Can retailers mitigate holiday delivery fee spikes?
Retailers are expected to see blockbuster sales online this holiday with shoppers still nervous about in-store shopping, but a side effect is expected to be escalating delivery costs.
On Friday, the U.S. Postal Service (USPS) said that for the first time it planned to add surcharges to domestic commercial deliveries during the holiday season. The rates range from 24 cents to up to $1.50 per parcel.
USPS said in a statement, “This time-limited adjustment will increase prices for our commercial customers in line with competitive practices without impacting customers at the retail level.”
On August 7, UPS announced an increase in holiday peak surcharges that is expected to add $3- and $4-per-package for major retailers, significantly higher than expected. FedEx is also believed to be considering similar hikes.
In recent months, both UPS and FedEx have taken the unusual step adding peak surcharges to offset costs from the online surge during the pandemic. Residential deliveries, with lighter loads and more stops, are estimated to cost up to three times more than business deliveries.
Retailers are seen having little leverage. Hannah Testani, COO of Intelligent Audit, a freight audit and analytics company, told The Wall Street Journal. “With such few carriers that can truly move national shipments, the carriers have almost unlimited pricing power.”
To make up for the added costs, retailers can raise product prices or shipping fees. Other options may be incentivizing BOPIS or encouraging consumers to order items earlier in the season. Amazon.com shipped 66 percent of its own packages in July, according to ShipMatrix.
On UPS’s second-quarter conference call on July 30, CEO Carol Tomé said she learned in her past role as Home Depot’s CFO that large retailers have ways of minimizing the problem.
She said, “The customers don’t know. So while retailers may squawk at price increases that come their way, large retailers have a way to spread that across [SKUs] and nobody knows. So there’s an opportunity here on the pricing side to do what we need to do.”
- U.S. Postal Service Announces Temporary Price Increase – USPS
- UPS Peak Surcharges – August 7, 2020 Update – UPS
- U.S. Postal Service Plans ‘Peak’ Surcharges for Domestic Parcels – The Wall Street Journal
- UPS Plans Hefty Holiday Fees Amid Coronavirus-Related Shipment Surge – The Wall Street Journal
- Coronavirus Shifts Pricing Power to UPS and FedEx, and They Are Using It – The Wall Street Journal
- United Parcel Service (UPS) Q2 2020 Earnings Call Transcript – The Motley Fool
DISCUSSION QUESTIONS: Is raising prices or increasing shipping fees the better option for retailers to offset likely higher delivery costs this holiday season? What other options may be more feasible?