Rising shipping cost and the importance of fulfillment for margins

How rising shipping expenses from China are endangering ecommerce profitability

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 fulfillment set-up.

In general we distinguish between two situations:

  • you handle your fulfillment inhouse 
  • you work with an external fulfillment partner

You handle your fulfillment inhouse

In that case you have the fixed warehouse cost, the cost of personnel, software and other tools. In addition you have most likely negotiated rates with your delivery partners based on your 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 fulfillment 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 fulfillment partner. 

Don´t forget to go over this checklist when considering an external fulfillment 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 fulfillment provider able to match the requirements you need?
  • Technical integration: How difficult is it to connect your sales channels to the WMS? And what are the costs? Can you connect your webshop plug & play?
  • Cut-off times: Until what time can your packages be sent ‘the same day’?
  • Scalability: Is the fulfillment partner flexible enough to scale up when your peak season starts? At what cost?
  • Realtime insights: Does the partner provide you with insights in the fulfillment 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?     

You work with an external fulfillment partner

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

  • Did you negotiate directly with your fulfillment 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 fulfillment 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?

“We recently signed an ecommerce fulfillment deal with an etailer with a monthly volume of 5.500 parcels, 8 skus, with a daily cut-off time of 2pm for same day fulfillment. Due to efficiency in our operations and our competitive deals with the carriers, we were able to save them over $110.000 per year on their pick & pack, storage and shipping,” says Bjorn van Brakel, Vice President of Salesupply USA. “This etailer was already working with an external fulfillment partner in the US, this shows the importance of reexamining your fulfillment operations, especially in these challenging circumstances.

Salesupply has several warehouse locations and has high volume deals with a number of dedicated ecommerce fulfillment partners in the US, Europe and China. Our clients profit from these deals throughout the entire fulfillment 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 fulfillment? Send an email with all your fulfillment and product specs to info@salesupply.com and we will send you a tailor-made proposal.