E-commerce has realized massive and sustained growth as a segment of the economy despite only existing for a few decades. In such a new industry, especially one that relies on constantly developing and improving technology for so much of the customer journey, change is constant.
Businesses that stay on top of technological developments, regulatory changes and widespread consumer preferences position themselves to maintain relevance and continue connecting with potential customers in a rapidly shifting market. Let's look at some major changes in the e-commerce world and how they have impacted businesses.
E-commerce changes creating widespread effects
With the industry growing so quickly, organizations throughout the world of e-commerce are on the hunt for ways to maintain or grow their margin while dealing with the many costs that come with such expansion. Increased requirements for staff, infrastructure, equipment and many other operational needs, and the costs tied to them, require creative approaches to recouping that spending and maintaining business stability.
It was more common to see shipping charges tied only to the weight of an item in the past. However, the explosion in the number of packages delivered by postal services and private companies inspired a shift that better accounts for the valuable space a box occupies while in transit. Dimensional weight, or DIM, has been introduced or better enforced by major integrators in recent years.
The DIM formula, which can be calculated in metric or imperial units, multiples the length, width and height of a package to determine its total size in cubic inches or centimeters. Then, the number of total cubic inches is divided by the DIM factor, a set of fixed numbers that are used across many major carriers. The resulting number is the billable weight.
While the actual weight of the package may not correlate closely or even roughly with the billable weight, this approach helps carriers manage the increasingly large volume of packages and the space they occupy during each stage of the supply chain. It's a financially effective approach that takes significant industry changes into account
Major carriers have slowly but surely moved to use smaller numbers as the DIM factor, which also results in higher costs. UPS and FedEx, for example, moved from a DIM factor of 166 to 139 for some or all of the domestic packages they handle in 2017, and other companies have made similar changes.
Fuel and other surcharges
"Fuel surcharges originally provided stability around fluctuating oil costs."
Fuel surcharges date back to the early 1970s, PNG Logistics said, as a reaction to issues with instability in the oil market. Organized with LTL carriers in mind, the Department of Energy developed these surcharges to help stabilize costs and spending. The fuel surcharge eventually made its way to carriers. CNBC pointed out that such surcharges are now used for a variety of reasons, not strictly to address changes in fuel costs.
Carriers also make annual adjustments to their base rates, increasing this cost while lowering fuel surcharges. Carriers can lock in higher guaranteed rates and, therefore, more revenue, with an upward annual rate adjustment. They can then lower the fuel surcharge yet maintain improved and more consistent revenue.
A variety of other surcharges are also now common. Residential and beyond area surcharges have proven to be another way to capture revenue and address the rising costs of widespread residential delivery. These have generally increased over time, as have size and weight surcharges. These additional costs, tacked on for especially large and heavy packages, are notable due to frequent increases.
Logistics company LJM Group pointed out the UPS additional handling charge for packages weighing more than 70 lbs. jumped close to 100 percent in the six-and-a-half months from late December 2017 to early July 2018. The over-maximum fee for packages exceeding UPS standard limits similarly leapt from $150 in 2017 to $500 in 2018, and other height- and weight-related fees have increased accordingly, both for UPS and other carriers.
Changes for businesses
Carriers are increasingly introducing increased charges to contracts that didn't include many or any of them in the past, even for especially large companies that once received preferential treatment. Businesses have little choice but to pass this cost along to the consumer, whether in higher shipping fees, handling charges or another manner.
Businesses have to carefully consider how to handle these increased costs going forward.