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Managing Ecommerce Fulfillment During a Recession

By Managing Fulfillment During a Recession

If we are not already into a recession, then that dreaded, severe economic downturn is just around the corner. If you are an e-commerce merchant, the signs of a recession are clearly visible:

  • Big box stores like Walmart and Target are reporting declining sales growth rates.
  • Those same big-box stores are canceling product orders due to an overstock condition.
  • While Amazon’s e-commerce revenue is marginally up, volume is down.
  • FedEx reported horrible earnings and suggests we are already into a recession.
  • Spot quotes for ocean freight out of Asia are down. (https://www.freightwaves.com/news/container-spot-rate-fall-much-steeper-and-less-orderly-than-expected).
  • Prominent economists are saying that a recession is inevitable.

Our nasty economic condition further exacerbates the challenge of peak season planning for both the merchants and e-commerce-specific supply chain service providers:

  • Should merchants that are sitting on an overstock condition discount early?
  • How many temporary, seasonal employees should the carriers hire?
  • For e-commerce merchants, decreased peak-season shipping revenue could lower their carrier-based earned discounts.
  • Lower than usual peak season shipping revenue can also drive severe, carrier-based financial penalties if the merchant does meet minimum net revenue requirements, depending on how the shipping agreement is structured.

The 3PL e-commerce order fulfillment service providers may face the most difficult challenges as they must now manage the potential of a peak season shipping decline across the multiple merchants they service.  What can these fulfillment service providers do to manage recession-driven, lower business and volume during the peak shipping season and beyond?

  • Communicate early on and often with their merchant clients and understand the impact of downward adjusted volume on your operations.
  • Talk to their parcel carrier sales professionals early and ask if there is any flexibility on reducing revenue requirements that drive earned discounts and minimum net revenue spend requirements for the whole year, not just Q4.
  • Be conservative with temporary hiring and be prepared to reduce labor hours if merchant-driven shipping is softer than expected, even after being adjusted downward in anticipation of a recession.
  • Track down those merchants you previously could not support during the holidays and offer them a discount for coming on board now in return for sticking with you for a one-year commitment.
  • Make sure legacy customers understand that you may be able to accept higher holiday-related volume than previously indicated.
  • Look into targeted digital marketing campaigns to drive new business if you have not already done so.
  • Take on smaller clients that previously did not necessarily fit within your customer profile.
  • Get C-level management in front of business prospects, which is impactful when trying to close new business.
  • Recessions drive increased competition. Talk to your carrier about rate reductions in targeted areas.
  • Take a 2nd look at the non-profile product you previously declined because it is hard to handle.

Finally, expect the worst and assume we could enter a multi-year recession, so start planning for 2-3 years of negative growth and down revenue.

How to Calculate Order Fulfillment Costs

By Shipping

In recent years, parcel carrier pricing programs have grown more complex, with numerous surcharges applying to the base transportation cost. To some extent, the same phenomenon is taking place on the fulfillment side of the e-commerce distribution solution, which can make it difficult to calculate fully landed fulfillment costs. This can be a pain point for the merchant and exacerbates the complexity of identifying projected costs when trying to determine that cost across multiple quotes and service providers.

Fulfillment costs can include:

Receiving:

  • Per Pallet Trailer:  The charge will apply to a single pallet, 48x40x72, full or partial.  There may also be a higher charge or extra-large pallets.
  • Full Trailer, Pallets: This charge can be driven via the established per-pallet charge, or there may be a lower truckload charge.
  • Partial or Full Trailer, Lose Loaded: An hourly rate per worker is normally assigned to the task.
  • Small/Large Container Pallets: Trailer pallet rate should apply, although some service providers will look to container off-load as an opportunity for a premium charge.  Also, container storage charges may apply per day until the container is picked up.
  • Inventory Receipt: SP may charge to provide this electronic notification specific to the receiving function.

Storage:

  • Pallet Charge Per Month:  Applies to space standard pallet occupies, whether full or partially full. A higher charge will apply to oversized pallets.
  • Volumetric Storage: Monthly fees assigned to square footage product occupies. Visual estimation can assign this rate or calculate it electronically via on-record product dimensions.
  • Mixed Product Pallet: Surcharge may apply if the occupied cube cannot be calculated electronically.
  • Lose Product Storage: Will normally be subject to a higher storage rate pallet charge.
  • Large Item Surcharge: This May apply to large or oddly shaped products that cannot be housed on a standard pallet.
  • Reserve Pallet Charge: Higher charge may apply to reserved pallet space, whether occupied or not.

