Small retailers face a shipping squeeze as holiday peak arrives

A maker's math that no longer adds up

Jenni Shields has shipped bows and quilted headbands out of a spare bedroom for eight years, but this year the postage is eating her profit. When she launched Evie Pearl Handmade, a typical shipment cost $2.93, roughly $4 in today's dollars.

By last year, her average label ran about $4.50. Taking a routine batch to a Postal Service counter in Kansas City, Kansas, last month, the average hit nearly $6 per package. She charges customers $6 for shipping, including about $1.50 for packaging supplies, so she is covering the overage herself. "I am losing money at this point, and I've really taken a huge hit this year," she said. "I feel like it's just been this slow increase up [in shipping costs], and I feel horrible."

Shields said she cannot match free shipping from giants.

"I can't compete with Amazon on the free shipping. I can't do that. I can't afford that," she said, adding that more of her expected take-home is going to postage.

She is weighing her first shipping price hike in six years and has noticed sales cooling, which she ties to shipping fees. With fuel not easing meaningfully, she worries small businesses may not make it through the holidays.

Higher fuel, pricier freight and new fees

After the February attack on Iran by the U.S. and Israel, higher fuel costs have driven up transport expenses across sea, air, rail, and road. Even the biggest platforms feel it: Amazon reported an 11% year-over-year increase in third-quarter shipping expenses.

Freightos estimates international air cargo is averaging about $3.37 per kilogram, a 43% jump from a comparable period last year. Head of research Judah Levine cited more expensive fuel and urgent demand to move hardware for building data centers as factors keeping air rates elevated, even weeks before the usual last-minute holiday rush.

Markets and costs evolve constantly, and investors who learn new tools gain advantage. We're hosting our first ever investor livestream on 11/17 to show you how to use ChatGPT and Claude to invest like a pro, hosted by Briefs Finance CEO Jaspreet Singh. Save your seat.

Jason Seidl of TD Cowen - managing director and transportation analyst - said the effect on shippers will "squeeze their margins in the near-term." He noted larger operators are less exposed to spot rates because they tend to lock in dedicated contracts, a buffer smaller sellers usually lack. On top of that, UPS, FedEx, and USPS have all added peak-season surcharges that vary by package and run through the end of the holidays. Those add-ons are standard each year, but they have been increasing over recent seasons.

Retailers rethink policies as costs stack up

Some smaller brands are changing their playbooks. For the first time, Todd Shelton - whose New Jersey brand, now 23 years old, produces locally made men's jeans, T-shirts, and button-up shirts - began deducting return postage from refunds this week. He said material costs are up too, including denim sourced from Japan and shirt textiles coming from Portugal. The business remains profitable, but slimmer margins have him considering price increases or charging customers for shipping.

Consumers are still spending. The National Retail Federation projects holiday sales will rise 4.2% to $1.01 trillion by year-end, versus $972 billion last year, a 3.1% gain. Part of that growth is inflation, meaning shoppers are often paying more for the same goods. Bain & Company's Aaron Cheris said people expect to spend more largely because they expect prices to be higher, which could leave less room for discretionary items while essentials hold up.

According to Cheris, shipping expenses are on track to hit all-time highs this year, intensifying the squeeze on smaller retailers. He cautioned that a significant number could enter financial trouble in the first quarter. Larger chains will also face rising costs, but existing shipping contracts and in-house fleets could delay the impact. "If anything, it benefits the scale players over the little players, but it's kind of a little bit bad for everybody," he said.

The investor angle

The setup is a tug-of-war: steady consumer demand versus rising logistics and input costs. Smaller retailers are getting squeezed now by postage and surcharges, while scale players with locked-in rates may see the margin pinch show up later. Watch post-holiday updates for margin guidance from both camps.

Smart investors keep exploring practical innovations to protect and grow their portfolios. On 11/17, our CEO Jaspreet Singh goes live for our first ever investor livestream on how to use ChatGPT and Claude to invest like a pro. Register to join him.