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The expansion of online marketplaces and recent updates in how shipping costs are calculated is causing shipping giants to change the way they conduct business. UPS, USPS as well as individual big box retailers are all testing innovations to first meet and then surpass ecommerce customer expectations of timely and trackable package delivery.

Customer demand fuels updates from both shipping companies and retailers. Today 74% of shopping carts are left abandoned, with 56% dropped because of unexpected costs. To minimize this drop off at checkout, successful retailers are becoming more transparent about shipping costs, while shipping companies are responding with more efficient logistics.

Recently launched Jet.com, for instance, has become a major influencer in the shipping space, now calculating total product cost based on how far a parcel must travel. This new Amazon competitor also offers discounts as customers add more items to the cart, encouraging consumers to maximize order size.

On the shipping side, UPS has begun calculating shipping costs based on size, rather than weight, contributing to a 10.5% profit increase within the last year. This encourages businesses to package products more efficiently in an effort to fit more parcels on a truck and increase the shipper’s ability to meet two-day demands.

UPS has also enhanced delivery options, allowing customers to pick up their packages from local brick-and-mortars as opposed to UPS stores. Paired with the Mobilegeddon algorithm update and its rewards for mobile-optimized sites, this service encourages buyers to choose local businesses and pick up their purchases themselves. Meanwhile, participating local businesses can gain brand exposure from customers who bought from an online marketplace — a channel where brand exposure is limited.

USPS also looks to increase the convenience of the shipping process for merchants and customers alike by renovating their digital services. The shipping giant is now able to update online and mobile package tracking within three minutes of the final scan, catering to customers who want real-time updates of their package’s location.

New shipping strategies are not limited to parcel companies, however. Amazon is rumored to release a mobile app that puts delivery in the hands of contractors. Known as “On My Way,” the app would pay people to deliver some of the 3.5 million packages the company sends out each day or, in similar fashion to UPS, allow packages to be stored in local brick-and-mortars until buyers could pick them up.

This announcement would be a major disruption to shipping companies who are already feeling the impact of same-day delivery offerings from startups such as Uber and Lyft. Fast delivery times increase customer demand for these local shippers and, in return, attract more contractors and make delivery even faster.

But similar to shipping startups, Amazon would have to handle unreliable contractors or even potential safety hazards. Uber, for example, lost its partnership with online retailer Gilt because it was unable to ensure high-priced fashion items would be delivered without being stolen.

As expressed by traditional shipper FedEx, contractor-based models leave room for inconsistent delivery experiences and a failure to meet customer expectations.

“Research has indicated time and time again that a uniformed person with proper identification showing up at your doorstep is an important issue for customers,” Mike Glenn, Executive VP of FedEx, said to PYMNTS. “Consistency of customer experience is very critical in that regard.”

Uber’s experiences also warn of contractors wanting to unionize, demanding higher pay in due time. This could potentially disrupt what Amazon likely sees as an opportunity to boost low profit margins.

As the holiday season approaches, retailers will benefit from offering free shipping as opposed to alternative discounts in response to the buzz of creative shipping approaches. Take Macy’s, for instance, which recently expanded same day delivery options, despite the fact that estimated costs per package could reach $20 or more. For smaller retailers, margins may be a barrier to customer experience innovations this holiday season.

“Only the biggest of retailers that are capable will be able to afford these operations,” Jarrett Streebin, the CEO of shipping integration EasyPost, told Reuters. “Who’s willing to pay the bill?”

Small businesses looking to compete this holiday season may offer free shipping, even if it means compensating with higher product prices or absorbing some of the extra cost themselves.

In all, the ecommerce industry is experiencing a shipping and delivery disruption, led primarily by customer demand. Thanks to long-standing programs such as Amazon Prime, innovative up-and-comers like Jet.com and a strong mobile-local push by Google, today’s customers expect short delivery times, low shipping costs and consistent packaging experiences for all brands, large or small. For brands themselves, the low profit margins associated with such programs may need to be considered a demand generation test, spurring customer lifetime value, rather than perceived as a loss in revenue.

Photo: Flickr, Marc Falardeau

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  • The one thing that could potentially be the savior of small businesses is the proposed internet sales tax – something that, if passed in its current form, would only affect businesses with $2 million per year in annual sales. That means all the Amazons, Best Buys and Walmarts of the world would be forced to charge sales tax on EVERY purchase, opening the door for small businesses to have a no-tax competitive advantage.

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