Executive Briefings

Solutions for the E-Commerce 'Free Shipping Dilemma'

Online shoppers often abandon their carts when they see the cost of shipping, a response that has led many online sellers to offer shipping for free or a low, flat-rate.

To off-set the cost of this strategy, online sellers increasingly have turned to cheaper shipping options based on postal consolidation. With this type of service, providers consolidate packages by zip code and drop them off at a local postal hub for final delivery. Even large parcel carriers like UPS and FedEx offer this type of low-cost service.

"This is the cheapest way to deliver to residential addresses for carriers because the last mile is typically the most expensive part of a delivery, but the postal service already delivers to every address every day" says Mark Magill, director of business development at OnTrac, a regional, time-sensitive package delivery company serving California Arizona, Nevada, Oregon, Washington, Utah and Colorado.

The longer transit times characteristic of postal consolidation can have drawbacks, however. If an online purchase is not delivered quickly, buyers' remorse sometimes sets in and the item is returned, Magill says. This is particularly true for more expensive items. Returns also may occur if an item is purchased for a special occasion and doesn't arrive in time. "The millennial generation, in particular, expects online orders to be delivered quickly without having to pay extra for that service," says Magill.

He believes that online sellers could get faster transit times and reduce shipping costs to the vast majority of consumers by focusing on mega-regions where population is heavily concentrated. "Population in the U.S. is not distributed evenly," he says. "It is concentrated in areas like the Northeast Corridor from Boston to DC, Southern California and the Great Lakes." Regional carriers in these areas typically offer next-day service for distances of 500 miles or more, "and they do it at ground rates," Magill says. This means that a consumer could order a $500 leather jacket on Monday and receive it on Tuesday at a delivery cost of about $5, he says. "No more cart abandonment and no more buyer remorse."

To view video in its entirety, click here


Keywords: transportation management, logistics management, logistics & supply chain, logistics IT solutions, parcel delivery, last-mile logistics

To off-set the cost of this strategy, online sellers increasingly have turned to cheaper shipping options based on postal consolidation. With this type of service, providers consolidate packages by zip code and drop them off at a local postal hub for final delivery. Even large parcel carriers like UPS and FedEx offer this type of low-cost service.

"This is the cheapest way to deliver to residential addresses for carriers because the last mile is typically the most expensive part of a delivery, but the postal service already delivers to every address every day" says Mark Magill, director of business development at OnTrac, a regional, time-sensitive package delivery company serving California Arizona, Nevada, Oregon, Washington, Utah and Colorado.

The longer transit times characteristic of postal consolidation can have drawbacks, however. If an online purchase is not delivered quickly, buyers' remorse sometimes sets in and the item is returned, Magill says. This is particularly true for more expensive items. Returns also may occur if an item is purchased for a special occasion and doesn't arrive in time. "The millennial generation, in particular, expects online orders to be delivered quickly without having to pay extra for that service," says Magill.

He believes that online sellers could get faster transit times and reduce shipping costs to the vast majority of consumers by focusing on mega-regions where population is heavily concentrated. "Population in the U.S. is not distributed evenly," he says. "It is concentrated in areas like the Northeast Corridor from Boston to DC, Southern California and the Great Lakes." Regional carriers in these areas typically offer next-day service for distances of 500 miles or more, "and they do it at ground rates," Magill says. This means that a consumer could order a $500 leather jacket on Monday and receive it on Tuesday at a delivery cost of about $5, he says. "No more cart abandonment and no more buyer remorse."

To view video in its entirety, click here


Keywords: transportation management, logistics management, logistics & supply chain, logistics IT solutions, parcel delivery, last-mile logistics