Shippo's Must-Watch Shipping Industry Trends & Predictions for 2024
With 2024 underway, parcel shippers everywhere are starting to feel what’s to come later in the year. A changing landscape in the parcel carrier sector along with changing expectations for consumers, all topped with a different outlook for the U.S. economy will require e-commerce merchants and shippers to carefully analyze their fulfillment strategies.
To help build those strategies, we’ll be looking at four shipping industry trends, make predictions, and explain what this means for your business.
Rate Volatility Will Continue with Major Carriers
It's no secret at this point that the primary parcel carriers in the U.S. are in a bit of a rate war. This aggressive discounting that started towards the end of last year shows no signs of ending this year. But, how did we get to this point?
First, we have to look at how the parcel volumes have changed over the years. In 2023, Amazon surpassed both UPS and FedEx in terms of parcel volumes. Amazon’s market share has been growing for years and is poised to widen its gap by overhauling its delivery network last year. Traditional carriers are also feeling pressure to win back customers from regional parcel carriers. According to Pitney Bowes latest Parcel Shipping Index, USPS, UPS, Amazon, and FedEx all saw a slight decrease in parcel volume YoY while regional carriers saw a 25% increase.
The second major event that occurred in the summer of last year was the potential UPS strike as the carrier was negotiating with the International Brotherhood of Teamsters. During those contentious negotiations, shippers moved their parcel volume away in order to avoid any possible disruption that would be caused by a strike. The carrier regained 40% of that lost volume by last October but still has a ways to go.
As every carrier attempted to bolster their competitive position and retain volume, they went on offense - offering discounted rates they normally wouldn’t in the past. As a result, the stalwart service ground parcel delivery costs fell YoY across multiple carriers for the first time since 2019.
With pricing power shifting to shippers, large-volume shippers will have leverage when negotiating exclusive contracts. As a result, carrier consolidation will become more commonplace. Early data from Shippo shows that 78% percent of shippers use only a single carrier in 2024 compared to 69% in 2023*. However, for SMBs with lower shipping volume, they will be able to reap the lowest possible rates from all carriers through multi-carrier shipping software.
*Data compiled from 379807 users in 2023 and 164090 in 2024
What this means for your Business:
As a high-volume shipper, it may be tempting to sign exclusive agreements with one carrier. However, locking in a preferred carrier may leave you out of pace with the market. Look to use third-party shipping APIs for real-time market transparency on rates to keep shipping costs competitive. The value of these tools extends well beyond rates as well. With the help of third-party shipping software like Shippo, you can access lower rates from the major carriers in the US while also receiving features like address validation, shipment tracking, and shipping insurance.
3 Days or Less Will Be The Default Transit Time
There’s no denying shipping transit times play a large part in a customer’s decision to purchase. About 32% will abandon a cart if the transit times take too long. On top of that, 90% of customers expect two or three-day shipping to be the standard when shopping online.
Thankfully, most merchants are recognizing this importance and are meeting customer expectations. In our last Benchmarks Report, we found that the average delivery time across all merchants has decreased three years in a row from 3.8 days in 2021 to 3.4 days in 2022 to 3.1 days in 2023.
But, these faster transit times are not necessarily the result of merchants selecting more expensive expedited shipping options. Instead, carriers' investments in their logistics capabilities have greatly contributed to that. USPS has been overhauling its domestic network by opening new and larger Sorting and Delivery Centers (S&DCs) all across the country. With more planning to be built in 2024, shippers can expect faster and more reliable service from the post office across all service levels but most notably for ground shipments. In USPS’s latest Delivering for America Second-Year Progress Report, they highlighted that on average 99.9% of packages were delivered in less than three days. They are not the only ones with improved ground deliveries, as 90% of UPS® Ground shipments are delivered in 3 days or less. This means faster shipping without having to pay the cost of expedited shipping services.
For larger e-commerce merchants using fulfillment partners, part of their decreased shipping times are also due to improvements at those fulfillment centers. In fact, 54% of surveyed fulfillment centers reported that they pick, pack, and prepare packages for shipment within an hour of that order entering their system and 76% of all orders get fulfilled in less than three hours. Warehouse automation is also growing 10% each year resulting in faster more efficient order processing.
Improvements to carrier networks and fulfillment centers ultimately result in favorable conditions for e-commerce merchants and their customers.
