Earlier this month, UPS said it is raising its freight rates on Sept. 19 by about 4.9 percent, and its ground service rates also by 4.9 percent beginning Dec. 26 — which is expected to impact overall shipping costs for retailers across the market. The jump also comes at a time when retailers are shifting their business models to emphasize an omnichannel approach.
For its part, UPS said in a statement about the hike that it “continues to make investments in the speed, scope and coverage of our transportation network. Rate increases will support ongoing expansion and capabilities enhancements, while UPS strives to maintain the high service levels customers expect.”
But some solution providers note that these costs could be offset by retailers deploying several tactics such as offering broader delivery options, which includes shipping goods from stores — a method that consumers favor, and one that drives traffic.
Rob Taylor, cofounder and chief executive officer of e-commerce firm Convey, said that the “most important part of this story isn’t that rates are rising. This move comes as no surprise, given that carriers are feeling the stress of rapid e-commerce sales growth. Rather, the larger issue is that retailers need to become more effective at managing a larger network of carriers to save money, offer customers more options and deliver a better customer experience.”
Taylor said when retailers can “optimize” their network of carriers costs can be reduced while also seeing higher levels of quality and service. “This focus on optimization is especially important for sellers of large items and those items that can ship in various modes,” he explained. “Earlier this year, UPS and FedEx modified their additional handling accessorials, increasing the cost to ship any package with the longest side measuring greater than 48 inches — down from 60 inches.”
The ceo said the changes mean that more packages will have “increased shipping costs heading into the holiday season. If retailers are not prepared, these costs will either eat into their margins, or have a direct impact on conversion rates as these costs get passed on to customers.” Taylor said retailers who offer broader delivery options as well as being more “transparent about shipping costs will be able to continue to offer free shipping at margins that make sense, recoup the cost of shipping upgrades, and deliver a better customer experience that drives conversion and loyalty.”
Jennifer Sherman, senior vice president of product and strategy, cloud-based commerce platform Kibo, said the rate increases “affect all retailers, especially during a time when retailers are looking to compete against e-commerce giants such as Amazon, who continue to win over the customer market with their ability to deliver products with free two-day shipping.”
Sherman noted that while free shipping may benefit the customer, “this practice often leaves retailers with a low or no margin. While the costs of shipping may continue to rise, retailers can wage against the pricing increase by leveraging two features that should already exist within their strategy — ship-from-store and in-store pickup.”
Sherman said a ship-from-store model “can serve as a retailer’s way to overcome elevated shipping costs by shortening distances between the product and the customer.” She said on average, retail stores are 47 percent closer to customers than they are to a warehouse or distribution center.
“In-store pickup is a feature many retailers are already offering as it is a clear customer favorite,” Sherman added. “In fact, in our recent consumer trends survey report, ‘The Digitally Demanding Consumer,’ we found that 43 percent of U.S. shoppers prefer in-store pickup as their main fulfillment method. This method not only eliminates retailers’ shipping costs but also increases customer traffic to their physical store.”