On the face of it, this has been a stonking year for e-commerce. From China’s Singles Day to Black Friday and Cyber Monday, online sales in most countries have grown exponentially. However, my company, international couriers ParcelHero, is convinced these figures are still not as good as they could be! Delve into the numbers and you will soon see this growth is actually being held back in some countries such as the US and Australia, because of higher delivery charges.
Before those of us in the parcels logistics industry were propelled headlong into the pre-Christmas rush (which starts well before Thanksgiving these day) research by IT and information systems membership organisation ISACA revealed that 46% of regular UK internet users planned to shop online this Christmas, and only 32% in high street stores. The US has yet to reach this tipping point: in America more internet users still planned to shop in store than online, with 44% preferring to purchase their gifts from a bricks and mortar store.
It’s a similar case in Australia, where even diehard internet users said they were less likely to shop online for Christmas presents. Only 30% of Australian internet users intended to buy their presents online this year, as opposed to 55% in high street stores.
At ParcelHero we followed this up with some research that revealed that more competitive mailing costs in the US, matching the UK’s prices like-for-like, would result in at least the equivalent 6% rise in consumers planning to buy online (a hefty rise of $18.24 billion on 2014’s likely figure of $304 billion spent online), and could actually increase retail spending overall.
Now I know what you are going to say; that of course delivery costs are higher in the US and Australia, because the distances parcels have to be sent are potentially far greater than in the UK. England is pretty much the size of a postage stamp compared to either country. However, that is by no means the full explanation. Even over short distances the US and Australia work out more expensive.
For example the postage charge for a typical 1kg parcel sent from one US postcode to another, both in central New York, is $20.05 (£12, A$24). The same parcel sent between two neighbouring postcodes of the same distance within central London costs £5.65 ($8.86, A$10.74).
And it’s the same story in Australia. The same 1kg parcel we’ve just compared in the UK and the US, when mailed to two postal addresses within Sydney, costs A$13.45 (£7.08, $11.09).
In case you’re still not fully buying my argument, let’s have a look at another big country and see if it’s equally expensive. India, a country twenty times larger than the UK, is in fact, leading the way in internet shopping. In all, 63% of regular internet users in India said they would do the bulk of their shopping online, and only 25% in malls and stores. And no wonder: our 1kg parcel sent between two addresses in Delhi costs just 40 Rupees. Hitting the currency converter big time, that’s 41p, or in the US 64c and Australia 74c! It’s no surprise that so many prices on India’s Amazon equivalent, Flipkart, include free P&P.
Now, of course, neither the US or Australia, nor for that matter the UK, are going to introduce prices similar to India’s. India’s postal system is very heavily subsidised, and that would be something that would be very much against American ideology; and indeed such subsidies would also be too rich for Australian and UK taste.
But the current prices of US and Australian parcel services need to be reduced to encourage online retailers. That’s because the consumer has to either pay delivery costs directly, or the retailers will, build in the postage price into the overall product cost anyway. Either way, it’s a strong discouragement to buying online.
Now in the US the Postal Reform Act of 2014 may have been stalled in Congress, but at least it shows real intent. In addition ParcelHero’s US partners UPS are showing the way with a very competitive $12.16 through its UPS Ground service, which isn’t tied in to aging infrastructures, for the same 1 kg weight parcel delivered within New York. With companies such as Amazon pushing ahead with revolutionary new ideas such as drones delivering parcels, mailing costs could really come down. Imagine the potential for e-commerce in the US if domestic parcel delivery prices became more competitive. And the same arguments apply in Australia where an equally aging infrastructure is posing just the same issues.
Online spending is expected to amount to $304 billion in 2014 in the US, out of a total of $4.5 trillion overall retail sales. If US mailing costs per mile were to fall to UK equivalent levels, it is entirely reasonable to expect a similar jump in usage by 6%. In fact overall retail sales might grow as distances in the US become proportionally less expensive; it’s a long way to drive to the nearest good shopping area in many parts of the US and that might be deterring overall purchases. Decreased postage costs could see a retail boom, not just increasing online’s take but increasing overall sales. And the same also applies to Australian consumers.
It only costs the equivalent of $30 (£19.66, A$36) to send a parcel from the UK to New York next day through ParcelHero. No wonder $20 postage costs within the same city are putting off America’s potential online customers!