An employee moves large boxes of mail at the United States Postal Service Los Angeles processing and distribution center in Los Angeles on November 30, 2022.
Allen J. Schaben | Los Angeles Times | Getty Images
When Jenni Shields started her small business eight years ago selling handmade hair accessories, she paid $2.93 to ship an order, or nearly $4 in today’s dollars when adjusted for inflation.
Last year, Shields said, an average shipping label for his products cost about $4.50. But when she took a typical batch of orders to her local U.S. Postal Service office last month in Kansas City, Kansas, she was shocked to find that the average amount was nearly $6 per package.
Shields is just one of several small and medium-sized retailers struggling to keep up with rising shipping costs as the price of fuel continues to rise.
Small business owners like Shields are facing a tough holiday season. Customer demand is strong, but some retailers have said their profits will be reduced — or even entirely swallowed up — by rising shipping and other costs.
Shields said she charges her customers $6 in shipping fees, including about $1.50 to cover her packaging supplies. This year’s dramatic rise means it is no longer breaking even on its orders and is instead bearing the additional costs, she said.
“I’m losing money at this point, and I’ve really taken a huge hit this year,” said Shields, owner of Evie Pearl Handmade, which sells bows, quilted headbands and other accessories. “I feel like it’s just a slow increase (in shipping costs), and I feel horrible.”
Rethink Free Shipping
Soaring fuel prices since the attack on Iran by the United States and Israel in February have driven up the cost of shipping, air, rail and road transportation.
This means higher costs across the board, including for the shipping giant. Amazonwhich reported an 11% increase in shipping costs in the third quarter compared to last year, to individual retailers.
Globally, air freight costs around $3.37 per kilogram, up 43% from the same period last year, according to transportation marketplace Freightos. Judah Levine, head of research at Freightos, said that in addition to the increase in fuel, demand for fast shipping of equipment used to build data centers is helping to drive up air freight rates, even weeks before last-minute vacation packages take off.
For companies, the increase will “cut into their margins in the short term,” said Jason Seidl, managing director and transportation analyst at TD Cowen. “Larger companies tend not to have exposure to the spot market, and they set up what we call dedicated agreements.”
But that doesn’t help small businesses, which walk a delicate line in not wanting to alienate customers who have enjoyed free shipping for nearly a generation.
Todd Shelton, founder of the 23-year-old New Jersey clothing company that makes high-end jeans, T-shirts and button-down shirts for men locally, said he began charging customers return shipping this week for the first time after absorbing the higher expenses this year. Shipping costs are deducted from customer refunds.
Shelton said its costs have also increased for materials, such as its imported Japanese denim and shirting fabric from Portugal. The company is still profitable, but higher costs have eaten into profit margins as they remain high. He is considering raising prices or charging customers for shipping, he said.
Shields said she plans to raise her shipping costs for the first time in six years to keep up with the increases.
The holiday season is one of the busiest for Shields. But she said she has seen a slowdown in sales due to shipping costs.
Jenni Shields owns Evie Pearl Handmade, which sells bows, quilted headbands and other accessories.
Jenni Shields
“I can’t compete with Amazon on free shipping. I can’t do that. I can’t afford it,” she said. “I see that a lot of my percentage that is supposed to go to me and my family is going to shipping costs.”
With no sign of fuel prices dropping significantly, Shields, who runs her business from her spare bedroom at home, said she’s not sure small businesses can emerge after the holidays.
Surcharges and high demand
Shippers including UPS, FedEx and USPS have all instituted holiday surcharges, the prices of which vary by package type and last until the end of the season. While this is typical each year during the peak holiday season, these fees have continued to rise in recent years.
But even as costs rise everywhere, consumers continue to spend.
According to the National Retail Federation, retail sales are expected to grow 4.2% through the end of the year, resulting in total spending of $1.01 trillion. This compares to last year’s holiday sales totaling $972 billion, a growth of 3.1%.
Part of this growth is due to inflation, meaning consumers are simply paying more for the same goods.
“Customers all expect to spend more this holiday, but part of the reason they expect to spend more is because they expect things to cost more, not because they would like to spend more or were hoping to get more products,” said Aaron Cheris, global head of retail at Bain & Company. “So what I suspect is that the non-discretionary categories work well, because you buy the food that you would need anyway, but the amount of money left for (optional) goods is less.”
Still, Cheris said this is shaping up to be a record year in terms of shipping costs, which puts immense pressure on small retailers. That means many retailers could find themselves in financial trouble in the first quarter of next year as they struggle to get through the holiday season.
He added that large retail companies will also face rising costs, although they may only feel those effects in the coming quarters because they have shipping contracts already locked in and control their own delivery fleets.
“If anything, it benefits smaller players compared to smaller players, but it’s a little bad for everyone,” Cheris said. “I think that’s the challenge.”
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