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Pressed to deliver fast and free, web retailers turn to technology and an unexpected ally.
The squeeze is on web retailers to wring every penny out of shipping costs, and not just because a record 51.8% of U.S. online orders included free shipping in the fourth quarter of last year, according to web measurement firm comScore Inc., a trend likely to continue this holiday season.
It's also because eBay Inc. has recognized its sellers must offer free shipping to lure consumers away from rival Amazon.com Inc., with its multitude of free shipping deals. Now the two biggest online marketplaces are both pressing sellers to offer shipping that's free and flawless. As a result, 48% of eBay orders shipped free in the second quarter of this year, up from 37% a year earlier. While Amazon doesn't disclose that figure, it's likely 60% to 70% of Amazon sales include free shipping, says Scot Wingo, CEO of ChannelAdvisor Corp., which helps retailers sell through web marketplaces.
Those behemoths set consumer expectations, says Mike Roberts, chief financial officer at multichannel retailer Cheap Joe's Art Stuff Inc. "Everybody wants it faster and cheaper these days," he says. "Amazon and eBay are setting the standard."
To keep up, e-retailers employ software and services that make it easier to find the most cost-effective shipping method for each order and cut the time required to get orders out the door. And ironically, given Amazon's role in driving the free shipping frenzy, some web retailers are finding that turning their shipping over to Amazon is the way to satisfy consumers' demand for free shipping—and boost sales.
Other retailers, like Cheap Joe's, rely on software that selects the best way to ship each order from a range of delivery services. Cheap Joe's uses Kewill Clippership, which takes into account the weight, box size and destination, then selects the cheapest option. Options include the three primary carriers—UPS, FedEx and the U.S. Postal Service—and hybrids like FedEx SmartPost and UPS SurePost that feed packages to the USPS for home delivery.
The software also considers consolidators that pick up parcels from many e-retailers and put them into the USPS system, gaining price breaks that allow them to ship for less than most smaller retailers could on their own. For packages less than 10 pounds, Cheap Joe's uses consolidator Newgistics Inc., which charges less than UPS or FedEx, Roberts says. He calls the savings "substantial"; Newgistics says it can cut shipping fees 10% to 20%.
To save time, Cheap Joe's has programmed into its system the 13 box sizes it uses; the shipping station employee simply selects the box size and the Kewill Clippership software takes the box volume into account when selecting a rate—carriers not only charge by weight, but also charge extra for lightweight boxes that take up a lot of truck space.
A license for Kewill Clippership software costs between $5,000 and $25,000, says Peter Starvaski, director of product marketing. Factors that contribute to higher costs include number of carriers, international coverage and shipping regulated goods that require special treatment. Cheap Joe's also pays about $2,000 annually for maintenance, Roberts says.
There are other options in rate-shopping software. E-retailer AchooAllergy.com Inc. deployed the Computerized Parcel System from Harvey Software Inc. four years ago to find the least expensive way to ship each parcel. Previously, the web-only retailer of products for allergy sufferers had a simple rule: Anything less than 3 pounds shipped Priority Mail, and anything heavier went UPS, says operations manager Kevin Gilmore.
A careful study over the first two years after the installation showed Harvey's software saved the retailer 15% to 18% on shipping, Gilmore says. It also cut processing time by more than a third, he says. Each order now comes down a set of rollers from two packing stations to the scale where a worker takes the sales receipt from the box, and scans the receipt's bar code to populate the shipping address in the CPS software. The software takes the weight from the scale and calculates the best shipping option, then sends the weight, date, carrier, cost, service level and tracking number to the retailer's accounting system.
Another benefit, Gilmore says: One system stores all shipping data, no matter the carrier, which makes it easier for the company to analyze its shipping costs than when UPS data was in UPS software, FedEx data in FedEx software and so forth. He says AchooAllergy.com's web sales are in the range of $8 million to $10 million. Gilmore estimates his fees for the Harvey software at around $900 annually, and says AchooAllergy.com spent about $2,000 on the initial installation.
Much less expensive is ReadyShipper software from TrueShip. While not designed to shop for the best rates on each order, the software lets a retailer set its rules—such as items under 1 pound ship Priority Mail, and everything else UPS—and the software spits out shipping labels and injects shipping information into many e-commerce platforms and order management systems, such as Volusion and OrderMotion. The software costs $19.95 per month.
It also reports to marketplaces like eBay and Amazon that orders have shipped and provides tracking information; it can also automatically send that tracking information to the customer. That's important, says Chris Dunn, director of business development at TrueShip, "because you need to post your tracking information within a certain amount of time or your seller rating goes down" on marketplaces like eBay.
Indeed, 90% of orders must be updated quickly with tracking information to maintain the top-rated eBay status that gains sellers prominent positions in search results, says Amy Lubel, senior global manager of marketplace services at ChannelAdvisor. Fast processing also is important, Lubel says, because a retailer that can promise to ship within one day automatically gets five stars—eBay's highest grade—for shipping and handling, one of four components in the Detailed Seller Ratings that dictate eBay positioning.