Why is There More Free Shipping?

Imy Clarke - On behalf of Alchemy Recruitment, July 3, 2017

In a world where ecommerce is continually increasing, shipping companies are finding themselves in peak demand. To stand out and survive in this competitive online market, both retailers and shippers not only have to deliver quicker, but cheaper…so cheap that it’s free.

A whole range of surveys and studies, including the ‘Walker Sands Future of Retail 2016’ study, have found that one of the primary reasons for basket abandonment is extra cost in delivery, and people are compelled to shop online if there is more free shipping available. As a result, for ecommerce, offering this feature seems like a no brainer, but how are online retailers supposed to cover this extra cost? 

Many advertise a minimum spend in order to qualify for free shipping, such as ASOS, or persuade you sign up to a particular paid scheme, such as Amazon Prime. The result is that while the shipping may actually appear free to the consumer, the retailer has often minimised the cost of the shipping fee and neither shipping company nor retailer will necessarily see a decline in profit margin or feel pressured to lower their prices. 

Smaller retailers, however, do not necessarily have this luxury, and this, (not the consumer or the shipping company), is where the financial pressure of free shipping is felt. For businesses of smaller sizes, free shipping is unsustainable. Even Amazon recovers only about 55% of the amount it spends on shipping, but it has the income to allow for this: a smaller business does not.

While this free, cheap and fast shipping puts strains on retailers and their profit margins, shipping companies are also under pressure. To keep their profit margins, retailers are searching for shipping companies that have cheaper shipping costs, and to offer unbeatable delivery times, to accommodate the ‘same day delivery’ phenomenon. 

For international maritime shipping, achieving speed can be tough, but costs can at least be significantly lower than the speedier air shipping. Some large companies, such as Net-a-Porter, have even turned to running their own fleet of vans to minimise costs and enhance efficiency, and if many other large companies do the same, then independent shipping companies could be finding a decrease in business, at least from larger ecommerce retailers. 

Smaller retailers, however, could be a part of the market worth exploring. To be able to offer retailers competitive rates, but on a mass scale could be a fantastic way to make profits. With ecommerce only increasing, and number of startup e-retailers also increasing, this is a sector of the market with huge opportunities.

Someone has to pay the cost of shipping, and if it’s not the consumer then retailers could find themselves losing money on every free shipment. It’s an important trend to attracting consumers, and the shipping industry may now have to adapt in order to exploit the exciting opportunities for business that the free shipping could offer.

Posted in categories: Costs and Expenses, Shipping
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