Online delivery costs are expected to increase further in the pandemic

Delivery costs have risen nationwide and are expected to continue as the pandemic continues, creating a severe windfall for retailers, according to the Jefferies report.

“The recent increase in shipping costs has been fueled by the increase in the penetration of e-commerce, which has caused a significant imbalance between supply and demand and limited the capacity of carriers,” Jeffries analyst Janine Stichter said in the report. , based on a call with Dean Maciuba, a former FedEx executive who is currently the managing partner of North America at consulting firm Last Mile Experts.

Consumers expect fast and free delivery, but this is an increasing burden for many retailers, especially those affected by prolonged downtime during the Covid-19 pandemic. Retailers are particularly at risk because many do not have the ability to implement a robust and efficient shipping strategy to keep up with the demand for fast deliveries.

This pressure comes largely from companies like Amazon, which is known for its Prime delivery options for two days, one day and the same day. This has led consumers to expect fast and free delivery, even though some do not even want or need it, Stichter said.

According to Maciuba, online shopping during the holiday season last year did not reach as high as expected. He suspects shipping companies want to compensate for financial losses because they have invested in building infrastructure in preparation for a larger demand that never materialized. On the other hand, retailers can benefit from lower than expected shipping costs.

However, holiday levies that shipping companies like FedEx and UPS have implemented to prepare for the influx of orders are not disappearing. This surcharge is likely to become the new normal advance, in addition to the 5% -6% annual increases commonly seen, Maciuba predicted.

FedEx recently announced new peak charges on Express and local residential ground shipments for customers who had more than 30,000 packages weekly. The 30-cent surcharge per package went into effect Monday.

Maciuba told Jefferies that the best solution for transport companies to combat losses due to the pandemic and holidays is to adopt alternative delivery methods, such as shopping online, picking up in the shopping services, uploading and using delivery programs from third parties such as Doordash or Shipt.