An Amazon employee delivers packages during the coronavirus disease (COVID-19) outbreak in Denver, Colorado, April 22, 2020.
Kevin Mohatt | Reuters
According to a report by Jefferies, delivery costs across the country have risen and are expected to continue as the pandemic progresses, creating serious headwinds for retailers.
“The recent increase 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 the left carriers,” Jeffries’ analyst Janine Stichter said in the report. , which was based on a call with Dean Maciuba, a former FedEx executive who is currently the managing partner for North America at consulting firm Last Mile Experts.
Consumers expect fast and free shipping, but that’s an increasing burden for many retailers, especially those affected by protracted shutdowns during the Covid-19 pandemic. Mid-sized retailers are particularly at risk as many lack the capacity to implement a shipping strategy that is robust and efficient enough to keep up with the demand for fast deliveries.
This push comes largely from companies like Amazon, famous for its Prime options for two-day shipping, one-day, same-day delivery. This has led consumers to expect fast and free shipping, although some may not even want or need it, Stichter said.
According to Maciuba, online shopping during the holiday season was not as high as expected last year. He suspects that shipping companies are looking to make up for financial losses, as they have invested in building infrastructure in preparation for the increased demand that never materialized. On the other hand, retailers can take advantage of lower than expected shipping costs.
However, vacation allowances that carriers like FedEx and UPS have implemented to prepare for the influx of orders aren’t going away. These surcharges are likely to become the new normal going forward, in addition to the 5% -6% annual increases commonly seen, Maciuba predicted.
FedEx recently announced new peak charges for express and domestic land shipments for customers with weekly volume in excess of 30,000 packages. The surcharge of 30 cents per package took effect on Monday.
Maciuba told Jefferies that the best solution for carriers to combat losses from the pandemic and holidays is to use alternative delivery methods such as online buying, store pickup, roadside pickup and using delivery apps. from third parties, such as Doordash or Shipt.