Free Shipping Not Actually Zero-Cost Or Zero Effort, And FedEx Wants Retailers To Pay Their Share

Image courtesy of (Michael Sauers)

We’re nearly two decades now into the e-commerce era. Shop everywhere! Shop from your phone. Shop from your tablet. Shop (during your breaks, of course) from your work computer. But all that online shopping shares one thing in common: unless 3D printers become a lot more like Star Trek‘s replicators, and a lot more affordable, all those goods ordered in the cloud have to get to actual consumers on good, old-fashioned planes, trains, and trucks.

That’s where FedEx comes in, as the Wall Street Journal reports. The shipping giant’s expenditures are up — way up — but the payment it’s getting from e-commerce vendors isn’t keeping pace.

The company that handles your packages when they absolutely, positively have to get there overnight — or at least, sometime this week we hope — has been spending a lot more money on improving their own business, but isn’t bringing in as much as they had hoped, executives announced with recent financial filings. Capital expenditures this year have increased to $4.8 billion, but their third quarter net income still managed to drop by 19%.

That isn’t to say revenues are down; in ground shipping, the part of the company that handles most online orders, revenue is up by 40%. Costs, however, are also increasing, particularly due to holiday season demand.

FedEx executives implied to the WSJ, however, the the online retailers are perhaps not necessarily picking up their fair share of the costs.

“There’s an enormous interest in people having things delivered to themselves. It does not change, one iota, the input costs of the delivery,” CEO Fred Smith told the WSJ.

CFO Alan Graf echoed that sentiment, telling the WSJ that the charges for shipping really need to match the reality of the costs. “We can’t build these networks and spend this kind of capital and not get a return on it,” Graf told the WSJ.

And so consumers can expect costs for the weird, big, bulky, or hard-to-ship items (like kayaks, apparently) to go up.

As for Amazon’s attempts to take over the shipping part of business directly, those don’t scare FedEx, executives told the WSJ. Amazon airplanes might move goods coast to coast and ocean shipping might get goods in from overseas, but you still need trucks on the ground, Smith said. Or, specifically, he said, “The key driver of any delivery system is route density and revenue per delivery stop.”

Even if you do try to get a fleet of local folks to carry packages for you, that’s not quite the same thing.

No single business, including Amazon, accounts for more than 3% of FedEx’s revenue currently, according to the WSJ, so even if the Seattle giant’s delivery business took off like gangbusters for all the goods they sell right away, it would still take a fair while to hit FedEx’s bottom line.

FedEx Says Retailers Should Be Paying More for Web Delivery [Wall Street Journal]

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