Shipment Processing/Pick Charges:

  • Order Charge: Per individual order, regardless of the number of individual items.
  • Item Fee Parcel: Individual piece charges per order.
  • Item Fee Pallet: Pallet pick charge.
  • Shipment Processing-Label charge per piece.
  • Additional Handling Charge: Extra charge for large, bulky, odd-shaped boxes or items not in a box.
  • Packing Slip-Attached to outside of box/item, listing contents.
  • Rush Order-Items requested to be immediately picked up upon receipt of order and made available for special pick-up.

PACKAGING:

  • Service Charge: This applies to all packaged items.
  • Materials: Outer Box charges which usually include inner packing materials.
  • Inserts: (samples, brochures, gifts, etc.)
  • Miscellaneous: Certifications, inspection, disposal (products or packaging), WMS license, TMS platform carrier rates.

Returns:

  • Inbound Receiving: Receiving returned shipment.
  • Item Processing/Restock: Return placed back into inventory to include inventory update.
  • Flat Rate Returns Handling: Flat rate for all returns handling except reshipping (pick/shipping) charges.

Miscellaneous Charges:

  • Stock Removal (Pallet): Normally, the pallet-based stock is picked for shipment to 3rd party for return to the shipper.
  • Stock Removal (Parcel): Parcels being picked for reshipment. Same as pick/shipment processing charges.
  • Stock Removal (Pallet):  Pallets being picked for reshipment. Same as pick/shipment processing charges.
  • Technology Set-Up: Per written contractual guidelines.
  • Technology Platform Charges: (Monthly)
  • New SKU: Updating inventory system for new items.
  • Utilities Surcharge: (Monthly)
  • Common Area Maintenance: (Monthly)
  • Account Charge: (Monthly)
  • Customer Service Inquiry Charge: (Per request)
  • Special Labor Charge: (Per hour per worker)
  • Inventory Reporting Charge: (Monthly)
  • IT Integration Support/Problem Solving: (Hourly)
  • FC Carrier Account Usage: Per item or Order.

Yes, there is a lot to digest here, but fortunately, not all these services/costs apply to every 3PL e-commerce order fulfillment solution.  However, it is critically important that a merchant understand their cost per package/order for both fulfillment processing and transportation.

 

 

What Does Process Driven Logistics Look Like?

By Shipping

What does process driven logistics look like? The top performing 3PLs succeed because they employ the best processes to manage their organizations and guide/direct their people.  Organizations that go wrong do so not because they lack process; they fail because they employ a process that doesn’t fit, or they execute a good process poorly.

Do note that too much process will strangle a company’s potential for success. At worst, a bad process forces the best talent to flee the company in search for an organization whose processes do not stifle creativity and professional growth.

Read More

Signs That the West Coast Supply Chain Bottleneck is Subsiding

By Supply Chain

While global supply chains remain badly broken, there are signs that US-based ocean freight bottlenecks, driven by broader global supply chain problems and capacity constraints, are subsiding. As a leading e-commerce fulfillment company, we keep our eyes closely trained on these trends. Understanding the following conditions will help to explain reduced US port delays:

Container Spot Quotes are Down

Bloomberg is reporting that long-term ocean freight rates between China and the US West Coast are higher than spot prices for the first time since April 2020.  Shipping costs on transpacific routes are easing but are still above pre-pandemic levels.

Falling spot quote rates indicate available capacity and potentially fewer ocean shipments to the US which should further ease port congestion this holiday-Shipping-Season.

Shipping Delays are Down

The pictured Morningstar graphic gives us a snapshot of global supply chain disruptions and indicates a 7- day delay at California ports, double the pre-pandemic level.  However, CNBC reports that the queue of vessels waiting to unload goods at the Port of Los Angeles, North America’s busiest container port, has fallen 80 percent since the start of the year, so we are seeing an improvement in port delays at the Los Angeles-Long Beach complex.

