For global e-commerce, the logistics costs as a percentage of sales keep rising. Take the market leader, Amazon, for example, Amazon’s logistics costs are on the rise from 17.8% in 2011 to 31% 2020 according to Ti’s report. What can e-commerce do to reduce logistics costs?
What are the logistics costs?
When it comes to logistics costs, all expenses from material sourcing to order delivering could count.
Among all expenses of logistics costs, transportation costs account for the largest part, items from the factory to warehouse and then to customers included. In addition, freight shipping could often cross countries ,so you need to transport them via air or sea.
2. Warehouse Space
Warehouse costs consist of leasing or purchasing spaces, which could also be a lot of expenses. According to an executive for real estate services giant CBRE Group Inc., tight supply and rising construction costs drive up warehouse rent by about 10% from 2021.
3. Inventory Carrying
Most e-commerce businesses may not be aware of the costs of inventory carrying, but there are still expenses within the category, such as equipment, shipping supplies, insurance, storage facilities, interest, taxes, and other administrative expenses.
4. Staff Labor
You would need people to handle shipping, warehouse, and inventory. What’s more, you may also need teams of management, customer service, marketing, and so on.
Why are the logistics costs increasing?
All industries have been impacted by short-term supply shortage, business interruption, lockdowns due to the pandemic these 2 years. Hence, it’s easy to understand why the logistics costs are increasing. Nevertheless, except for the pandemic, the logistics costs are still on the rise for the years.
1. Manpower Issues
The labor shortage in the logistics industry has been a serious issue for the past few years. Besides, a strong job market pushed wages to rise that results in raising prices on shippers to recoup the higher expenses.
2. Tight Capacity Market
The freight and shipping demand is getting stronger, but as mentioned earlier, there is labor shortage in this industry.
3. Fuel Costs
Due to inflation and increasing diesel prices, the current fuel costs that have increased by almost 70% over the 2 years could be relatively higher.
How do e-commerce businesses reduce the logistics costs?
1. To reduce transportation costs
(1 ) Find a closer manufacturer
As the above-mentioned, shipping items from your factory or manufacturer could also be part of the transportation costs; therefore, when it comes to transportation costs, it’s better to take the distance into consideration.
(2) Choose the right shipping carrier and re-evaluate the performance and pricing annually
When choosing the right carriers, pricing could be the decisive factor; however, quality and delivery time also matter. A reliable carrier can help you with a positive reputation. If you prioritize pricing without taking other factors into consideration, you may find delays in delivery occur a lot, frequently receive customer complaints, and drive potential customers away.
To negotiate with multiple carriers and re-evaluate the performance of carriers and pricing could be very helpful in maintaining the quality and reducing costs. As you may know, carriers would update the pricing annually; by doing so, you could better get the most cost-effective options.
(3) Start using impact indicator
Damaged items will cause serious complaints and bad online reputations. Hence, to prevent unnecessary risks and additional costs from damaged items, you should start using impact indicators that could protect your goods and they are totally affordable. With impact indicators affixed on the goods, your carriers will know they have to be more careful during shipping.
Even if the shipping damage occurs, your customers and you will get indisputable evidence for the damage claim. For e-commerce businesses who use impact indicators could easily avoid a lot of disputes and protect the business reputations.
2. To reduce warehouse costs
(1) Optimize storage
You must optimize storage to reduce required space. According to Prologis, you can follow the instructions to complete the optimization. First of all, learn the dimensions of different forklifts you will need for every type of product. And then, sort and organize items by aisle dimension required for forklift access and reduce the width of inefficient aisles wherever possible. Last, but not least, choose a narrow and tall racking build to lower your required square footage.
(2) Start using cross docking
You could transfer your products directly from the suppliers to the customers without long-term storage that would reduce a lot of warehouse costs.
3. To reduce costs of inventory carrying
(1) Install state-of-the-art security systems
Every year, billions of dollars are lost in warehouses; to prevent lost money from theft, you should probably use state-of-the-art security systems.
(2) Purchase used containers
Buying used containers to store inventory in warehouses could save about 40%. Reduce inventory costs by beginning with proper and used containers with high quality like pallet containers, metal bins, wire baskets, food trays, IBC totes, Gaylord boxes, drums, and more.
(3) Buy bulk packaging
Once you know the correct size of the packaging you need, you can get volume discounts by buying them in bulk. However, the quality of packaging also matters that high-quality packaging could well protect the goods inside.
4. To reduce Labor costs
(1) Optimize operations
If your staff are not able to be productive or work at a low error rate, you may need to rethink and take a closer look at the operations and processes to reduce dwell time, save costs, and improve profits overall.
Once optimizing operations and improving processes, you could enhance efficiency of your pack station, have inventory organized, and even speed up the turnaround time when an order is placed to when it’s shipped out.
(2) Automation and technology
According to experienced e-commerce businesses, automation will definitely reduce labor costs. You could let the machine help with packaging that could run as long as they are in need.