For many retailers, there is no alternative but to use third-party logistics firms. It would be impossible for almost all retailers to create an in-house, last-mile national distribution network that was anywhere near break-even. The volumes would be far too low to allow for this. That’s why it’s most cost-effective to used shared third-party services.

The real reason costs are rising is because retailers are offering better, more intricate delivery services at a time when labor and logistics costs are on the rise. This is an issue because most retailers don’t charge consumers anywhere near the true cost of the service.

I think retailers selling online are still shocked by the fact that direct-to-consumer (DTC) is less profitable than brick-and-mortar.

It’s very counter-intuitive, and in the early days it didn’t seem to make sense (and maybe sometimes today with all the “retail apocalypse blah-blah-blah”) but, in fact, stores are more than boat anchors holding retailers back.

Costs are part of the DTC business and depending on the breadth of your assortment, you’ll ship more or less air along with the product you’re selling. And your returns will be higher.

So my best advice is to negotiate the best prices you can, ship in full loads, and have the right size boxes for your assortments.

The delivery expectation has already escaped from Pandora’s box. Young digitally-empowered shoppers, in particular, have come to expect free delivery as a foundational expectation when they begin their online shopping search and discovery. The challenge — now that the expectation exists — is how to either rationalize or reduce (eliminate?) the expense. Amazon is certainly using incentives to motivate people to not select or expect two-day deliveries. The cost of these services is in direct conflict with the expectations that were set by Amazon and retailers. Now that the expectation has been set, retailers are realizing that they are losing money on this service. How do they get themselves out of the trap that they themselves set?

I launched a grocery delivery program for a supermarket retailer back in the mid-’90s and the same problem of high delivery costs plagued us then as it appears to be doing now. Whether you use a third party or source internally, the key to bringing incremental costs down is volume. Everything becomes more efficient when you are doing it repeatedly and in large quantities. Vans carrying multiple orders will always be more efficient than the back seat of a car with a single order. While there are logistical elements with delivery that can be tweaked, critical to getting (at least) to a break-even point with delivery is doing more of it.

This is the reason that Boxed is successful. They understand how to use the carriers’ built-in allowance for weight/size of the box equation to make themselves money. The way they pack the box with extra items without increasing the cost to ship is their secret sauce. I just heard the founder speak at an industry conference and his method seems to be very smart.

Costs…??? How about using the word “FREE” less frequently? Table stakes. Level playing field. That’s the market dynamic, but clearly free isn’t actually the operative word.

The last mile of delivery is a big challenge for retailers and, as others have noted, retailers have notoriously under-charged for home delivery because consumers’ expectations have become unrealistic. Free delivery isn’t a viable model, as nothing is free!

Free in-store or locker pick-up is a better long-term pricing model. Eventually, retailers may have more of a tiered delivery/pick-up pricing model that is more representative of the true costs. While pick-up lockers are still relatively new, they may be the answer – just like in the olden days when people would go the the post office to pick up their mail. It will be interesting to see how fulfillment/delivery/pickup will change in the next few years. BTW, I don’t think the answer will be drones or driverless cars or robots – at least not in the next five years.

Working with third-party carriers is not a “hurdle,” it’s a cost of doing business unless you have the scale (volume and geographic coverage) and can support your own fleet of vehicles. Seems the real issue is data visibility and a siloed responsibility approach. There are further implications beyond Supply Chain to consider here, especially on the CX side, beyond “delivery costs.” Having recently consulted with one well known retail brand, they shared the Customer Service implications of having multiple third-party providers, and poor data visibility as: 65% of their CS call volume was “where’s my stuff?” Average 8 minute “handle time” on those calls — mostly due to CS representatives having to open up no less than three different third-party applications to find the order, and most often ended up with stale data. Perhaps instead of focusing solely on “lowest cost provider” (meaning a patchwork of providers), consider one 3PL that can provide real-time data, easy to use UIs, dashboards for all teams (SC, CS, Store Ops, etc.) for tracking, etc. And maybe you just… Read more »