Speed vs. Savings: Strategies for Merchants in the Age of Fast Shipping
Meeting consumer demand for fast shipping is a balancing act for merchants — one that requires delivering expedited services while keeping rising costs in check.
A recent report from UPS Capital Insurance Agency, Inc. highlights the financial strain. Eighty-four percent of surveyed merchants say meeting two-day shipping expectations has increased their operational costs, with 37 percent now spending over $100,000 annually on expedited shipping.
How are businesses navigating this challenge? Let’s explore the strategies they’re using to balance speed and cost effectiveness.
Expedited Shipping is Rising
Over the past five years, next-day shipping has surged by 58 percent, while same-day shipping has skyrocketed by 164 percent. Despite this rapid acceleration, meeting consumer expectations remains a challenge. While 43 percent of consumers surveyed receive their online orders within two days on average, even more expect this to become the norm.
The push for faster shipping is largely driven by intense competition among big-box retailers and the pandemic-fueled growth of e-commerce. Nearly three in five (59 percent) respondents cite Amazon.com as a key force shaping today’s shipping standards. The convenience and immediacy set by the e-commerce giant has raised consumer expectations, compelling smaller retailers to keep pace.
However, the financial pressure doesn’t rest solely on merchants. More than half (54 percent) of consumers are willing to pay extra for expedited shipping, particularly for purchases in health and wellness, electronics, and apparel.
International Shipping Complexities
In 2023, over 1 billion small packages were shipped to the U.S., according to U.S. Customs and Border Protection. As cost-competitive international retailers like Temu and Shein gain traction, their influence on shipping strategies is undeniable — 85 percent of surveyed merchants report adjusting their approach in response. To stay competitive, 42 percent have adopted faster and more affordable shipping options, aiming to match the low costs and quick delivery promises that attract consumers to these global players.
Price remains the primary motivator for international shopping, with 61 percent of surveyed consumers citing cost as the biggest factor in choosing brands like Temu and Shein. However, speed also plays a role. Nearly half (47 percent) say they would be more likely to shop from international retailers over domestic giants like Amazon if free expedited shipping were available.
As global competition intensifies, merchants must refine their strategies to stay ahead. This includes optimizing logistics, rethinking pricing models, and incorporating sustainability initiatives to mitigate the long-term environmental impact of growing shipping demands.
Merchant Challenges With Fast Shipping
As shipping timelines accelerate, so do the risks of lost, stolen or damaged packages. Managing shipping claims is a significant challenge for over a third (35 percent) of surveyed merchants, creating operational strain and negatively impacting customer satisfaction.
The consequences extend beyond logistics. The bulk (74 percent) of merchants acknowledge that delivery issues affect customer retention, with half reporting a “strong” impact on their ability to keep customers loyal. Adding to the burden, 59 percent of merchants handle shipping-related complaints internally, further straining their resources. These challenges highlight the need for more efficient solutions to streamline operations and enhance customer trust.
To address these issues, merchants can adopt claims management software, implement real-time tracking systems, and leverage predictive analytics to prevent problems before they arise.
Delivering Speed, Controlling Costs
Fast delivery is now an expectation rather than a perk. However, meeting these speed demands comes at a cost. Merchants are grappling with rising shipping expenses, intensified competition from international retailers, and operational challenges like lost or delayed packages.
Businesses must not only optimize their logistics and shipping strategies but also invest in efficient claims management and customer experience enhancements. Merchants that proactively adapt — whether by offering flexible shipping options, leveraging technology for real-time tracking, or balancing speed with sustainability — will be best positioned for long-term success.
Dan Spitale is a vice president at UPS Capital and brings over two decades of commercial sales and marketing experience in financial services and logistics to UPS Capital.
