As a result, the costs absorbed by the Mega-Retailers to provide "free shipping" are breath-takingly less than those for their smaller competitors.
Shipware estimated the shipping costs that would be incurred by each type of merchant to ship a 10-inch square box weighing 3 pounds from New York City to a suburban residence in Atlanta.
But are the shippers relying on this "guaranteed and predictable volume" to offset the discounts they offer? Or, are the shippers looking to their smaller customers - with far less negotiating power - to bear a disproportionate share of the costs?
- For the mega-retailers, free shipping drives tremendous volume (and customer loyalty) while also enabling greater and greater negotiating strength with the shippers. A powerful dynamic: the big get bigger.
- And for the smaller merchants? Matching the mega-retailers' online prices and absorbing the "free" shipping costs are much higher hurdles. They represent the opposite but equally powerful dynamic, the downward spiral....
Will there be any relief for the Small-Medium Retailers as Amazon grows its own shipping fleets? That is, faced with reduced volume from Amazon, might FedEx and UPS be more willing to offer better rates to all the other customers?
SIgh. We wouldn't count on it.
Or, given this huge discrepancy in costs, might other shipping services emerge to fill this vacuum? Perhaps consolidaters of some sort? Or...???