Amazon is growing on-demand services after reporting a 20% sales increase in 2015.
The increases promise to make free shipping more expensive for online retailers.
Offering consumers the free shipping offers they love promises to become more expensive for online retailers next year. That’s one consequence of the rate increases announced today by United Parcel Service, shipping experts say.
Effective Jan. 2, rates for UPS Ground Service will increase by 4.9%; UPS says that rates overall will increase by 5.9%, but will be offset by a percentage point reduction in the fuel surcharge. The ground service rate increase is the one that will affect most online retailers, says Jeff Ehrlich, president of Fulfillment Plus Inc., a fulfillment services provider.
“For online retailing in general, obviously any cost increase is challenging, and it makes offering free shipping tougher and tougher,” he says. Such increases will likely lead retailers to explore alternative shipping arrangements. That might include working with both a private carrier and the U.S. Post Office; the private carrier might sort and deliver packages to the local post office, which then would deliver the package to the local consumer.
Ken Wood, president of shipping advisory firm LJM Consulting, says the increases could make not only the post office but regional carriers more attractive to online retailers. “But it’s harder for national companies to use regional carriers,” he says. “They need a national carrier, and there are only two of them.” Besides UPS, the other national carrier is FedEx.
Wood also says the published increases set to take effect in early 2012 are only part of the rising shipping costs retailers face. That’s because the published increases don’t include various surcharges that can make up 30% of a retailer’s shipping bill, he says; those can include surcharges for delivering to remote areas. Various surcharges will increase, UPS says, including 50 cents for additional handling and 15 cents for deliveries to commercial addresses. Wood says that overall, rates will actually increase next year by at least 6% to 10% for many shippers.
UPS also announced the following rate increases for 2012:
• UPS Air and International services will increase by 4.9%, via a combination of a 6.9% increase in rates and a two percentage point reduction in the UPS Air and International services fuel surcharge.
• UPS Next Day Air Freight and UPS 2nd Day Air Freight rates for shipments within and between the United States, Canada and Puerto Rico will increase 5.9%. UPS 3 Day Freight rates will remain unchanged.