Summer’s not even a distant memory and yet it’s time to start thinking about holiday shipping.
Too soon? Not according to logistics experts who say this holiday season isn’t without shipping challenges, given higher carrier costs and inflation.
“We’re keeping a close eye on margins and hoping that won’t be the Grinch that stole Christmas,” says Rob Garf, vice president and general manager of retail at Salesforce, a customer relationship management platform that provides e-commerce solutions for retailers.
While headaches over the past two holiday seasons focused more on last-mile service delays and getting product into ports, this year’s biggest challenge for retailers and e-tailers will be maintaining profitability, he says.
Costs have increased all around, including labor, shipping and excess-inventory carrying costs from retailers who overbought as a hedge against supply-chain issues, Garf says.
While consumers in some cases may find bargains from sellers looking to clear out inventory, Garf said, there is a downside overall.
These “increases are partly going to be passed onto the consumer in the way of higher retail prices, while retailers will also have to absorb the higher costs of goods sold, which will cut into margins,” he says.
This all comes at a time when consumers expect free shipping, says Seth Nowak, client engagement manager at Shipware LLC, a San Diego-based transportation management firm.
That’s difficult for smaller retailers to do, he says.
Angela Carillo, owner of Alegna Soap, a Bethpage-based soap maker, agrees, noting she went from offering free shipping to instituting a $5 flat fee and that still doesn’t cover her increased costs.
Her shipping costs have almost doubled since pre-COVID days.
Overall, she’s finding it easier to find supplies, but certain ones are still hard to get, like six-ounce fragrance spray bottles.
Carillo thinks costs will be more burdensome than shipment delays this holiday season. She started using Pirate Ship shipping software to help find the best costs among carriers.
“The pricing the major carriers have been able to leverage since COVID has caused transportation and logistics costs to blow out budgets,” Nowak says.
And while demands on carriers for shipping services have lessened since the height of COVID, businesses’ face peak season and fuel surcharges on top of “two of the largest rate increases” by FedEx and UPS over the past two years, he says.
Both UPS and FedEx instituted on average a 5.9% general rate increase for 2022. But that could be much higher with surcharges and fees, says Nowak, whose firm has saved clients an average of 21.9% on fulfillment and logistics.
UPS Spokesman Matt O’Connor said the peak surcharges "reflect current market conditions, which includes consumer demand and available capacity.”
FedEx explained: “COVID disrupted the global supply chain, and the general rate increases in the last two years reflected the incremental costs associated with a challenging operating environment.”
Whatever the justifications, Rich Michals, Jr., President of Parcel Management Auditing and Consulting in Farmingdale, a logistics, parcel and auditing consultancy, says increases are burdensome. He’s been helping clients to get holiday peak surcharges eliminated and achieved that for about 10% of clients.
He believes this holiday shipping season could be more challenging than last.
Among issues besides higher carrier charges, Michals points to not all pre-COVID service guarantees being fully reinstated and the unknown impact of unrest among key players within the FedEx and UPS delivery networks.
He noted FedEx recently cut ties with one of its largest ground-delivery contractors, Spencer Patton, suing and canceling that contractor’s routes in 10 states. See https://tinyurl.com/yckfpwyr
Patton, in turn has called on other contractors for a no-confidence vote against FedEx Ground CEO John Smith, says Nowak. See https://tinyurl.com/ynh26xmh.
UPS has a tense labor climate, experts say. Its contract with Teamsters expires July 31, 2023, according to the union, which recently launched a contract campaign to inform and mobilize members.
But UPS says, “We’re confident in our ability to deliver peak season for our customers,” noting they’re hiring 100,000-plus seasonal employees.
Said O’Connor: “UPS and the Teamsters have worked cooperatively for almost 100 years to meet the needs of UPS employees, customers, and the communities where we live and work … We believe we’ll continue to find common ground with the Teamsters and reach an agreement that’s good for everyone involved.”
Playing down its battle with Patton, FedEx said the contractor "operated in several locations and constituted less than 0.5% of the approximately 60,000 total routes across the FedEx Ground network. Effective contingency plans ensured that minimal service disruptions were experienced during the initial transition and all affected stations are currently performing at high service levels.”
FedEx also said it’s “confident in our ability to deliver this holiday season….”
The increasing costs for suppliers, labor, and transportation will outpace retailers’ ability to pass costs onto customers this holiday season, putting 10% of profits at risk for retailers and brands, according to a recent Salesforce analysis.