Derry became the final team in the top flight to lose their unbeaten tag as 10 man Shelbourne struck twice in six second half minutes to turn the match on its head at Brandywell.
The Foylesiders controlled the majority of the opening half and were full value for their 1-0 advantage when James Akintunde turned inside the box before firing low under the body of Brendan Clarke just after the half hour mark.
Shelbourne burst out of the traps in the second half and Shane Farrell and substitute Brian McManus gave the Dubliners the advantage.
However, Higgins was furious with the decision to chalk off Cameron McJannet's powerful header with the match evenly poised at 1-1 on 71 minutes. That proved a major turning point in the game with McManus netting the winner four minutes later.
"I'm disappointed obviously," he said. "I think the first half we were very good," said Higgins. "Second half we weren't good at all, we didn't get started. They picked up every second ball and were hungrier which was disappointing and we struggled to claw our way back into the half. First half we were without doubt the better team. Second half they were the better team, it's as simple as that."
Higgins refused to criticise his team who have registered the club's best ever start to a League of Ireland campaign and who are sitting three points clear at the top of the table after 10 games.
"To be fair we still created a decent amount of good chances but on another night you take them. I'm not going to criticise our players, they've been absolutely outstanding for a long period of time now. It's a bump in the road but the good thing about this is we have Monday night (against Drogheda), a couple of days and we go again."
It was a similar story to the scoreless draw with Sligo Rovers earlier in the season at Brandywell as Derry failed to punish their opponents when well on top. And the City boss has called on his players to become more ruthless during those dominant spells.
"We didn't get going in the second half at all. The players have been brilliant and it's a disappointing result but we pick ourselves up and go again.
"We still had a couple of chances late on but you can't rely on late goals all the time. When you're dominant in this league like we were in the first half then you have to put teams away and smell blood.
"With our dominance in the game you would've liked to have gone in 2-0 up but it wasn't to be and it gave them life and energy and they proved in the second half that if you don't match that you become unstuck and we were punished."
It was a first defeat since October 24th 2021 but Higgins isn't concerned about how his side will react given the character in the City dressing room.
"Hopefully we can go the same distance again but the players have been brilliant and I can't speak highly enough of them. It's a bump in the road and we crack on and regroup and travel to Drogheda now on Monday.
"We have to be positive. There was no roaring and shouting in there. It was just about where we could've been better in the second half and I think everyone was in agreement. We have an opportunity now to bounce back and go to a really difficult venue and try and pick up the three points.
"The character doesn't concern me at all," he added. "We've got good pros in there and really good players. We go to Drogheda full of hunger and confidence to try and pick up three points.
"Drogheda are a really good team. They're well organised and have some really good individual players. We need to be fully prepared for that game and go there with the intention to get three points.
"The players don't need to be lifted because they've been on a really good run and have a good points return. It's disappointing to lose tonight but we can't dwell on it for too long. We've got recovery tomorrow, train Sunday and travel to Drogheda on Monday so we need to man up and step up and get on with it and go to Drogheda and try to win the game."