An Amazon employee delivers packages amid the coronavirus disease (COVID-19) outbreak in Denver, Colorado, April 22, 2020.
Kevin Mohatt | Reuters
Delivery costs have risen across the country and are expected to continue as the pandemic continues, creating a serious headwind for retailers, according to a report from Jefferies.
“The recent growth 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 carriers,” said the Jeffries analyst Janine Stichter in the report, which was based on a report call Dean Maciuba, a former FedEx executive who is currently the managing partner for North America of consulting firm Last Mile Experts.
Consumers expect fast and free delivery, but it is a growing burden on many retailers, especially those affected by extended shutdowns during the Covid-19 pandemic. Mid-sized retailers are particularly at risk as many lack the capacity to implement a strong and efficient enough shipping strategy to meet the demand for fast deliveries.
Much of that pressure comes from companies like Amazon, famous for its two-day, one-day, and same-day Prime shipping options. This has made consumers expect fast and free delivery, although some may not even want or need it, Stichter said.
Online shopping during the holiday season last year did not reach the expected peak, according to Maciuba. He suspects that shipping lines are looking to make up for financial losses as they invested in building infrastructure in anticipation of increased demand that never materialized. On the other hand, retailers could benefit from lower than expected shipping costs.
However, the holiday surcharges that carriers like FedEx and UPS have put in place to prepare for the influx of orders are not going to go away. These surcharges will likely become the new normal in the future, in addition to the annual increases of 5-6% that are usually seen, Maciuba predicted.
FedEx recently announced new, state-of-the-art ground express and residential domestic shipping supplements for customers with a weekly volume of more than 30,000 packages. The 30-cent per package surcharge went into effect Monday.
Maciuba told Jefferies that the best solution for ocean carriers to tackle pandemic and vacation losses is to adopt alternative delivery methods like online shopping, in-store pickup services, in-store pickup. curbside and the use of third-party delivery applications like Doordash or Shipt.