Fuel prices in the US have increased by more than 30 percent over the past year. In fact, the recent surge in oil prices is the biggest since 2004. This is becoming a serious issue for any business for which shipping or deliveries are mission-critical. Many retailers have already squeezed their margins in order to offer their customers free shipping or minimal delivery fees. In reality, from Amazon to a hyperlocal pizza delivery fleet, nobody can escape the rising costs of fuel.
Amazon already raised the price of their annual Prime subscription by 18% – from $99 to $119 for new members, citing rising costs. Similarly, the scale of their operation means that any fluctuation in fuel costs will have an enormous impact on their profit margins. And with customers now expecting free deliveries for any order, no matter how small they might be, the pressure is on.
This week the retail giant promoted Amazon Prime Day, their annual summer sale, which analysts expect to exceed $3 billion in sales. This year they have had to take into account the fact that diesel prices are about 45 percent more expensive than last year, jet-fuel prices are up more than 50 percent, and gasoline prices are about 30 percent higher than in 2017.
And Amazon is not alone. Fedex, DHL, UPS and any other last mile delivery company will have to find ways to overcome this challenge which is somehow beyond their control. They’re experts at making the most of truck capacity and optimizing routes, but they will need to further improve on these parameters.
Retailers will likely offer more ‘click and collect’ alternatives to avoid unnecessary last mile overheads. Electric and semi-electric vehicles may also become increasingly popular. For example, last year Tesla announced the Tesla Semi, the automaker’s electric truck which is currently being tested ahead of production.
E-commerce competition is intensifying and many retailers are having huge summer sales to compete with Amazon Prime Day. This competition will become even tougher beyond the product pricing aspects, with shipping and delivery becoming key selling points for online shopping. And with both driver and fuel costs on the rise, supply chain efficiency and the last mile in particular have never been more important.