An Amazon worker delivers packages amid the coronavirus disease (COVID-19) outbreak in Denver, Colorado, on April 22, 2020.
Kevin Mohatt | Reuters
Delivery costs have been rising across the country and are expected to continue as the pandemic continues, creating a serious obstacle for retailers, according to a report by Jefferies.
“The recent growth in transportation costs was fueled by increased penetration of e-commerce, which created a significant supply / demand imbalance and restricted carrier capacity,” said Janine Stichter, an analyst at Jeffries, in the report, based on a call Dean Maciuba, a former FedEx executive who is currently North America’s managing partner at Last Mile Experts.
Consumers expect fast, free shipping, but this is an increasing burden for many retailers, especially those who were affected by prolonged outages during the Covid-19 pandemic. Midsize retailers are especially at risk because many lack the ability to implement a shipping strategy that is robust and efficient enough to keep up with the demand for fast deliveries.
This pressure comes largely from companies like Amazon, famous for its Prime delivery options in two days, delivery in one day and the same day. This has made consumers expect fast, free shipments, even if some don’t even want or need it, said Stichter.
Online shopping during last year’s holiday season did not reach its expected peak, according to Maciuba. He suspects that carriers are looking to make up for the financial losses as they invested in building infrastructure in preparation for increased demand that never materialized. On the other hand, retailers can benefit from lower than expected shipping costs.
However, the vacation surcharges that carriers like FedEx and UPS have implemented to prepare for the flow of orders will not go away. These surcharges are likely to become the new normal going forward, in addition to the annual increases of 5% -6% that usually occur, predicted Maciuba.
FedEx recently announced new peak surcharges on express and domestic residential inland shipments for customers who had a weekly volume of more than 30,000 packages. The 30-cent surcharge per package went into effect on Monday.
Maciuba told Jefferies that the best solution for carriers to combat losses from the pandemic and the holiday is to adopt alternative delivery methods, such as buying online, picking up at the store, picking up on the sidewalk and using third-party apps like Doordash or Shipt.