California Ports Operations/Process and Technology Improvements

The Golden State continues to fund operational and technology improvements, allowing the port authority to manage goods movement more efficiently and improve operational process management. 

The Port of Los Angeles has also seen a 77 percent reduction of containers dwelling nine days or more since the end of October 2021. The Port of Long Beach also has a corresponding 56 percent reduction. This totals a combined reduction of 68 percent.

A Slowing Economy: Fewer Port Delays

Finally, a slowing US economy is the primary reason why west coast port congestion is down and should continue to trend downward this holiday-shipping season on a year-over-year basis. Walmart and Target have been very public about their excess inventory problems. The two big-box retailers have recently announced the cancelation of booked product orders totaling billions of dollars. That’s billions of dollars of product inventory that will not now have to pass through LA and Long Beach ports.

The global supply chain condition is still a mess. However, US west coast port congestion is easing.

How 3PLs Adapt to Merchants’ Changing Inventory Needs

By Supply Chain Management

Competition is fierce among ecommerce order fulfillment 3PLs. As a result, 3PL companies must proactively support two initiatives to remain viable in the marketplace: 1.) Protect and retain their existing customer base; 2.) Aggressively pursue new business opportunities.

These two initiatives become more important as we see the growth of ecommerce slowing and inflation eating away at profit margins.  While the service providers must continue to do what they do best, they must also adjust to changing inventory/customer needs of both existing and new customers. In its simplest form, survival in the marketplace for an order fulfillment 3PL is about managing the inventory and adapting to customer’s inventory needs to keep and grow the business.

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Reverse Logistics: The Ecommerce Returns Challenge

By Shipping

As a formal logistics term, reverse logistics covers all operations related to the reuse of products and materials. However, the growth of ecommerce has driven a focus on the consumer-based returns process in support of online purchased products.

The ecommerce understanding of reverse logistics is so important that, according to a recent survey96% of consumers were more likely to purchase from an online retailer if it offered free returns. Additionally, 91% of consumers said the ease of returns impacts their decision to shop with that retailer again.

Other consumer perks and preferences with respect to merchant returns policies include:

  • Home pickup which is subject to an added charge.
  • Conveniently located access points where a returns order can be easily dropped off.
  • Receipt confirmation for dropping off a return order at an access point.
  • Near immediate credit card adjustment on returned items.

Ecommerce related returns are on the rise with CNBC reporting that up to 16% of all online purchases were returned during 2021, totaling over $750 billion in merchandise cost.

Why Are Returns Problematic for Merchants?

Consumer driven returns are a huge problem for both traditional retailers and on-line merchants. However, the cost of managing and processing returns is much higher for the ecommerce merchant versus the traditional retailer:

  • Returns tend to be lower for store purchased products as the consumer can feel and see the product prior to purchasing.
  • Traditional store retail purchases tend to be directly returned to the store and do not usually result an individually shipped return item to an ecommerce merchant or 3rd party processing center.
  • Consumers purchasing apparel on-line are more inclined to order multiple items so they can choose from a selection of items and then return the unwanted items.

Reducing the Cost of Returns

So, how can an online merchant reduce the number of returned orders and lower the cost of managing and processing customer returns?

  • Identify bad customers that have a high number of returns and charge those customers for excessive product returns or simply fire such customers as not all customers are good customers.
  • Reward customers with a history of fewer returned orders.
  • Negotiate the lowest possible shipment rate for return transportation with your parcel carriers and link the overall carrier business relationship to aggressive returns shipment rates.
  • Look to 3PL’s with a focus on returns shipments to manage the returns process.
  • Consider a 3PL based consolidated returns process that may extend the returns timeframe, but also reduce transportation expense.
  • Institute a modest sustainability returns charge to the consumer and link that charge to an overall sustainability strategy, which environmentally conscious customers will understand.

As we face a slowing economy and possible recession, ecommerce merchants need to prepare for possibly flat or even negative growth.  In such an economic environment, all costs must be evaluated for reduction, and reducing the overall cost of managing the returns process must be a priority for all online merchants.

Is reverse logistics a pain point for your ecommerce operation? Newegg Logistics RMA team is on hand to manage your customers’ return items for you. Tell us your needs, and we will customize a cost-effective reverse logistics solution tailored to your business.

