Free Delivery Gets More Expensive

Nothing in life is free — and this includes free shipping, which has become an albatross around the necks of most retailers and parcel carriers.

That was true in June 2017 when I wrote those words in Free Shipping Is Costing More (As Small Packages Flood Delivery Networks), and it remains true today.

“United Parcel Service Inc plans to impose big fees on large shippers sending significantly more packages through its system during the holiday season amid the coronavirus pandemic,” reported Reuters last week. According to the article:

UPS said the new fees could total as much as $3 a package for ground shipments and other lower-priced shipping options and up to $4 a package for air shipments bound for residences. The hikes were first reported by the Wall Street Journal.

UPS said the surcharges will apply from mid-November until mid-January and are designed to apply only to customers who ship more than 25,000 packages a week.

Earlier this month, Bloomberg reported that “FedEx will boost international surcharges on select routes beginning Aug. 10. Deliveries to the U.S. from Hong Kong will double to $2 a kilo and from Taiwan will jump to $1 from 22 cents. FedEx has said it plans to apply holiday surcharges as well.”

Now comes the United States Postal Service (USPS). This past Friday, USPS announced that it “filed notice with the Postal Regulatory Commission (PRC) today of a temporary price change to take effect Oct. 18, 2020.” Here are some details from the announcement.

The planned temporary price adjustments are in response to increased expenses and heightened demand for online shopping package volume due to the coronavirus pandemic and expected holiday ecommerce. As a result of these changing market conditions, the Postal Service is planning a time-limited price increase on all commercial domestic competitive package volume from Oct. 18 until Dec. 27, 2020. Retail prices and international products will be unaffected.

The planned prices, approved by the Governors of the Postal Service on August 6, would raise prices [between 24 cents a parcel up to $1.50] on its commercial domestic competitive parcels – Priority Mail Express, Priority Mail, First-Class Package Service, Parcel Select, and Parcel Return Service.

According to the 2020 State of Logistics Report published by CSCMP, parcel remains the fastest growing transportation mode. The sector grew to $114 billion in 2019, an almost 9 percent increase from 2018. This matches the sector’s five year annual compound growth rate (CAGR) of 8.8 percent. E-commerce is the main driver of this growth, and it’s been supercharged by the COVID-19 pandemic.

For many companies, parcel has gone from being a niche transportation mode (“mailroom shipments”) to a critical one representing a growing portion of their annual transportation spend. The ability to manage this spend effectively — in light of growing volumes and more demanding customer expectations — is what will separate the leaders from the laggards moving forward. 

This is why over the past few years, transportation management systems (TMS) vendors have added or enhanced their parcel shipping capabilities (organically or via acquisition), and why shippers, carriers, and logistics service providers are all transforming their distribution networks to operate more efficiently in this e-commerce driven environment.

Free shipping keeps getting more expensive, and we will all pay for it, one way or another.

For related commentary, please see Amazon Prime Free 1-Day Delivery: Do We Really Need It?