June 29 2011 08:38 AM

No Free Lunch; No Free Shipping
The old adage “there’s no such thing as a free lunch” holds parallels for today’s shipping industry pros. The phrase is generally traced back to the early 19th century practice of saloons and bars offering a free lunch with the purchase of drinks to entice clientele into their establishments.

Of course, those offers have largely gone the way of the horse and buggy, but the magnetic pull of a “free” offer continues to push the “purchase now” button for online shoppers in the U.S. today. In fact, the growth trend in e-commerce transactions coupled with free shipping offers in the B2C segment continues to be the most compelling force in the shipping industry. Recent proclamations by L.L. Bean and Amazon.com bear witness to the gravitational tug of this powerful online purchasing incentive.

According to a recent comScore report, in the first quarter of 2011 online retail purchases with free shipping offers reached a total of 47 percent of all e-commerce transactions, a 7 percent increase compared to the previous year. Looking back to 2010 holiday period, free shipping offers approached the tipping point, with 49 percent of all e-commerce transactions utilizing free shipping offers to entice consumers. Further evidence to the trend can be found in a recent comScore survey, which found that free shipping offers were “very important” or “somewhat important” to 73 percent of participants.

Tipping Point for Online Shipping
Given these marketplace dynamics and consumer behavior patterns, it’s easy to project that this holiday season we’ll surpass the tipping point, with the majority of B2C e-commerce transactions falling in line with the expectation of a free shipping offer. Since B2C now represents 27 percent of all package volumes, the implications for the shipping industry are obvious, and attempting to align business models around this consumer-driven deal-breaker requires working through a challenging economic environment.

Implications for the Shipping Industry
Although acceptance of the free shipping model carries with it the prospect of thinner margins or higher pricing on goods and merchandise, ignoring the trend will likely result in unacceptable levels of abandoned shopping carts and lower transaction volumes. For astute shippers, however, the opportunities for both revenue and profit growth remain available, provided lower-cost shipping alternatives are pursued, shipping budgets can be reasonably projected and customer expectations are managed effectively.

The single most important factor is to identify a shipping company that fits your particular needs. For decentralized fulfillment operations with a national footprint and regional logistics network, a ground shipping service with end-to-end processing is often recommended. The advantages of working with a single national carrier can provide scale in terms of volume incentives and tracking. A carrier with expertise at residential deliveries can also provides advantages such the prospect of incurring fewer delivery problems, lower costs attributed to problem resolution and lower levels of customer attrition.

With an estimated 59 percent of all package volumes being delivered within a 300-mile radius (Zones 1-3), a regional ground service with volume incentives, a reputation for good customer service and a predictable pricing structure could fit your requirements nicely. 

Lower Cost Doesn’t Mean Lower Quality Service
If your shipments are destined outside a regional delivery area, consider a consolidator or low-cost ground delivery service which can handle residential deliveries without adding on those pesky fuel surcharges or residential delivery penalty charges. These add-on fees can change on a dime, and can leave you trying to explain to the boss what happened to your depleted shipping budget half-way through the fiscal year.

Finally, look for a carrier that offers flexible delivery options such as adult signature, hold for pickup or a release option which instructs delivery personnel to leave the package at the delivery point if no one is available to receive it. Other options such as insurance, delivery confirmation and signature confirmation are important to have available for customers that request these extra services, provided they are willing to pay for any that carry additional charges.

The U.S. Postal Service has several ground package services available to commercial shippers, including Parcel Select, and most recently, Parcel Select Regional Ground. Parcel Select offers several ground shipping service options at price points available through worksharing discounts, with the USPS accepting shipments from consolidators and others based on how deep shipments are entered into the network. With the introduction of Parcel Select Regional Ground, the USPS now has a ground shipping service that is accepted only at mail processing centers. It’s an end-to-end service specifically designed for regional delivery within a 300-mile area. Extra services are available, and any future price changes are predictable, resulting in the ability to develop a stable shipping budget forecast on an annualized basis.

Free For All
Regardless of which shipping service you decide upon, the important thing is to align your operations to respond to the immutable trends in B2C shipping, and recognize that — like a free lunch — shipping costs are absorbed into the equation in some form; so choose your delivery service carefully, and factor in all customer service and cost variables. Let the boss know how you have a strategy to solve the implications of the free shipping trend, and see if you can talk him into buying you a free lunch.