retail news in context, analysis with attitude

by Kevin Coupe

FedEx is throwing a hand grenade into the e-commerce business.

The Wall Street Journal this morning reports that FedEx is changing the way it charges to ship products: "Instead of charging by weight alone, all ground packages will now be priced according to size. In effect, that will mean a price increase on more than a third of its U.S. ground shipments … The change in pricing could dramatically affect either online shoppers or retailers or both. Someone will have to swallow the estimated hundreds of millions of dollars in extra shipping costs." And shipping already is one of the fastest-growing budget lines for most online retailers.

The story suggests that it seems likely that UPS will follow with a similar policy, rather than seek a competitive advantage by keeping its charges the way they are: "If so, that would likely greatly affect bulky but lighter weight items like toilet paper and diapers, which many people have delivered on a regular basis, as well as Zappos.com shoes, which ship for free, including free returns. Indeed, shoe shoppers are encouraged to buy multiple pairs, keep what fits and return the rest. Avid Web shoppers do the same with sweaters, dresses, and jackets at retailers like J. Crew, Banana Republic, and Macy's."

According to the Journal, "E-commerce retailers will be affected by differing degrees, depending on their ability to negotiate pricing with FedEx, analysts say. The biggest companies, like Wal-Mart Stores Inc., Walgreen Co. and Saks Fifth Avenue, will likely attempt to grandfather in current pricing rules when they renegotiate contracts. During a similar price increase in 2011, many retailers negotiated a phase-in of the new rules."

This strikes me as yet another reason that Amazon is likely going to invest even more into developing its own shipping service, with trucks in as many as 40 major markets. That way, it can exert even more control over costs and service … it suffered something of a black eye during the past holiday season when FedEx and UPS were unable to live up to the promises that Amazon (and other e-tailers) were making, and that's not something it wants to happen again.

I'm a little surprised that FedEx (and UPS, if it makes the same decision) would risk accelerating the process of losing Amazon's business. And as I think about it, I wonder if there is anything that would prevent Amazon from amortizing the cost of doping more of its own deliveries by offering that service to other e-tailers. After all, it already provides an e-commerce backbone to many e-commerce companies … why not offer expanded supply chain solutions as well?

Just a thought. And maybe a potential Eye-Opener.
KC's View: