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Increased demand for free shipping squeezes small business Add to ...

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.

Rate hikes

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.”

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