An Amazon employee delivers packages during the coronavirus disease (COVID-19) outbreak on April 22, 2020 in Denver, Colorado.
Kevin Mohatt | Reuters
Shipping costs have increased across the country and are expected to continue as the pandemic drags on, causing serious headwinds for retailers, according to a report by Jefferies.
“The recent growth in shipping costs has been fueled by the proliferation of e-commerce, which has created a significant imbalance between supply and demand and constrained airlines ‘capacity,” Jeffries’ analyst Janine Stichter said in the report, which is based on one Call Dean Maciuba, a former FedEx executive who is currently the North American Managing Partner at the consulting firm Last Mile Experts.
Consumers expect fast and free shipping, but this is an increasing burden on many retailers, especially those injured by prolonged shutdowns during the Covid-19 pandemic. Midsize retailers are particularly at risk as many are unable to implement a robust and efficient shipping strategy to keep up with demand for quick deliveries.
This pressure comes mostly from companies like Amazon, known for their Prime two-day, one-day, and same-day delivery options. This has led consumers to expect fast, free shipping, even though some may not want or need it, Stichter said.
Online shopping wasn’t as high as expected during the holiday season last year, according to Maciuba. He suspects that the shipping companies are trying to make up for financial losses as they invested in building infrastructure to prepare for the increased demand that never occurred. On the other hand, retailers could benefit from below-expected shipping costs.
However, vacation bonuses introduced by carriers like FedEx and UPS to prepare for incoming orders are not lost. These additions are likely to be the new normal for the future, on top of the 5 to 6% annual increases that are typically seen, Maciuba predicted.
FedEx recently announced new peak rates for express and domestic housing for customers with weekly volumes exceeding 30,000 packages. The surcharge of 30 cents per package came into effect on Monday.
Maciuba told Jefferies that the best solution for shippers to combat pandemic and vacation loss is to adopt alternative shipping methods such as buying online, in-store pickup, roadside pickup, and using third-party delivery apps like Doordash or Shipt.