It isn’t just Amazon fulfilment cost that is rising – costs are rising for all eCommerce businesses across the world. You may be wondering why this is happening and how best to react.
Worried about rising fulfilment cost? You’re not alone.
Here at fulfilrr, we have been working with fulfilment centres across the UK, EU and US for over 20 years, giving us a deep-rooted level of knowledge and understanding of fulfilment costs across the globe, along with the external forces and factors which influence their fluctuation.
Today, many of us are “feeling the pinch” of a rising cost of living. These same rising costs are also forcing eCommerce fulfilment costs across the globe to rise. We see it as our job to minimise the impact for our clients
We are constantly exploring ways to offset rising costs of our service, and bear the strain of supply chain pressures wherever possible.
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Three Supply Chain Stressors – and their impact on Fulfilment Cost
Property Pressures: Influence on Fulfilment Cost
People Pressures: Influence on Fulfilment Costs
Supply chains across the globe are experiencing personnel supply chain pressures. For one, the pandemic has helped fuel what is known as the ‘Great Resignation’ in the UK job market (and beyond). Unfortunately, supply chains (more specifically the logistics, warehousing and transportation industries) are not immune to this. The knock on effect of this has caused pressures on recruitment, retention, and in particular, wage pressures, as people across the globe experience huge increases to their cost of living. We see this as a long-term pressure that will impact fulfilment cost across the board for some time.
However, there is some good news. We should consider the use and uptake of autonomous technology (i.e. robots) in the supply chain, due to the positive impact these will have on fulfilment costs (though warehouse personnel whose jobs these robots are poised to replace won’t be celebrating this). However, on the flip side of the coin, this is a developing technology with quite a few kinks to iron out before becoming mainstream. While autonomous mobile robots (AMRs) are becoming more commonplace in warehouses within the supply chain, “there is a fear that the bots will get in the way of their human counterparts, cause slowdowns, or worse, cause dangerous working conditions”. As such, we don’t see robotics having a meaningful impact on fulfilment costs for years to come.
Petrol Pressures: Influence on Fulfilment Cost
The last piece of the puzzle when looking at external pressures on the supply chain and the subsequent impact on global fulfilment cost, is to look at fuel prices. As much as we wish it weren’t the case, fuel plays a crucial role in making sure that the wheels keep turning on the supply chain ‘machine’, both literally and metaphorically.
With the current configuration of supply chains, a hefty reliance on fossil fuels causes fulfilment costs to be heavily influenced by the cost of the fuel which literally powers our supply chains. Furthermore, the fact that oil has increased from under $20/barrel in 2020, to almost $110/barrel at the time of writing this, should demonstrate another cause to the rise of global fulfilment costs. This is the biggest impact that we are personally witnessing and experiencing first hand on fulfilment costs. Carrier costs either take the brunt of fuel rises, or pass these increases on to the end-customer. Can you guess which has been happening? We can look at Amazon as an example who are adding a “fuel and inflation surcharge” of 4.3% to fulfilment fees for Amazon Marketplace sellers. And what do you think the Amazon Marketplace sellers are doing in reaction? You guessed it, they’re passing on the cost increases to the end customer by raising the cost of their goods.
To further demonstrate this pressure, carrier fuel surcharges are now something we are seeing.
How long will the pressures affecting fulfilment cost last?
This is a hard question to answer, as the pressure on fulfilment costs are not only structural and deep-rooted, but are worsened by the macro issues affecting the global economy. Fulfilment costs make a small part of this of course, but our bet is the earliest we will see a drop off in pressures is Q4 2022, with significant changes only becoming apparent around Spring/Summer 2023. Our key message on this is stay sharp and informed, as the business environment can change very quickly.
There is a whole generation of entrepreneurs that have grown up with stable prices. Being alert to the time of changing markets is important for your business, not just for fulfilment costs, but across your supply chain. Grabbing opportunities as markets change is essential. Stay informed by utilising your network and industry connections (get in touch with fulfilrr if you don’t have any of these!), along with industry publications such as Modern Retail or the UK eCommerce Association. Lastly, stay vigilant and assume that all things can and will change.
What can I do about rising fulfilment costs?
In an ever-changing market, it’s vital to stay on your toes and keep an open mind. Adopting a mixed approach and having several techniques at your disposal is the best way to deal with an issue as complex as rising fulfilment cost.
Look at your own customers/target market; think about how they are reacting to an increased cost of living and what’s affecting them most. They are experiencing price inflation in their daily life, which is most likely making them more averse to spending money on non-vital goods. If you are reliant on ‘big ticket’ items, how can you source a cheaper product? Can you sell cheaper items or something more functional to appeal to these shifts in consumer behaviour? Often, your customer is more used to price rises than you think. How are your competitors reacting? Are you certain that you can’t increase your prices marginally or find a cheaper product source? Further to this, you can use data and analytics tools to identify customers that form the most profitable market for your offerings.
As for carriers and delivery services, you should be looking to optimise your spending here where possible by choosing the most appropriate fulfilment courier to suit your business needs and those of your customers. It’s also worth considering that carrier service levels across the board improve in quieter times when there is less demand and worsen in peak demand. Do you really need the most expensive service in the low season? Can you switch for different times of year? Staying on top of this is a great way to lower your fulfilment costs without sacrificing service standards.
When I get asked what’s the most important thing for new companies to learn I always say focus on your product buying. If you sell out of stock that’s a missed opportunity that no one wants but can you really support multiple SKUs and product lines that are going to drive out your fulfilment costs by having lots of storage. You can’t always go to market with 1 product line (although we love the clients that do) so think through your size of line. Try not to order too many products or variants, do you really need 12 colours when 4 will do? Then think how you will move the product out if you don’t sell it. Products left in the warehouse don’t go up in value, if you have bought wrong, recognise your loss and convert what you can to cash. Whilst storing your product may make us some more money in the short term in breaks our heart to see your cash tied up in product that’s not selling and creating costs for you. We want you to be as successful as you do and shipping product out, not gathering dust in one of our warehouses.