Amazon To Absorb Holiday Shipping Costs

    July 17, 2008

Online retailers cannot risk raising shipping prices. The sluggish economy combined with high fuel prices are hurting Americans financially but and other online retailers are unlikely to increase shipping costs out of fear of losing customers.

Contracts with shippers may protect Amazon and some others as companies look for ways to cut costs. Companies such as Amazon and Overstock depend on low or free shipping to attract business.

Free shipping has helped Amazon remain competitive against its rivals. Amazon and other major online retailers have been able to continue to offer free or low cost shipping by reducing waste in other areas.

"Given the surge in fuel costs, it would seem at some level Amazon has got to be facing an impact, given the fact that Amazon Prime’s price has been the same since 2004," Citigroup analyst Mark Mahaney told Reuters.

Amazon’s shipping cost increased 47 percent to $128 million from $87 million in the most recent quarter. Total sales were up 37 percent.

"Clearly this has become an increasing source of loss to the company, and an increasing part of their cost structure," Mahaney said, while noting that Amazon is "remarkably focused" on managing its costs.

Amazon has been able to continue to offer its free and discounted shipping because it locked in its transport rates before oil prices rose dramatically.

The strong desire to avoid higher shipping prices will drive more Amazon customers to join Amazon Prime which allows customers to pay a flat yearly fee of $79 for unlimited shipping or customers will buy more items to qualify for Super Saving shipping which requires a minimum $25 order.