Welcome to our latest eCommerce and logistics news roundup!
This week, we’re discussing why Amazon may be forced to raise its Prime membership fees, looking at how the coronavirus is affecting shipping out of China - and how this is having a domino effect on US exports - and seeing what FedEx’s consolidation of its Express and Ground services for last-mile delivery means for customers and retailers.
And, in case you missed our last logistics roundup, you can still read it by heading over here!
Rising Shipping Costs Could Force Amazon to Hike Prime Price
It’s safe to say that Amazon is a giant in the retail world - but could it be a victim of its own success. More than 150 million people around the world are using Amazon Prime - up by 50 million from the year before - and many of these are using it for its fast delivery services.
As a result, the retailer saw a corresponding rise in shipping costs, which jumped 37% to $37.9 billion over the previous year. Experts predict that this could push the company to raise its Prime membership prices to offset these costs.
The cost of a Prime membership was already raised from $99 to $199 a few years ago. But that may not be enough now. It’s not hard to do the math. Even if all 150 million Prime members are paying the full fees (they’re not) that would only amount to some $18 billion - far less than Amazon’s annual shipping costs.
Net result: Amazon may have no choice but to raise its Prime membership fees again if it’s going to continue to offer customers lightning-speed delivery options.
Easyship’s Take: Nobody ever likes to see higher prices. But let’s not forget that Amazon is, first and foremost, a business - which means money is the bottom line. If customers continue to demand fast shipping options, Amazon may well raise its Prime fees to protect its profit margins - and customers will just have to pay the price. However, the company could also choose to offset some of its shipping costs to retailers, which means Amazon sellers may also end up paying more to use the platform.
The Coronavirus is Beginning to Affect US Exports to China
Forget the trade war - right now, it’s the coronavirus that’s causing problems for US exports to China. Cargo backlogs in Chinese ports and reduced sailings by ocean freight carriers are now impacting American supply chains - especially in the food industry.
With China shutting down manufacturing because of the coronavirus, supply chains within the country have slowed significantly, resulting in many ocean carriers increasing their blank sailings and reducing capacity on routes out of China.
As a result, many American exporters are seeing their cargo stuck at various points in China, from domestic marine terminals and truck yards to refrigerated warehouses and inland destination points.
This is having a domino effect on the US. Because fewer ships are sailing from China to the US, there are also fewer ships going from the US to China. That means American exporters - especially in the agriculture industry - are finding an ominous shortage of ocean carrier capacity to get their goods to China. For example, the Port of Virginia reported a 27% drop in the number of empty containers for exports in January.
Complicating the issue for American agricultural exporters is the fact that many Chinese marine terminals lack refrigeration facilities. Normally, refrigerated shipments are quickly moved on from these marine terminals by trucks and trains. But with China’s current restrictions, the transport links have been hindered, which could spell problems for US exporters.
Easyship’s Take: It’s already become clear that the coronavirus is going to have significant effects on the shipping industry - and indeed, the global economy at large. However, this particular issue could get complicated. Both China and the US are heavily reliant on trade between the two countries and problems with shipping on these trade routes could cause a lot of problems for businesses in both countries as supplies sit in holding patterns in ports.
More generally, it could result in shortages in both countries that affect a wide range of industries. If you want to stay on top of things, we’ve got a page with daily analysis and updates and a guide to maintaining your shipping lines amidst the impacts the coronavirus is having.
FedEx to Begin Using Ground for Last-Mile of Express Shipments
FedEx has announced that it will begin transferring Express parcels to its Ground service for the last mile of delivery. The move is an attempt to consolidate its delivery services and reduce the number of Express and Ground trucks working on the same routes.
The new approach is set to kick off in March in Greensboro, North Carolina, before being rolled out to other markets. The goal is to increase efficiency and save costs by optimizing delivery routes. By consolidating its last-mile delivery, FedEx is also hoping to capture a bigger share of eCommerce parcel volume; residential eCommerce is the fastest growing market for the carrier.
Easyship’s Take: At the moment, it looks like there’s plenty of good things to come from this news. The consolidation of truck routes on the last mile of these two service options will certainly be a good thing for the environment. And, if FedEx can indeed lower its costs by doing this, they may be able to pass on the savings to retailers (read: you may be able to save some money when sending your packages).
The only downside could be if the move impacts Express service features. Since it’s a more premium service than Ground, people pay more to access better features - if these features are impacted in any way by the change in last-mile delivery, it could cause grumbling from customers and retailers.