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'Free Shipping' May Go Away

FILE: In this Aug. 3, 2017 photo, packages ride on a conveyor system at an Amazon fulfillment center in Baltimore., Maryland USA.
FILE: In this Aug. 3, 2017 photo, packages ride on a conveyor system at an Amazon fulfillment center in Baltimore., Maryland USA.

LOS ANGELES - Inc. and other online retailers who use so-called free delivery to cultivate customer loyalty are scrambling to keep it from draining profits as costs climb and e-commerce contracts.

"The days of free delivery are numbered," Ken Morris, managing partner at Cambridge Retail Advisors, said of the fast-changing retail marketing tool.

Amazon marketed free shipping as a differentiator and used pricey Prime subscriptions and fat profits from other businesses to underwrite its package delivery costs - forcing other retailers to follow, even if they lacked Amazon's advantages.

Nearly three-quarters of the top 1,000 U.S. retailers offered free shipping on at least some orders, with 45% requiring a minimum purchase for that perk, according to August 2022 survey results from industry research firm Digital Commerce 360.

After forcing both free and fast shipping on the e-commerce industry it dominates, Amazon's latest moves are instructive.

The online retailer, which recently hiked the annual Prime subscription price by $20 to $139, is now offering "free" same-day shipping for Prime members in at least a dozen U.S. cities, including Los Angeles, Chicago and Philadelphia.

There are strings attached, however, as the service is free only on orders of at least $25, and costs $2.99 when orders fall below that.

At the start of March, Amazon also raised the minimum threshold for free Prime shipping from its struggling online grocery business to $150 from $35 and added charges of $3.95 to $9.95 for orders below the new limit.

Amazon CEO Andy Jassy in February said the company is streamlining costs across the business and that shipping speed would not be a casualty of its efficiency push. A spokesperson on Thursday added that Prime delivery speeds got faster from 2021 to 2022 and are improving further this year.

Retailers' top priority is lowering shipping costs, with speed a close second, said Lee Spratt, CEO of DHL eCommerce Solutions America, which provides logistics services.

With retail margins shrinking and shipping rates for United Parcel Service Inc., FedEx Corp., and others hitting record levels, the industry where nearly three-quarters of e-commerce companies offer some sort of free shipping is rethinking the financial cost of habituating shoppers to free shipping.

It is an open secret that most retailers raise product prices to subsidize free shipping. Still, product inflation and soaring shipping costs are making the service unsustainable as the prospect of recession threatens to wallop already-flagging online spending.

Businesses are adding fees for faster service, raising minimum purchase requirements and making other changes that shift more costs to consumers who are struggling with financial issues of their own.