Ecommerce Transit Times: Faster is Better… Right?

By Shipping

Allow me to take a trip back in time, about 50 years back to be exact, to help put into perspective how consumers transit time expectations have changed.  It was a time when catalog retailers like Sears and JC Penney ruled via their mail-order business models, in addition to their retail store networks: 

Mail-order business, also called direct-mail marketing, was the method of merchandising in which the seller’s offer is made through mass mailing of a circular or catalog or through an advertisement placed in a newspaper or magazine and in which the buyer placed an order by mail. It was not uncommon for delivery to take up to 2 weeks or even longer, as consumer transit time expectations were low. Unbelievably, a small number of legacy retailers still supplement their on-line marketing/purchasing models via mailed catalogs. 

Back in 2016, AT Kearney, surveyed internet users in North America on what the acceptable timeframe was for ecommerce order delivery: 

  • 24% of respondents—also the largest share—said that three days was the acceptable timeframe. 
  • 19% of respondents were happy with 2-day delivery. 
  • 9%, said that four days was the acceptable delivery window. 
  • 16% of respondents said five days was acceptable. 
  • 13% said they preferred same-day delivery. 
  • 12% wanted one day/next-day delivery.
    (Source: eMarketer)

Fast forward to 2021, and we see consumers migrating towards faster delivery transit time expectations, with free 2-day delivery reigning as the most popular delivery option for consumers: 

  • 42% of shoppers expect a 2-day shipping option for every online purchase they make. (Source: Ware2Go)

What are the transit-time delivery options for the consumer? 

Extended Days Delivery (3+ Days): This is still a popular option embraced by both merchants and consumers for the delivery of non-urgent, low value goods. 

2–3-Day Delivery: All the primary integrated carriers and most merchants offer a variation of this service that is fast enough for many consumers and yet easily works for most merchants as a free shipping option for their customers 

2-Day Delivery: We can thank Amazon for making 2-day delivery the most accepted and in demand delivery solution with free shipping in the US.  This has also forced competitors to offer free 2-day delivery, which can be costly for Amazon’s competitors to support. 

One Day/Next Day Delivery:  It was in 2019 that Amazon introduced Prime One-Day, free delivery to select customers.  Today, more than half of all Prime purchases are being delivered in one day.  It has been a challenge for Amazon’s competitors to match this delivery service commitment.  However, merchants are also finding that free 2-day delivery is still satisfactory for most customers. 

Same Day Delivery (2+ Hours): During 2009, Amazon was the first ecommerce retailer to test same-day delivery in select, large market zip codes. Today, free same day delivery is available to Prime members, but only in designated large markets. Statistica had this to say about the size of the same day delivery US market: 

  • In 2019, the same-day-delivery market in the United States amounted to 5.87 billion U.S. dollars. By 2024, this market is forecasted to reach 15.6 billion U.S. dollars. These estimates include grocery and meal delivery.  (Source: Statista)

Quick (Q) Commerce Delivery (Less Than 1 Hour): Also referred to as ‘on-demand delivery’, is e-commerce in its faster form, dependent on the quickest, last mile delivery solutions.  This ultra-fast delivery solution works best with grocery and meal delivery.  Not enough data exists to suggest that less than one-hour delivery for consumer goods is a viable delivery solution. 

The best ecommerce merchants and order fulfillment 3PL’s offer a range of transit time solutions from extended delivery for low value goods to one-day delivery for higher value goods. 

What is the catch for ecommerce merchants?

However, as we move towards faster transit times that absolutely cost more, the ecommerce merchant must now consider the following risk:

  1. The higher cost of faster transit times can erode margin if the merchant chooses to subsidize the related higher transit costs.
  2. Passing on the full cost of faster delivery services to the consumer can be dangerous for a merchant if a competitor is offering the same premium service at a lower cost by absorbing part, or all the added cost.
  3. Are the merchants, specifically Amazon, foisting the one-day delivery commitment onto the consumer when surveys indicate that most consumers are happy with 2-day delivery.

Finally, inflation is just one more factor that could ultimately derail one-day free delivery by driving up the cost of products and ultimately eroding the ecommerce value proposition as we know it today.

