Amazon Prime and services like it are spoiling Americans. Supply chain consulting firm AlixPartners LLP found in a 2016 survey that only 60 percent of consumers are willing to wait more than five days for their packages to arrive, down from 74 percent four years earlier. The average amount of time customers expect to wait was 4.8 days in 2016, down from 5.5 days in 2012.
Americans are also buying more online than ever. The average customer ordered just under 15 parcels online in 2016, up from fewer than 10 in 2012, according to the AlixPartners study.
Finally, consumers don’t just prefer faster shipping — they demand it. 18 percent of people surveyed said the maximum amount of time they were willing to wait for their packages was two days. In 2012, just 4 percent of survey respondents required that service.
Problem 2: Shipping More Products to More Customers is More Expensive
For e-commerce businesses, however, shipping costs are always rising. Fuel costs can vary widely from year to year. Labor — truck drivers, port employees and warehouse staff, for example — is costly to begin with, and as minimum wages rise and employers consider offering health insurance plans they didn’t before, costs continue to rise.
Then there are the costs associated with increased delivery demand — more trips to more locations more often. Remember, customers expect packages to travel from sources to distribution hubs to their doorsteps almost a day faster than they did four years ago. And carriers now visit the average American household 1.5 times more often than they did four years ago.
Finally, every company along the way seeks to preserve its profit margins. Shipping carriers tack on additional fees and shipment-by-shipment surcharges in contracts with the businesses they serve. If they contract with trucking companies or warehouse staffing agencies, those companies add additional fees too.
Amazon is battling these fees and surcharges by launching its own shipping arm to directly compete with UPS and FedEx. Most companies, of course, lack the volume to take such a step.
The Solution: Better Data Builds Efficiency
The majority of businesses shipping their products to consumers cannot control oil, labor or land costs. They cannot change consumer demand or get carriers to cut their profits. They certainly can’t bring shipping in-house the way Amazon seems to be moving toward.
The best way for companies to navigate these twin problems is to understand their shipping data as well as possible.
Expert reviews of company data can reveal patterns that internal teams may not have noticed. For example, that business is growing along a freight route where one carrier has other large contracts. If the company can approach that carrier in a negotiation, they can seek a win-win solution — saving money for the carrier and the client by adding stops along existing routes instead of drawing new ones.
As costs rise and consumers refuse to take them on, the only way for businesses to stay on top of shipping costs is to find increased efficiencies. The better companies understand their shipping profiles, the more efficiencies they can discover. And the sooner they start, the sooner they can push back against this consumer-carrier price squeeze.
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