For nearly 19 years, Julia Grieve enjoyed the benefits of selling directly to customers. Her Toronto-based company Preloved offered originally designed clothing made from vintage fabrics in, at one time, four stores in Toronto, Montreal and Vancouver.
Earlier this year, she closed her remaining Toronto location to focus on her growing wholesale business; custom products such as a fashion line for Roots and a home decor line for Indigo; and selling direct to customers via the web.
The new business model is going well so far, but Ms. Grieve has discovered a major catch: "Now everything that people buy from Preloved includes shipping."
That includes bringing in her fabrics (mostly from Montreal), sending products to her wholesale clients in Canada and the U.S. (she supplies the chain Anthropologie and about 400 independent retailers south of the border) and shipping to private customers who buy from her website.
That's a problem because the cost of shipping has been going steadily up over the past several years. It currently costs Ms. Grieve $8.50 to ship a sweater to local customers in Torontos – a price so high she only charges $7. At the same time, there's been increasing pressure from customers, and even wholesale clients, to ship products for free.
The squeeze of the high cost of shipping is hitting businesses from a wide range of sectors right across the country. National advocacy organization the Canadian Federation of Independent Business (CFIB), frequently surveys its members about their concerns. "We ask them what the barriers are to trade and they tell us that one of their top concerns is shipping costs," says Corinne Pohlmann, senior vice-president of national affairs.
"E-commerce has been a blessing and a curse for Canadian small businesses," she adds. Amid growing demand to sell products far and wide, and amid pressure from the Federal government and public to "go global," small business owners are increasingly in a cash crunch that sees shipping costs chew away at the bottom line.
Every year, usually Jan. 1, courier and postal companies announce their new rates. "We try to do it at that time of year because that's when companies start planning for the next holiday season," says Anick Losier, spokesperson for Canada Post. She says in recent years the crown corporation's rate increases have just been enough to cover inflation.
However, that roughly four-per-cent hike, year after year, often surpasses the rate at which small businesses can increase the prices for their products. Shippers are now announcing fee changes mid-year: in May, Fed-Ex in the U.S. said it would start to use dimensional weight pricing for all packages sent ground, not just large packages over three cubic feet.
Courier companies are dealing with competition themselves, as well as rising fuel and insurance costs (natural disasters such as the recent winter ice storm and extra-harsh temperatures caused big disruptions).
Couriers now layer their base rates with a growing list of additional fees. Fuel surcharges, for instance, were introduced a few years ago as a temporary measure to deal with rising gas costs. But now they seem permanent – and they'll be sky-high this summer. "They're quick to raise them when gas prices go up, but they're slow to bring them down," says Chris Johnson, owner of Parts ConneXion, a Burlington, Ont., stereo parts reseller that sells direct to customers online.
Insurance rates have also been on a tear. Mr. Johnson, who's been in business since 1988 (he started the original version of company while he was still in university), recalls paying $0.25 for a $100-valued package, but he now has to fork over $3 in insurance for the equivalent item.
Working the rates
To combat escalating costs, small businesses incorporate shipping-cost savings techniques into their everyday routines. At Wild Bird Trading in Newmarket, Ont., owner Mark Bennett has set up a computerized system that allows his staff to price compare for every single shipment the company sends out. The 10-employee company makes bird-feeding gift products such as feed, feeders and accessories, which it distributes to small retailers, mainly gift shops and garden centres.
"We're always looking for a better rate, but it takes manpower to do this," says Mr. Bennett. He finds rates vary widely: most rural areas are very pricey, and a change in weight or dimensions can hike the price radically for one courier company and not another. "There are about five different things that can make your rates go up or down."
Most companies try to get across-the-board discounts, either by developing a relationship with a courier company, or by taking advantage of group discounts through an association (for instance, the CFIB offers its members up to 30 per cent off shipping through a partnership with ZoomShipR).
Mr. Johnson says his shipping rates have stayed flat over the last decade, despite rate increases, because of the deals he's been able to broker with shippers. He admits this is possible because of his years in business and the amount he ships. But instead of showing a courier company his track record and asking for a deal, he instead asks for the discount first and lets the courier retract it if he doesn't fulfill the volume expectations (which he always does as he sends between 40 and 70 parcels a day).
For Ms. Grieve, the newfound discovery of shipping as a major business cost has impacted every level of her business, even design choices. "Now, the shipping costs are as important to me as how many seams are put in my garments," she says.
Exacerbating the expense of shipping is the additional cost and hassle of getting goods across the U.S. border. Mr. Bennett shipped to the U.S. for years, eventually supplying over 300 retailers. "It was great, we were growing like crazy," he recalls of his success from launch in 1993.
But regulations, red tape and fees at the border began to increase, particularly after mad cow disease hit in 2003. His costs went up, both he and his customers had to fill out paperwork and shipments would get frequently seized as border officials shuffled forms. In 2007, he decided to stop shipping Wild Bird products over the border entirely. His company went from a high of 25 people working in manufacturing to just two right now.
Ms. Pohlmann says CFIB members cite the fees, paperwork and hassles of sending products over the borders as key barriers to trade, even more so than shipping costs. "These kinds of non-tariff trade barriers, these little fees here and there, they all add up," she says. When a shipment gets seized for an inspection, a company will not only have to deal with the delay and potential lost business (and lost merchandise if it's perishable), but often have to pony up thousands of dollars for the cost of storing their inventory at the border.
The CFIB has been doing advocacy work on this issue for years. The Canadian senate's finance committee issued a report in 2013 that called for a reduction of border tariffs. But we've seen no changes yet.
Some Canadian businesses do find a way to make cross-border shipping work for them. Ms. Grieve has been doing it for years and has a system that works. She ships her entire fall line to a warehouse in Buffalo, using a broker to help get product smoothly over the border, then uses the U.S. Postal Service to send product to her U.S. retailers.
The free issue
On top of all these expenses, those who sell direct to customers are also coping with ongoing pressure to offer free shipping. It's not only an expensive perk, but an unpredictable one as sending a package down the street or across the country to a rural address come with very different fees.
"There's no such thing as free shipping," says Oliver Schneider, co-owner of Pacific Baskets, a gift basket company in Coquitlam, B.C. "It comes off the bottom line." His company, which dates back to 2001, has its customers pay for shipping. About 10 per cent of its customers are in the U.S., and they're loyal enough to the brand to absorb the extra shipping and border costs.
But newer brands may risk customers abandoning their purchases at checkout when they discover a steep shipping rate.
Ms. Grieve has offered free shipping at times as a special promotion on her web site. "You write 'free shipping' on your site and boom, sales go through the roof," she says. She suspects regular customers hold off on purchases, waiting for the deal to start. The pressure to offer the option in her industry is fierce. "The big guys are making it tough on us small fries. If you want to play ball, you have to have it."
Meanwhile, recently her wholesale clients have been using free shipping as a negotiating tool, asking her to pay if they order more product.
"A year ago, nobody every asked for this," says Ms. Grieve. "Now, shipping costs are huge."