Companies such as Hasbro, Kellogg, and Tyson Foods have been in the news recently speaking on the impact that higher freight costs are having on their bottom line, with Tyson’s CEO Tom Hayes noting that the company’s shipping costs are expected to grow by $250 million this year. In fact, according to DAT Solutions, the cost per mile for spot rates is up 29% year-over year and tightened capacity is definitely one of the culprits.(1)
As stated in our previous blog, Shippers Attempt to Become More “Driver Friendly” to Win Capacity, there is currently a driver shortage of roughly 50,000 drivers, which is expected to grow rapidly to nearly 174,000 by 2024, according to the American Trucking Association, with the industry needing to recruit nearly 1 million new drivers within the next 6 years to keep pace.
This impact is sure to trickle down to consumers as companies are not only raising the shelf prices of store-bought goods, but higher shipping costs are transferring into the digital marketplace as well, as e-commerce sites struggle to get their packages out to their customers on time. Do you want your package in two-days? There’s a cost for that. Overnight? An even higher cost and now those prices are increasing even more.
Let’s take Amazon, for example, who is well-known for their Prime membership which offers subscribers FREE two-day shipping on millions of products, access to digital movies and shows, music, e-books and more for single monthly or yearly charge. This month, members received notice that their renewals would be increasing for the first time since 2014 by 20% as of June 16th, from $99 a year to $119 a year with the updated price taking affect for new members as of May 11th. The monthly cost went up as well from $10.99 to $12.99.
Amazon’s CFO Brian Olsavsky noted that the increased Prime service rate has gone up due to “rises in cost” for providing the service.(2) In fact, according 1Q numbers, Amazon reported that “shipping costs increased 38% year-over-year, while sales climbed 18%.”(3)
Now throw in President Trump’s recent spotlight in the news in which reports claim that he asked the U.S. Postmaster to “double shipping rates for Amazon and some other companies.”(4) Whereas “the United States Postal Service’s agreements with Amazon and other companies are bound by contracts and only subject to review by the appropriate regulatory agencies,” according to The Washington Post, President Trump has ordered a review of the postal service.(4) If this happens, consumers can expect to see even higher shipping rates coming their way.
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