Are you tempted by the allure of free shipping when making online purchases? The rarely perceived reality is that the cost of shipping is never free. This article dives deeper into supply chain operations and shipping costs for online shopping. By exploring the importance of consumer awareness and sustainable choices in e-commerce, this article encourages us to make more responsible decisions.
Author: Kati Jaakkola
The flexibility and ease of e-commerce attract customers to buy more and more products on mobile devices. According to Marina Pasquali (2023), the Internet’s dense user base is making more and more online purchases, often attracted by the so-called free delivery, incurring no costs for the customer.
The Free Shipping Illusion
While searching for a specific product in online stores, getting something for free, such as shipping or returns, might be alluring. However, shipping costs include multiple supply chain operations: order management, picking, packing, documentation handling, and logistics operations, like transportation. In the global business environment, we are dealing with global supply chains, which means border crossing and multimodal transportation with export and import formalities and information management within the shipment management. These operations are certainly never free.
Decoding the Mystery of Free Shipping
As part of the LAB course Online Logistics, focusing on e-commerce logistics, the first assignment for my students was to answer the questions: “Does free shipping influence you as a customer?” and “What do you think about free shipping?”
The answers about free shipping and its effect on buying habits were nothing less than intriguing. Many students identified free shipping as a marketing ploy of online stores to get customers to make a purchasing decision and complete their orders. The effort to attract customers was also recognized in the answers. But many students were still lured by the free shipping.
Shopify (2022) states that one way to enable free shipping is by adding the cost to the product price. Shopify is a multinational e-commerce company providing a platform for online stores. Another way to enable free shipping is to increase the customer’s lifetime value, which means consistently buying from a certain brand and by offering free shipping also building a good customer experience. Offering bundles is the third way to ensure that free shipping is worth offering to customers without losing money. Average order value can be increased by bundling or kitting together products that are normally bought or used together. This will increase the value of the purchase and gives cost efficiency to free shipping according to the Shopify instructions.
The True Cost of Free Shipping: Examining the Logistics Behind Online Purchases
Considering free shipping, global shipping costs are rising, and no one is willing to handle the order management and prepare the shipping for free. There is no transportation company that can do the work for free, no gasoline station giving free diesel oil, and there certainly isn’t any delivery person doing the last-mile delivery to your doorstep without a paycheck.
The rise in shipping container costs from Asia to Europe is discussed in a video by McKinsey & Company (2021). The partners Jaana Remes and Steve Saxon state that supply chain disruptions have affected the containers’ price. The Covid pandemic, lockdowns, and isolation were influencing the supply of containerships sailing, there was an accident in the Suez Canal in April 2021 that affected global shipping for weeks even after the blockage was out.
Shopify customer, the senior e-commerce account executive at Cake Agency Autumn Blakeman states that the company should provide more options for the customers to make more sustainable shipping decisions. She gives an example of customers deciding whether to use a lorry instead of a plane for their shipping. (Shopify 2022.)
For the course context, I researched online stores to discover how customers are guided to make purchases. I was happy to find out that some e-commerce suppliers are suggesting consideration with purchases to avoid unnecessary shipping back and forth. However, this is not the case with most of the operators and is more likely to be found in the online stores that promote sustainable values in all their business operations.
Consumer conscious decision
Free shipping luring customers is enabled simply by adding the shipping costs to the online store product prices. In this way, it is not transparent what part of the costs covers the shipping costs and the final payer of the fee is the customer.
Consciousness is raised by reading, researching, and studying. These actions allow us to be more aware of the operations around us, leading to decisions lined with our values in the future. The lesson learned is that there is no such thing as free shipping, end of story. We need to be aware of the operations we support with our money and pay attention to even the smallest online purchasing decisions.
McKinsey & Company. 2021. What’s going on with shipping rates? Video 20.8.2021. Cited 25.4.2023. Available at https://www.mckinsey.com/industries/travel-logistics-and-infrastructure/our-insights/whats-going-on-with-shipping-rates
Pasquali, M. 2023. E-commerce worldwide -statistics & facts. Statista. Cited 2.4.2023. Available at https://www.statista.com/topics/871/online-shopping/#topicOverview
Shopify. 2022. How to Offer Free Shipping & Two-Day Delivery: Compete With Amazon While Increasing Profit Margins. Holly Stanley 14.9.2022. Cited 18.4.2023. Available at https://www.shopify.com/enterprise/ecommerce-fulfillment-free-shipping
Kati Jaakkola is working as a senior lecturer At LAB University of Applied Sciences, has 2 decades of experience in managing Supply Chains, and is eager to investigate Sustainability in Supply Chains.
Illustration: https://pixabay.com/fi/photos/s%c3%a4ili%c3%b6-rahtilaiva-satamaan-1611490/ (Alexander Kliem, Pixabay License)
Reference to this article
Jaakkola, K. 2023. The Truth Behind Free Shipping: Who Really Pays for It? LAB Pro. Cited and date of citation. Available at https://www.labopen.fi/en/lab-pro/the-truth-behind-free-shipping-who-really-pays-for-it/