UPS and other carriers raised their shipping rates in January, much to the chagrin of U.S. e-commerce retailers. Now, some industry observers believe Amazon (NASDQ: AMZN) may be the cause of the price hikes.
After all, they argue, it was the millions of new Amazon Prime subscribers (Amazon added one million new members in the third week of December alone) who ordered last-minute Christmas gifts, flooding the system with packages and rendering UPS, FedEx, and other carriers unable to deliver packages in time.
"Not only is e-commerce increasing our volumes during peak, it's making holiday volume spikes. Network expansion costs [have] increased to insure we have capacity for the forecast volume," FedEx Ground CEO Henry Maier said a week before Christmas. FedEx's rates rose an average of 3.9 percent starting January 6.
UPS is also blaming its rate hikes – up to seven percent on packages under 10 pounds – squarely on Amazon's shoulders. The unexpected shipping volume in December resulted in "hiring and training costs, overtime hours, and additional weekend operations," UPS executives said in its January earnings call. As a result, the shipper needs to "make appropriate investments such as facility expansions, process automation, job simplification, and acceleration of technology implementations."
We can't argue that, now that the dust has settled, the surge in Amazon Prime membership is causing shippers to invest more in systems and technology than they had previously slated for 2014. There is no way they want to see a repeat of The Great Shipping Debacle of 2013 during the 2014 holiday season. They will be prepared this time.
However, Amazon is not the sole culprit. The rising costs of fuel, technology, and simply conducting business are driving up costs. UPS announced that its average shipping rate would rise 4.9 percent in 2014 – back in November of 2013. That was well before the holiday shipping mishaps in late December.
It is simply more expensive for shipping companies to transport lighter boxes to residences, a fast-paced trend that cannot be attributed to Amazon alone. Amazon, Walmart (NYSE: WMT), Google (NASDAQ: GOOG), eBay (NASDAQ: EBAY), and a host of other national retailers now offering services like same-day delivery are sure to cause residential shipping price hikes in the future.
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