 

Runaway Inflation? Rising Fuel Costs? No Problem!

By Shipping

You would think that rising fuel costs and runaway inflation would be crushing profitability for 3PLs that support ecommerce-related order fulfillment.  However, that may not necessarily be the case. So then, why are ecommerce order fulfillment service providers managing rising fuel costs and inflation better than expected?

  1. Fuel Surcharge is a variable, pass thru expense: For providers that resell transportation rates, they are already passing-on invoiced fuel surcharges to their fulfillment clients. This is a variable cost, and the merchants realize they are subject to this condition as it is usually stated in their terms and conditions.

    Note that reputable order fulfillment service providers are not up-charging their clients on the fuel surcharge, as it is public knowledge and posted on the carrier’s web sites. Merchants would still be paying the fuel surcharge if they were having transportation billed through their own carrier account number.

  2. Scale absorbs inflation: High volume order fulfillment 3PLs can more easily absorb higher, inflation driven expense as increased expense is spread out across high volume item transactions.
  3. Robust sales pipeline: Another way to drive savings is to close new business. It is during these difficult economic times that the best order fulfillment 3PLs can lean on their sales team to close new business. This of course gets us back to scale and how improved scale can reduce overall operating expense, which goes directly to mitigating the overall impact of inflation.
  4. New technology reduces costs: Progressively managed 3PLs are constantly introducing new technologies that reduce operating cost and that can also help to off-set inflation related cost increases.
  5. Parcel Carrier Exclusivity: Both UPS and FedEx are structuring their pricing agreements to reward carrier exclusivity with deeper discounts.  Superior transportation discounts can also help to offset higher, inflation-related expenses.
  6. Lower Cost Shipping Options: To better manage expense in this inflation driven business climate, order fulfillment 3PLs are also looking to use lower cost, deferred parcel transportation solutions.

A management team can’t directly control what they are paying for the cost of goods and services, being driven higher by increased fuel charges and inflation.  That same management team can double down on reducing controllable expense, that will off-set inflation related higher costs, and help to protect profit margin.

However, even with the best cost reduction strategies and perfect managerial execution, increasing customer pricing is an unavoidable condition with 8% plus inflation.  Customers should be sensitively notified, measures taken to reduce costs should be explained, and if possible, limiting the rate increase to under that of the inflation rate should be considered. Handling a rate increase in this fashion might also open the door to taking business away from competitors, which is a wonderful thing in a slowing economy.

 

 

Is Micro Fulfillment Ready for Big-Time Investment?

By Shipping

If you follow ecommerce-related startups, you can’t deny that micro fulfillment is hot right now. As depicted by this graphic from Interact Analysis, it’s only going to get hotter. (source)

Of course, Amazon is leading the way in the development of MFC’s as they have opened 50 such facilities in NYC alone. All major urban markets are seeing the development of the smaller, micro fulfillment center, which cost a lot less to develop than the legacy model of large fulfillment centers.

While most new MFC’s are supporting grocery fulfillment, we are also seeing many new alternate-use MFC’s, like Fabric’s new facility in Dallas, with a focus on consumer goods and general merchandise fulfillment. Fabric is also representative of the investment dollars flowing into Micro Fulfillment. Investing in last mile delivery companies is old news as it has been slow for these start-ups to drive profitability. Ironically, MFC’s growth could be the salvation for money-losing last mile delivery companies as their operating models require numerous deliveries in urban markets, to drive the scale needed to be profitable.

So, What’s Different About a Micro Fulfillment Center?

  • They are significantly smaller than the legacy, ecommerce order fulfillment centers and cost less to develop.
  • They are in urban centers.
  • They tend to focus on smaller items like general merchandise for fulfillment.
  • Minimum item order requirements are necessary to drive manageable delivery charges.
  • Due to their limited capacity, centers must be supplied often, and replenishment sometimes must occur during over-night hours to avoid urban traffic.
  • MFC’s can be highly automated, driving down labor expense.
  • They promote Q-commerce which drives the need for ultra-fast, on-demand, last mile delivery solutions.
  • While they tend to fulfill for multiple brands, MFC’s have fewer fulfillment clients than legacy fulfillment centers.

And What Are the Barriers to Success?