With carrier networks becoming more efficient and fulfillment centers utilizing smarter technology, merchants both big and small will continue to get faster shipping times from standard and economy shipping services, reducing the need for more expensive 2-day or next-day services.
What this means for your business:
While offering a diversified list of shipping options will be good for your customers, you no longer need to have that to meet their shipping needs. Lower-cost standard shipping options will help you save money without sacrificing the post-purchase experience for your customers.
Carbon Footprints are Coming to the Cart
While the rise of e-commerce has undoubtedly made our lives as consumers easier, it has also played a large part in the rise of carbon emissions. International shipping alone accounted for nearly 3% of the world’s greenhouse gas emissions in 2022 and that number has been growing. The transportation sector, which includes shipping vehicles, accounted for 20.2% of the world’s carbon dioxide emissions. The sector is now the second largest contributor to global carbon pollution.
It's because of these facts that sustainability has slowly become a part of the customer's decision to buy. In fact, 60% of customers are now interested in using more environmentally-friendly delivery practices. Moreover, 76% of shoppers say they would pay an extra 5% for more sustainable shipping. Transit times are also not as big of a factor since 80% of surveyed online shoppers claim they’d be willing to wait an extra day if it meant more environmentally friendly shipping practices were used to deliver their package.
In the past, two of the biggest blockers for e-commerce businesses making sustainable shipping a part of their fulfillment strategy were the assumed cost and the fear of slower shipping being an issue of converting sales. But, the people have spoken and we believe many e-commerce retailers are listening.
Conscious consumerism is picking up steam and driving revenue for savvy brands. In 2024, the focus will be on sustainable shipping and packaging. Merchants will have an opportunity to win loyal customers with more transparency around the environmental impact of convenience. It will also become a key differentiator for brands large and small.
What this means for your business:
You won’t have to break the bank to capture environmentally conscious customers. Simply letting customers know the environmental impact of their shipping options during checkout will encourage them to use more affordable and eco-friendly ground shipping options. You can also offer carbon offsets during your checkout process as many customers are willing to pay a small extra fee for that service themselves. Other initiatives like biodegradable, recyclable, and custom packaging that allows for reuse after returns are ways your business can use sustainability to market to customers while also saving on shipping costs.
Retailers Will Pump the Brakes on Returns
Returns have been a thorn in e-commerce retailers' side since the beginning of the industry. But, the common belief has always been that in order to win customers at the cart, you had to make return shipping as easy as possible, often at your own expense. The numbers still bear this belief, as 68% of consumers surveyed last year claimed “free returns” as the most valuable factor when searching for and buying products online.
But, despite consumer preferences, retailers everywhere have begun to make returns somewhat more difficult for their customers in order to minimize their return rates. In the past year, nearly 6 out of 10 retailers changed their return policy. Major retailers like Dillards, H&M, J.C. Penny, REI Co-op, and more have started to charge for returns to protect their margins.
The result of these changes could be seen across the board with the Nation Retail Federation reporting a 14.5% return of sales in 2023, down from the 16.5% in 2022.
Consumers have noticed these policy changes in several ways. According to our latest Benchmarks Report, Americans who made online purchases in the last year noticed retailers making returns more difficult by only allowing exchanges or offering store credit (35%), no longer offering free shipping (33%), implementing a shorter return window (31%), and requiring returns to be made in person (18%).
Minimizing return rates is a trend that shows no signs of stopping as many retailers are looking to protect their margins in what is still an unpredictable 2024 economy.
With many major retailers changing their return policies last year, consumers are no longer surprised when paying for returns. Shorter exchange windows, charging customers for return labels, and only offering store credit are ways retailers big and small will continue to protect their margins in 2024.
What this means for your business:
While it may be tempting to join the crowd, making it too difficult for your customers to make returns can have negative effects. According to data from our latest Benchmarks report, four out of five Americans (80%) say if an online retailer they regularly purchase from made their return policy more difficult, they would purchase from a different retailer with a more favorable return policy instead. Ways in which you can limit returns without creating a negative customer experience include adding better photos/videos in your product description pages, using better packaging materials to avoid returns due to damaged items, estimated delivery dates, high-touch tracking notifications, and triggered customer service or satisfaction surveys to help you find the common causes of returns for your business. In the cases where you must charge for returns, assessing a small flat fee rather than a dynamic rate can help build customer expectations and maintain a positive view of a return experience with you. Through these steps, you can limit returns while still maintaining a competitive edge.