Why "Free" Shipping Isn't Really Free (And Why It's Getting More Expensive) As Amazon and Walmart raise prices for shipping, we need to reconsider our expectations of ecommerce delivery.
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Covid-19 cemented the expectation of two-day and next-day shipping for "free" with Amazon Prime. Just before Jeff Bezos stepped down in 2021, Amazon had added 50 million subscribers over the pandemic. Back then, Prime was $119 a year, a price set in 2018.
Now, it's $139 a year. Amazon recently announced it had updated its inventory management system and search algorithms to reduce the number of touchpoints in the delivery system to keep delivery times low. It's also added a $1 fee for returning packages when an Amazon pickup/return center is reasonably close by. This and other minimum order limits have shown the shift towards moving costs back onto the consumer for home delivery. It's not just Amazon, though.
Walmart has had less luck in the optics of this shift, recently receiving vocal outcry on Twitter about their high delivery prices. If you're not a Walmart Plus member, you'll pay up to $9.95 for a delivery fee on regular orders. "Express" delivery is an additional $10, no matter if you're a Plus member or not.
So, why now?
Amazon was trying things during Covid-19, like every huge ecommerce company. There were new problems to solve and plenty of money coming in, but now they're done throwing spaghetti at the wall. Amazon is cutting back, with over 27,000 people laid off this year and programs like the Scout delivery robots, brick-and-mortar bookstores and Halo health device being shut down. With the experimentation phase over, the main concern is making costs.
Bezos is gone, so there's a responsibility to shareholders. Amazon is too large to be a completely lean and trimmed organization, but the core delivery service (200 million subscribers use) must work. To match consumer expectations, they've shifted to AI and robotics, emphasizing the "regionalization" techniques to get products delivered faster. They've shifted to AI and robotics to match consumer expectations. And it works. It's good. But…
Even though Amazon has such expansive warehouse distribution, it's never going to be perfect. No matter what you have, logistics and robots, 90% will be good… but never 100%. The fully automated sci-fi future is still a ways away, so, for now, we need to be aware of the human element in delivery.
Drivers, both short and long-haul drivers, are a key human element in the delivery system. People are necessary to move products, either between warehouses or to someone's front door. Working conditions are tough. There's no time for breaks, and there are expectations to get packages to as many doors as possible every day. In California, an Amazon Delivery Service Partner organized a union with the Teamsters to secure safety protections and pay increases.
My dad is a long-haul driver, and it takes a lot of planning to maintain any semblance of work-life balance. Just to be able to work out, he had to find a gym membership that had locations along his routes in New Jersey. The human element is a limit that can't be pushed within the delivery infrastructure, or you run the risk of dehumanizing your workforce.
Drones have been talked about as an option for smaller products. Amazon even announced its new drone last year, but it is still limited in where and what it can deploy — it drops its payload from 12 feet in the air. There's a "last meter problem" with drone delivery. It has to be safe for the package and everyone on the ground.
For now, drones will be expensive to monitor and maintain. DroneUp, a Walmart-backed startup, had to lay off part of its workforce, saying new hires will come in the future. Scaling drones to cover the delivery process will work eventually, but that will take time.
Where does that leave consumers today?
Do you remember back in 2020 when all anyone could talk about was the supply chain? Container rates were soaring. Delays at L.A.'s ports were growing. It was the only thing we could talk about — until we all stopped talking about it. For a moment, though, there was a collective understanding of how difficult it is to move products around the world.
As the world slowly bounced back from Covid, and many businesses, like Amazon, came out on top with the monumental shift to buying online, consumers forgot about those supply chain woes. It's easy to forget — until it starts to hurt their wallets.
And that's precisely where they don't want to feel it. Consumers don't necessarily want fast. They want cheap. In a survey, shipping cost was 2.85 times more important than shipping speed. Consumers enjoy getting their products faster, but not at the expense of cost.
It's a miracle that two, one, or same-day shipping is accomplishable. The amount of advancement in delivery capabilities and logistics in just the past ten years amazes me. I remember when a delivery taking four to six weeks was the average. As our expectations for quick delivery have been surpassed, it may mean we need to pump the brakes for infrastructure to catch up.
Maybe consumers learn to pay the extra price for delivery, or companies like Amazon and Walmart market a new, relaxed delivery tier; there are ways to put less stress on the system, and it may lie in putting the concept of "free" shipping to rest. Consumers need to know fast delivery isn't magic and isn't free.