Fed Ex just sent a missile through the online retail world by finally figuring out that it needs to charge for cube (size of package) in addition to weight. Until today, your online order of heavy pasta sauce and laundry detergent was subsidizing the bulky paper towels and diapers. This “truth in shipping costs” adjustment which they refer to as “dimensional weight pricing” according the WSJ, turns the tables on single warehouse shippers and retailers.
Historically if you were selling bulky but cheap items, (think diapers) you were charged a fee by fed ex ground that was manageable relative to the premium one can charge the customer who saves a trip to the store. With this adjustment, unless you are able to have your distribution center close to the last stop (think local post office or FedEx distribution center), the costs are going to rocket. The WSJ estimates that the cost of shipping paper products such as towels or diapers will increase over 40%.
So Who is the Winner?
Amazon and Wal-Mart! Amazon because they placed the most distribution centers closest to their customers and are using the postal service as much as possible for the “last mile.” Wal-Mart with its hybrid order and pick up strategy is close enough to most customers and on their weekly store visit route so they should be able to work around this and show even greater value relative to those shipping from far away.
It’s never dull in the world of consumer direct sales, but this change, soon followed by UPS, will have a terrific consequence of taking the last great subsidy (after tax free sales) from online retail. Growing up is hard to do!Photo Credit: David Guo