The cost of shipping is increasing, and fuel surcharges are a driving factor. As a result, online merchants are finding it more difficult to manage shipping costs and offer customers affordable rates. With fuel costs rising, one alternative shipping option that is becoming more attractive to both online merchants and shoppers is delivery to commercial pickup locations such as grocery stores, pharmacies, or other similar locations.
Even as shipping costs increase, commercial delivery normally remains less expensive than residential delivery. Offering a Buy Online, Pickup Anywhere (BOPA) option to customers and enabling them to ship orders to a commercial location of their choice for convenient pickup is an appealing solution for merchants that want (and need) to keep shipping affordable while fuel surcharges are surging.
The impact of rising fuel surcharges
Carriers calculate fuel surcharges for ground shipping based on diesel prices. The cost of fuel has been rising steadily due to several factors, including the Russia-Ukraine war. In the past year alone, the average cost of a gallon of diesel in the U.S. rose more than $2.00. Now, the price of diesel is more expensive than it has been in decades, and carriers have been forced to increase fuel surcharges to offset the rising cost of delivering parcels.
Fuel surcharge increases are putting a tremendous strain on both online merchants and their customers. Online merchants know that shoppers want and expect affordable (or even free) shipping. So, shippers must make difficult decisions about whether to absorb the extra costs or pass them along to their customers. Neither option is appealing.
Online shoppers simply don’t have much tolerance for added shipping expenses. Research indicates that there is a direct relationship between shipping costs and conversions: Sales conversions drop when the cost of shipping increases. If merchants raise their shipping rates, they’re likely to see more shoppers abandon their carts at checkout when shipping is calculated. Of course, merchants can raise the price of goods to cover the cost of fuel surcharges, but they run the risk of items never even making it into carts. Absorbing the fuel surcharge increases simply isn’t an option for many shippers — particularly because fuel surcharges get amplified when added to other accessorial charges.
Carriers have hundreds of accessorial charges they apply on top of the base cost of delivery. One of the most common accessorial charges shippers must contend with is a residential surcharge. Every customer order that a merchant ships to a residence incurs a residential surcharge. The fuel surcharge is an additional charge that is tacked onto the residential surcharge.
Doing the math to calculate the total dollar amount of accessorials and fuel surcharges is overwhelming and frustrating for shippers. Fuel surcharges can be added to each accessorial. For example, a package delivered to a residential address will be charged a residential delivery fee plus a fuel surcharge. If the package is oversized, another fee will be assessed for that. The kicker? A fuel surcharge will be added to the oversize charge. Now imagine the parcel requires a signature. Another accessorial is charged for signature verification, and a fuel surcharge can be added for that line item as well. The cost quickly multiplies. Not only does this rapidly drive up the cost of shipping, but it is also makes it extremely difficult for shippers to estimate what they will be charged to set their shipping rates accordingly.
How commercial delivery generates savings
Deliveries to commercial locations typically incur far fewer accessorials than residential deliveries — things like the residential surcharges obviously aren’t applied to commercial deliveries — creating a unique opportunity for shippers. Merchants can offer customers the option of having orders shipped to a commercial pickup location, and the cost of shipping is significantly lower.
According to a study by Via.Delivery, nearly one in five online shoppers will select delivery to a commercial location at checkout if the option is offered to them. Shoppers who have opted for delivery to a commercial pickup location say the number one reason for using this delivery method is cost savings. If shippers present a commercial delivery option at checkout that is cheaper than other options, many shoppers will happily choose that option to save a few dollars.
Everywhere consumers look they see prices increasing. They’re paying more for gas. Their groceries are more expensive. And their online purchases are costing them more. But the cost to ship the items they buy online doesn’t have to break the bank. BOPA is an appealing option that keeps shipping affordable, solving a top shipping pain point for both online merchants and their customers.