Ecommerce logistics costs will likely continue to rise as a proportion of sales in the coming years. These higher costs are a result of many factors, including higher volume of returns, more premium deliveries, and higher labor costs. For ecommerce shippers, these pressures and other challenges within the market will force them to adapt and find new solutions to stay competitive.
In the past few years, online sales have grown more than 20% year-over-year. North America will experience double-digit growth over the next three years, largely driven by expansion in new ecommerce shopping categories like grocery and m-commerce. Some estimates predict sales to top $4 trillion worldwide by 2020, coming close to representing 15% of retail sales overall. This is because more consumers are choosing to buy online instead of in physical stores, even for large items like furniture, which creates even more of a challenge for e-retailers to deliver.
Adding to the headaches for ecommerce shipping are the higher costs that all major carriers put in place in 2018. Transportation Impact customers know all about the higher rates announced by the USPS which took effect in January 2018 on Priority Mail, First Class Service, and Priority Mail Express. And of course, the impact is also already felt from the GRIs levied by both FedEx and UPS of approximately 4.9% – not to mention the increased surcharge rates for Oversized parcels and Additional Handling. There is no doubt that 2019 will see similar increases as well.
Even in the presence of rising rates, the growing ecommerce segment is putting pressure on shippers to deliver parcels at a faster rate, and with more options. A 2017-2018 holiday season survey conducted by Transport Intelligence of 108 retailers and logistics companies found that shippers will not adjust their pricing model to account for the pressures from the market. Even though premium deliveries are the second most important driver of costs, only 12% of shippers survey said they would charge a higher rate for these deliveries. The reluctance to raise prices is in part due to customers’ delivery demands and the intense competition within the industry. Retailers need to deliver fast and at a low (or free!) cost, meaning they will need to continue to subsidize this part of the business. Such rising demand for faster delivery will only tighten retailers’ margins.
B2B is Next
Business-to-business transactions are seeing an overhaul in the buying experience, too. The transformation to a digital shopping experience for B2C consumers has been underway for several years. Many B2B buyers will start to experience the same type of transition as more of their buying moves online. Print catalogs and sales calls are evolving to a completely digital process, making it easier for purchasing departments to order online with little or no interaction with a sales rep.
Retailers are always looking to reduce operating costs, but the pressure to do so for delivery is harder than ever. Ecommerce shippers with narrow margins will have to be creative in passing the shipping costs onto their customers, accepting lower margins, or reducing other costs. It’s not something that any company can avoid forever.