Rising shipping cost and the importance of ecommerce fulfilment for margins

For months it has been the cause of headaches for ecommerce entrepreneurs selling products produced in China or other parts of Asia: the rising cost of shipping these products from Asia to their warehouse in the US. In contrast to the favorable production cost, shipping costs have been increasing and will continue to do so due to - amongst others -  a lack of containers and ships. Since increasing consumer prices is often not an option, this seriously jeopardizes the margins of etailers. This is the moment to deepdive into the other parts of your operations to identify where margin can be won. Are you importing your products from Asia? We strongly advise you to start scrutinizing your current ecommerce fulfilment set-up

 

In general we distinguish between two situations:

  • handling fulfilment inhouse 
  • working with an external fulfilment partner

Handling fulfilment inhouse

In that case you have the fixed warehouse cost, the cost of personnel, software and other tools. In addition you most likely negotiated rates with your delivery partners based on volume. The chances are that you will receive a better delivery rate when you arrange this via the contract of an external partner and you will most likely save on the other warehousing and fulfilment activities as well. Make sure you have a good overview of your fixed and variable costs before you investigate the possibility of working with an external fulfilment partner. 

Don´t forget to go over this checklist when considering an external fulfilment partner:

  • Experience in ecommerce: absolutely vital for a sustainable partnership
  • Product specific requirements: What kind of products do you sell? Are there specific requirements? Is the fulfilment provider able to match the requirements?
  • Technical integration: How difficult is it to connect your sales channels to the WMS? And what are the costs? Is it plug & play?
  • Cut-off times: Until what time can packages be sent ‘the same day’?
  • Scalability: Is the fulfilment partner flexible enough to scale up when peak season starts? At what cost?
  • Realtime insights: Does the partner provide you with insights in the fulfilment process? Is there a CMS, OMS or portal available?
  • Service levels agreement: How does the partner guarantee its service levels, which procedures do they use? Do they have a track record available?     

Working with an external fulfilment partner

While you do not have the operational costs involved with handling ecommerce fulfilment inhouse, there are still enough options to win back part of the margin lost on ocean freight:

  • Did you negotiate directly with your fulfilment partner? Unless your volume surpasses a certain amount, chances are you can get a (much) better rate. 
  • Platform - and or account management fees: Are you charged per month or per contact moment (mail, phone call etc.) 
  • Inbounds: compare the provided hourly rates 
  • Storage: the price of a pallet can vary a lot per partner and per country
  • Pick & pack: make sure you are offered prices based on the dimensions and weight of your products
  • Packaging / filling material / flyer insert / label printing: compare the packaging rates you were offered
  • Returns handling: Same here, make sure to compare the rates and make sure the rates are based on the dimensions of your products
  • Shipping: Are you part of  the fulfilment partners´ volume deal with delivery partners? Are the offered rates based on yourt product dimensions and the weight? Another important aspect here, what is the performance ratio of the carrier?

What kind of cost savings are we talking about?

The potential savings will vary in each individual case because of the amount of variables involved. For an American etailer with a monthly volume of 5.500 parcels, 8 skus, a daily cut-off time of 2pm for same day fulfilment, the cost savings added up to a total of over $110.000 per year on their pick & pack, storage and shipping. This etailer was already working with an external fulfilment partner, this shows the importance of reexamining your fulfilment operations, especially in these challenging circumstances.

Salesupply has several efulfilment warehouse locations and has high volume deals with a number of dedicated ecommerce fulfilment partners in the US, Europe and China. Our clients profit from these deals throughout the entire fulfilment proces, from storage to pick&pack all the way to the (last mile) delivery. Furthermore we made sure that account management is not a part of your invoice.

Would you like to know what you can save on ecommerce fulfilment? Send an email with all your fulfilment and product specs to info@salesupply.com and we will send you a tailor made proposal.