Free shipping
Free shipping is a marketing tactic used primarily by online vendors and mail-order catalogs as a sales strategy to attract customers.
Online sales model
benefit from a simplified sales model as compared to traditional brick-and-mortar stores. By storing goods remotely at a warehouse location and shipping goods directly to a consumer, significant transportation needs are eliminated both on the part of the vendor and by the consumer. Additionally, near-universal access to the Internet means that a relatively few warehouse locations can compete with a market without having to deal with amounts of real-estate.Shipping and fees
The simplified business model provides potentially lower costs or higher profit margins for remote vendors. The 'up-front pricing' model attracts customers with low up-front prices reflecting the lower cost of goods to the vendor with less overhead. The vendor would then add the cost of shipping, and any other applicable fees to the order before processing. Since the vendor typically makes the shipping arrangements, it is entirely possible that the cost of shipping passed on to the consumer will not be the same as the cost of shipping borne by the vendor. Some online vendors use this as a source of revenue, further increasing profits or allowing the vendor to advertise even lower up-front prices.Based on ComScore data 65% of eCommerce transactions in Q4 2017 in the United States were with free shipping. This figure has been consistent for the last few years. Moreover, US respondents asked in the survey listed free shipping as a most important factor for online shipping. Next in line were exclusive online deals, no sales tax, fast shipping and in store pickup.
Many shoppers also perceive shipping costs as a barrier to place the order and leave the shopping cart before purchasing. 31.6% of respondents mentioned the latter as a main barrier during the online shopping experience based on Internet Retailer / Bizrate Insight consumer survey conducted in May 2018.
Some retailers offer free shipping on some orders or above a certain value threshold. This can vary depending on the merchandise category. Retailers usually place the threshold slightly above average order value in order to encourage buyers to purchase more products. The margin then increases for retailers and thus they will be offset partially the shipping costs.
Optimizing shipping costs for sellers
Price depends on the form of the cargo, the mode of transport, the weight of the cargo and the distance to the delivery location. For example, tariffs for transporting coal over long distances in America are approximately 1 cent/ton-mile. On the other hand, rates for intermodal container transport depend heavily on the chosen route and the cargo weight, provided the container weight does not exceed the maximum payload. Prices can range from 300 to 10 000 dollars per twenty-foot equivalent unit depending on supply and demand on the route.Transporting goods by rail, water or air has its own set of rules that take into account federal, state and local regulations, as well as safety considerations that affect freight costs. In general, the more freight you move, the lower the cost per unit. This is an important factor influencing the rates charged to individuals or companies engaged in moving goods.
The basis for optimizing delivery costs is choosing a provider with regard to geographic proximity to the customer base. Distance directly affects delivery cost, delivery times and customer satisfaction.
There are many companies whose sole purpose is to make freight shipping cheaper and easier for small businesses and individuals who need to move goods. Most freight moved within the United States is transported by truck or rail, but many individuals and businesses that ship freight do not have enough product to fill an entire truck or rail car every time they need to ship something. Consolidators, customs brokers, freight forwarders and NVOCCs can influence the determination of freight rates through their expertise, business relationships and shipping volumes. These factors help reduce freight rates for small businesses and individuals needing to ship goods. In the commercial freight sector many shippers turn to brokers, whose task is to find qualified carriers to deliver cargo at a price acceptable to all parties.