Ecommerce Shipping Costs: How to Regain Control of Out-of-Control Rates

Many small to medium ecommerce direct-to-consumer businesses are finding their shipping costs spiraling out of control.

Price increases, fuel surcharges, local delivery surcharges, dimensional weight surcharges have increased cost dramatically and made it difficult to forecast and therefore leaving shipping tables always lagging.

That challenge is compounded by the ever growing customer expectation that everything online will ship in 2 days for free.

What is driving ecommerce shipping cost increases?

Parcel volume in the US grew 37% to 20 billion in 2020 based on the shift to online ordering due to the Covid 19 pandemic. This coupled with dramatic increases in energy cost and a very tight labor market is significantly increasing cost.

Parcel volume is expected to continue to grow to as much as 45 billion in 2027 according to Pitney Bowes. This is placing major stress on the existing parcel infrastructure.

UPS stated that parcel shipping demand exceeded capacity by 5 million packages per day during the 2021 holiday season. UPS started capping demand for even the largest shippers. The Wall Street Journal reported caps placed on Nike and the Gap as examples.

These are brands that are big enough to have inventory all across the country and yet they still struggle to get costs under control.

So what is the smaller to mid-size ecommerce shipper to do?

Actions to reduce ecommerce shipping costs

The simple answer is to raise shipping prices on your DTC site to cover these cost increases. While it seems obvious, increased shipping cost can have disastrous impact on site conversion. Industry estimates suggest that as much as 60% of cart abandonment rate is due to high shipping cost or slow/unknown shipping speed.

In our experience, the key to success is to find the “sweet spot” shipping offering that maximizes conversion while minimizing shipping cost in the system.

Here are a set of actions that we have found impactful in balancing these factors:

1. Raise free shipping thresholds.

In general, free shipping thresholds can dramatically increase average order value. Consumers are willing to spend more in order to get free shipping.

If your shipping cost is up by 10% and you are able to increase your AOV by 10% without impacting conversion, that will be one of your best defenses against raising cost.

2. Provide a tiered offering giving customer choice.

Let your customers self-select how important it is to get their shipment quickly. Having a low cost base option with multiple upsell options for expedited shipping will allow customers to self select.

Typically the base shipping rate is subsidized by the company and the upsell rates tend to include a positive shipping margin depending on the negotiated carrier cost.

3. Find a 3PL that you can work with to leverage shipping volume and buying power.

Most SMB ecommerce companies will not have the volume to command significant discounts from the major carriers. However, by working with a 3PL provider, you can take advantage of their contractual discounts based on overall shipping volume.

At ONELIVE, our fulfillment services offer shipping discounts up to 80% from the retail rates of the major carriers. That can represent significant savings.

4. Be precise on delivery expectations.

According to a study from Convey/Project 44, 60.7% of consumers are more likely to make a purchase if the expected delivery date is clear in the cart and check out experience. If you don’t have it, adding it will improve conversion.

However, be aware that it is important to deliver on those promises. That same study suggests that as much as 80% of customers will churn after a poor delivery experience.

5. When possible, develop a multi-carrier network.

Long gone are the days where you negotiate with a single carrier for all your volume. The modern shipping systems are utilizing API feeds from multiple carriers to make sure that they are optimizing shipping modes on a real time basis. They are looking at current pricing and finding the best mode with each postage label printed.

Cloud-based shipping software can help with this challenge or most 3PLs can help you set up a multi-carrier network.