Who’s Paying for Free Shipping? - Inbound Logistics
3PL, E-commerce, Supply ChainAs someone who specializes in logistics, I see my fair share of Amazon-related studies and reports. One of the most recent — the 2019 Amazon Consumer Behavior Report from Feedvisor — offered some eye-opening statistics.Perhaps most compelling is the degree to which Amazon’s dominance and influence continues to grow. For instance, nearly 9 out of 10 (89%) consumers say they are more likely to buy products from Amazon than any other e-commerce site. The reach of its membership-based Prime program is growing, too: more than half (55%) of the 20,000 consumers Feedvisor surveyed are now subscribed to the service.Clearly, Amazon has the potential to disrupt many aspects of business for retailers, shippers and 3PLs. Its recent, well-documented entry into the U.S. freight brokerage market is one example, although the full ripple effects of this move remain to be seen. Intensifying expectationsMore immediate is the power Amazon has to shift consumer behavior and mindsets: Consumers now expect shipping to be free and fast.Recently, Amazon announced that it would be offering free one-day shipping on some items to its Prime customers, versus the free two-day shipping it currently offers. This new offering would not require a minimum purchase, versus the current $35 minimum for free one-day shipping.Of course, few things of value are truly free. In this case, consumers pay $119 per year for free shipping (an increase of $20 over last year) and the other benefits Prime membership brings, such as access to select digital content.Rather than getting free shipping, Amazon Prime consumers are paying in advance for shipping they believe they will need: $10 worth per month. For most, it probably makes sense — especially judging by the volume of Amazon-labeled parcels I see on local doorsteps every day.The Feedvisor study supports this impression. Eighty-eight percent of Amazon Prime members order monthly or more often, versus 56% of non-members. Forty-eight percent of Prime members shop on the site once a week or more often. So one could argue that most are getting strong value from that $10 monthly fee. Therefore, it’s no surprise that 76% say they are very likely to keep their membership.What 3PLs can do…What does all of this mean for third-party logistics companies? With fast, free (or very low-cost) shipping now the expectation among consumers, 3PLs are in a critical position to enable their retailer customers to compete more effectively with Amazon and other online marketplaces.In particular, 3PLs must remain laser focused on driving costs out of their systems, so they can ultimately drive down costs for their customers’ supply chains. That can help free up the money to pay for faster delivery at low or no cost to consumers.We’ve seen several of our 3PL clients do this by focusing on operational efficiencies. Some efficiencies, such as those made possible by artificial intelligence–supported automation and large-scale robotics, may require significant upfront cost. I’m excited by what I’ve seen of new, smaller, less expensive collaborative robots, or cobots, which work alongside humans in warehouses and distribution centers. Cobots have the potential to add efficiency to parts of a 3PL’s operations at a fraction of the cost of full automation or larger robots.…and the role of retailersFor their part, retailers should remember that “free delivery” doesn’t actually have to be completely free. As the research shows, consumers are willing to pay a certain amount in exchange for speed and convenience. For Amazon, at least, selling delivery separately from products themselves and applying it to more than one purchase in a time period seems to be working. At the point of purchase, delivery looks free to the consumer, rather than an additional charge.Another way to reduce friction at the point of sale is to bundle the price of delivery into the product price itself. Consumers may be willing to pay such a premium for faster delivery and guaranteed quality from retailers with established reputations. Indeed, the study says 49% of consumers are worried about counterfeit products from Amazon.While 3PLs and retailers have many options to compete in an Amazon world, inaction is not one of them. Amazon plans to invest an incremental $800 million in the second quarter alone to bring standard one-day shipping to Prime customers.In other words, Amazon clearly sees the value of investing in fast, “free” delivery. Tomorrow’s leading retailers and 3PLs do, too.Harris Williams, an investment bank specializing in M&A advisory services, advocates for sellers and buyers of companies worldwide through critical milestones and provides thoughtful advice during the lives of their businesses. Jeff Burkett is a director in the firm’s Transportation and Logistics Group. For more information about the firm or its experience, please visit www.harriswilliams.com.
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