Four Shipping Trends that Could Impact Your Business
by Jonathan Tombes, on April 19, 2013
Costs and Timing Are Key to Online Retailers
Shipping is essential to eCommerce. If transportation or logistics are flawed, your customers could be left waiting or empty-handed. Late or failed deliveries will damage your reputation, which is bad for business.
Shipping Management, Big Trends
For shipping to enhance your reputation, what’s most important is setting your policies (services, rates, returns, etc.), informing customers and executing accordingly. And to jump to the bottom line, we think that FBA and Amazon Prime are effective means to that end. But while shipping is something that you can manage, it is part of a large sector in a moving economy and therefore subject to change over time.
So turning for a moment to that big picture, here are four shipping-related trends, followed by a few comments on how they could affect you as an Amazon seller:
- Rising Costs. The latest annual US Postal Service rate increases went into effect in January 2013. But the USPS was not alone: UPS and FedEx also announced increased rates. One cause is higher costs in transportation, which have far outstripped any of the other components of the U.S. consumer price index (CPI) over the past four years. Amazon has explained its own seller fee hikes over the past year in terms of rising costs, such as higher gasoline prices.
- Faster Delivery. The nationwide expansion of Amazon warehouses has shortened the distance between customers and goods, helping to minimize shipment time. “We want fast delivery,” Amazon CEO Jeff Bezos told the New York Times last fall. Amazon is not alone. eBay launched a same-day delivery last year in two major markets. In March 2013, Google Shopping Express began offering a limited same-day service in San Francisco, using local courier companies. Walmart is offering same-day delivery in five metro areas.
- Free Shipping. Customers are also growing accustomed to free standard shipping. Sales growth may justify sellers’ absorbing these costs. Free returns helped build loyalty at the online shoe store Zappos, which Amazon acquired in 2009. Sales volume and repeat business are also the ideas behind Amazon’s Free Super Saver Shipping and Prime (with free two-day shipping) programs. Of course, someone has to pay the freight bill. There is no such thing as free packaging, trucks or gasoline (see above).
- International markets. As broadband penetration deepens around the world, one driver for Amazon is the global consumer. In addition to infrastructure in the U.S., Amazon has fulfillment centers throughout the world and websites in Germany, UK, France, Italy, Spain, Canada, China and Japan. Nor is Amazon the only international marketplace. Alibaba and Jingdong (aka 360buy) are two large players in China, and Japan’s Rakuten (which bought Buy.com) is now making its own international play.
Costs, Amazon Prime and FBA
These trends do not neatly align. Higher gasoline prices conflict with the idea of free shipping; and shipments abroad do not readily translate into faster delivery. What is most relevant here?
Costs are hardest to ignore. Gasoline prices have returned to the high-level mark of 2008. As a result, sellers are paying more for shipments from suppliers. Merchants who fulfill their own orders are either spending or charging more (or some combination thereof) for customer delivery. Those who use FBA are incurring larger Amazon fees and may be spending more to reach a greater number of fulfillment centers.
The burden of these and other costs varies according to merchant. As noted, discounted or free shipping can lead to more repeat business or larger purchases. That appears to be the case with Amazon Prime. More business may also result from free returns. But granting even a single free return can be an agonizing decision for small merchants, and some analysts wonder whether, notwithstanding increased sales, Amazon covers the entire cost of its Prime-related deliveries.
Fortunately, sellers don’t need to analyze – or totally understand – Amazon’s business to enjoy its benefits. Here are three suggestions:
- If you can handle the fees, take advantage of FBA, which allows customers to use Free Super Saver and tap into the free-shipping benefits of their Prime accounts.
- With sufficient volume and a trusted supplier, you could cut costs further by moving from cross-dock shipping to a direct-ship-to-Amazon model.
- If you are looking to expand internationally, leverage Amazon’s broad expertise and specific programs, such as FBAExport.
One additional recommendation we make, regarding reputation management and the global marketplace, is to use FeedbackFive’s automatic exclusion rules for non-US orders. As discussed in this previous blog article, when shipping overseas, you may be encountering obstacles to timeliness over which you have no control.