  • AMAZON
  • Investors must be in it for the long-haul as it’s not clear how long it will take for the MFC model to become profitable.
  • Urban municipalities are not happy about development that drives more on-demand deliveries on their already crowded city streets.
  • Competition is ramping up quickly, which will make it harder to reach profitability.
  • Product selection is limited so the merchants may see a higher percentage of abandoned, online shopping carts.
  • Urban real estate is pricy and scarce.

Impact on the Legacy, Ecommerce, Order Fulfillment 3PL

The old fulfillment models will survive just fine if ecommerce continues to grow at a 10-15% clip.  Also, consumers will still turn to traditional ecommerce fulfillment models, including marketplaces, that offer a wide selection of products and can offer free, 2-day delivery.

Collectively, Is the Q-Commerce, Micro Fulfillment, and Last Mile Delivery Trifecta a Winner?

By themselves, Q-Commerce, Micro Fulfillment, and Last Mile Delivery will continue their drawn out quest for profitability. Together, all three will feed off each other and could go down the path to profitability much faster, than on their own.

The 3PL Business Model Is Ready for Last Mile

By Shipping

Until recently, the 3PL business model has been to contract with 3rd parties to provide transportation services for parcel, LTL, expedited, and truckload service providers. The 3PL could negotiate aggressive rates with service providers, driven by the aggregation of business from all their customers, and add on a modest profit margin. This model worked, and generally resulted in most folks in the 3PL supply chain being happy.

However, like all legacy business models, times they are-a changing.

3PLs are now pursuing direct control of some transportation and delivery services to offer faster and an overall superior service experience for their clients. Newegg Express is one example of this in action.

Types of last-mile services

Truckload Services – To drive savings for their clients and profit for their pockets, large 3PL’s have been expanding their own truckload capability in specific lanes to directly serve their clients truckload needs.  Taking truckload services in-house permits the 3PL to provide more control over the solution and can result in faster transit times and an overall superior service experience.

Expedited Freight Services – For clients that have regularly scheduled freight moves that require an expedited delivery solution, savings can be significant by taking these services in-house as these contracted services are costly.

Residential Large and Bulky Last Mile Delivery – As more ecommerce merchants turn to distributed fulfilment solutions for large items, the opportunity for 3PLs to offer local, last-mile, large & bulky, residential delivery services is rapidly growing. These types of deliveries require added value services that can drive significant additional revenue per delivery for services such as over-the-threshold inside delivery, unpacking, debris removal and assembly.

Market conditions spark interest in last-mile service offerings

Five years ago, it would be nonsense to suggest that a parcel-focused, ecommerce order fulfillment service provider could support local, last mile residential delivery. However, with the rapid growth of ecommerce distributed fulfillment and micro-fulfillment distribution models, the opportunity now exists for some 3PL order fulfillment service providers to support local, last mile residential delivery.

Today, there is a tremendous focus on moving ecommerce fulfillment centers closer to the customer, usually adjacent to large urban markets, and sourcing last mile delivery products directly from these forward stocking order fulfillment centers. Many of these micro-fulfillment centers are managed by 3PLs that can provide bundled, local last mile delivery across multiple merchants and contract with either local delivery contractors or crowd sourced delivery platforms, to make the last mile delivery.  For 3PLs, the challenge is to create the necessary stop density to drive affordable last mile delivery cost for the merchant.

Last-mile delivery models

Now, let’s look at three last mile delivery models sourced from a forward stocking, 3PL order fulfillment center:

Crowd Sourced Delivery Models

Numerous crowd sourced service providers support this last mile delivery model in major markets, and that is the problem. Due to intense competition, it has been difficult for the app driven, crowd sourced delivery solution to scale the residential delivery, so delivery charges are high, and can wreck merchant profitability requirements.

Local Delivery Companies

These types of delivery solution providers can easily comingle/bundle last mile delivery across numerous clients to drive scale, possibly resulting in an affordable last mile delivery experience for the ecommerce merchant.

3PL Driven Last Mile Delivery

Here-in lies the opportunity for a 3PL to drive more income/margin and offer a superior delivery experience to their clients.  However, like any other distribution solution, a certain level of delivery stop density is a requirement to make this last mile delivery solution profitable for the 3PL and affordable for the ecommerce merchant.