When you’re starting an eCommerce business, chances are you’re thinking about the exciting parts. These include the products you’ll sell and your eCommerce marketing strategy.
What most business owners don’t love thinking about is eCommerce shipping and how to ship a package, particularly overnight shipping costs. Shipping fees add up quickly. That's particularly true if you’re learning how to ship large items, how to ship frozen food, how to ship cookies, how to ship beer, how to ship wine, how to ship alcohol, or how to ship food.
So, why is shipping so expensive? How much does it cost to ship a package these days, anyway? What causes prices to rise and sometimes stay that way, whether locally or globally? Keep reading to find the answers to these questions and more.
The Relationship Between Shipping and Global Consumer Trends
In order to understand why shipping issues have led to higher costs, one must have an understanding of current direct to consumer trends. The global eCommerce market grew by 44% from 2019 to 2020, which is 32%-37% faster than even high-growth markets typically experience.
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This growth placed extraordinary pressure on businesses to manufacture, ship, and distribute goods with the same or fewer resources than before. Whenever supply is limited, you can expect a ripple effect in pricing changes:
- Manufacturers will increase the average wholesale price (and possibly their MOQ)
- Wholesalers will increase their prices to distributors
- Distributors will pass higher costs to eCommerce shipping companies
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Shipping and 3PL companies increase their prices to maintain profit above their expenses, which ultimately creates greater costs for consumers. Given that consumers still expect fast shipping across different types of marketplaces, the only way to meet customers’ shipping expectations is to charge more.
Aside from companies simply increasing their prices to address rising expenses, there are several individual factors contributing to greater shipping costs. Let’s look at a few of the biggest.
High Costs of Transportation
It’s no secret that shipping and handling isn’t cheap. Between gas prices, airplane fuel, limited cargo space, and the complexities of last mile delivery and route planning, shipping carriers are forced to get a lot of work done with limited resources.
Transporting shipping containers by road or rail is anywhere between $800 and $3,000 per unit in today’s market. The average cost of sending a full shipping container overseas in 2021 has skyrocketed to $8,000 or more. The latter price is about four times the amount that it cost prior to the COVID-19 pandemic.
The main reason for such high prices is supply chain disruptions. As merchandise inventory was rapidly depleted throughout 2020 and early 2021, demand climbed higher as supply dropped to historic lows. In order to meet demand at a feasible rate, prices inevitably increased, which affected buyers up and down the supply chain.
Booming Commodities
A commodity is a type of raw materials inventory that’s traded domestically or internationally. Examples of commodities include wheat, iron, lumber, corn, gold, coffee beans, and copper.
Therefore, a commodity boom is any increase in a type of product being manufactured and shipped. Because commodities are necessary for economies to function, shipping limited quantities to the same or more buyers drives shipping costs up. Distribution networks only have so much time and space they can utilize to get products to buyers.
Congested Shipping Container Processing
Another cause of skyrocketing shipping costs is port congestion. This means there are more cargo ships at importing docks than there is time or space to offload their bulk shipping containers. This forces cargo ships to wait for dock space to open.
Normally, there are enough open docks available, or only one ship needs to wait at a time. In recent months, as many as 33 to 38 cargo ships have all been waiting for just one dock to open up. Sometimes ships will wait for days or weeks to unload.
Shipping carriers are counteracting this dilemma by loading fewer containers on each ship. Unfortunately, this means carriers have to make more trips that are less efficient, increasing overall transportation costs. Some businesses have turned to expedited shipping via air freight to circumvent such problems.
Increased Consumer Demand
More consumers than ever have turned to eCommerce marketplaces to buy goods for home and personal life. From bookshelves and bicycle parts to meal kits and hygiene products, there are dozens of high demand products consumers are buying in record numbers. Such trends necessitate a strong warehouse outbound process flow from warehousing staff for kitting and batch picking.
The more products need to be shipped, the more costs are associated with them. Anywhere demand rises but supply stays the same, prices will go up. These supply chain price fluctuations force eCommerce businesses to charge more for the same product simply to offset shipping fees. Many businesses charge flat rate shipping to minimize their rising demand-side costs.
If you’re a business owner who offers free shipping to your customers, it’s even more important to evaluate how you’ll maintain profit margins. You can charge a little more for the same goods, do kitting with products, or reduce expenses elsewhere in your business.
Frequently Asked Questions About Why Is Shipping So Expensive
If you’ve seen your shipping bill increase steadily or suddenly over the last year, you aren’t alone. The global shipping crisis has hit companies of just about all kinds, forcing business owners to think quickly about how to reduce expenses.
To make sense of such a confusing time, we researched some frequently asked questions about rising shipping costs. Take a look at the questions and our answers below:
Why is shipping so expensive now?
The top reasons shipping has become so expensive are the global shipping container shortage, inefficient cargo ships, and increased eCommerce purchasing. The global shipping container shortage was caused largely by China not having access to the containers it usually uses to send work in process and finished goods inventory. Because the US and Europe were facing significant COVID restrictions while China was reopening, there were millions of containers stuck waiting to be sent back.
Inefficiently loaded cargo ships have become a problem, too. The US has high import levels but limited docking space, which causes dozens of cargo ships to wait for days to be processed.
Increased eCommerce shopping has also driven shipping costs up. Instead of going to brick-and-mortar stores for the majority of goods, many consumers shopped in more than one online marketplace for most of 2020. This put greater pressure on eCommerce companies to fulfill demand that would otherwise be more shared between retail and online.
Why has shipping become so expensive in 2021?
Shipping has become expensive in 2021 for several reasons: lack of shipping containers, unexpected delays, and inefficient cargo processing. The lack of shipping containers was initially caused by millions of empty shipping containers in Europe and the US waiting to go back to China.
One of the biggest recent delays was the Ever Given ship getting stuck in the Suez Canal in Egypt. The incident occurred in March 2021 and cost up to $3.9 billion to international trade companies. The Suez Canal is responsible for more than 10% of the world’s trade, so hundreds of millions of people were affected by the delay.
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Cargo ships normally don’t need to wait longer than a few hours to dock at a port and get unloaded. Because of increased consumer demand throughout 2020 and 2021, it’s now common to see dozens of ships waiting days just to dock at the port.
What is the cheapest way to ship a package?
The cheapest way to ship most packages is USPS First-Class Mail, which starts at $2.74 for commercial and $3.80 for personal. This assumes that your package is a small and lightweight box or envelope.
USPS is usually cheapest across the board, but their rates are higher for larger and heavier packages. You can anticipate between $7 and $15 to ship most goods that are only a few pounds. If your package is more than a few pounds, or lengthier than a few feet, you’ll be paying around $20 to start.
If you want to know exactly how much your goods will cost, you can use a shipping cost estimator for that. You can also look at shipping costs by weight, and learn how to measure a box for shipping.
Fees, Fees, and More Fees
Keeping expenses low enough to turn a profit each month is a challenge for any business owner. Combine that with rapidly changing costs and consumer behavior, and there’s a lot to pay attention to.
Thankfully, steeper shipping costs doesn’t mean you’re out of business. It simply means you need to be a little more resourceful in how you sell goods. With a brand customers love, great products, and effective eCommerce marketing, you can overcome just about any obstacle.