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TheStreet Open House

Free Shipping Day: Boom or Gloom for Merchants?

"Shipping is always going to be a fairly tough part of the business -- it can absolutely crush profitability on web transactions if done wrong."

Half-Moon Outfitters' Molten uses USPS Priority Mail -- and doesn't mince words in calling it "neither fast nor particularly reliable" -- but low overhead (attributed to his distribution warehouse that handles his eight stores strung between Charleston, S.C., and Atlanta) helps him absorb the cost of free delivery.

Outside the world of the USPS, UPS and FedEx (FDX), new companies have opened up a niche in getting products out to buyers -- or to other players at various points in the retail/wholesale product lifecycle -- by cobbling together chains of disparate delivery providers to minimize costs for small businesses.

In an easily understood, highly effective bit of marketing, one of these has dubbed itself "the Orbitz of shipping." BlueGrace Logistics, based in Tampa, Fla., has amassed since 2007 a corps of 3,000 shippers large and small (including the big three) to serve its 2,500 customers. CEO and founder Bobby Harris, whose background is in transportation management, saw an underserved market of smaller players that couldn't seriously compete when it came to economies of scale, technology or knowledge base. Since the shipping industry as a whole has bounced back -- with rates up 15% on an annualized basis and tonnage up 2%, according to Harris -- he sees this area expanding in the future; he has already watched several larger companies quietly acquiring smaller players.

Options like these will become increasingly important in the near term, with shipping costs up notably since the start of the recession, and if the USPS goes ahead with planned changes to service to help cut heavy annual losses. Svec currently counts Priority Mail as reliable and cost-effective (almost always cheaper than UPS or FedEx), and it's the method of choice for the majority of her customers' purchases. But, with the heat-sensitive items she sells, notes Svec, a shift from a maximum of three days in transit to five or more could be a dealbreaker.

In which case, she will once again have to evaluate the true cost of free shipping.

-- Written by Todd Obolsky, special to CNBC

CNBC is a world leader in business news, providing real-time financial market coverage and business information.
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