Five Ways to Minimize Hidden Shipping Costs When Drop Shipping for Retailers
Drop shipping as a fulfillment practice is not new, but it has certainly become more prevalent as retailers increasingly rely on their suppliers to own the inventory, fill the order and ship it to their customers’ doors. However, as many suppliers have painfully learned, providing retailers with drop shipping services can be more costly and challenging than expected.
“The last stretch of the supply chain consumes 28% of the total delivery cost—and 30% of shipments do not make it to the end recipient on the first attempt, according to Richa Gupta of VDC Research.¹” A big part of the challenge lies in managing the “last mile” delivery to residential addresses. Getting the right product, to the right customer, at the right time, is the age-old challenge, yet failure to deliver can occur due to:
- Carriers having difficulty finding the destination address
- Congestion and high traffic in urban areas causing a delay in delivery
- Incorrect addresses leading the driver to the wrong location
- Signature requirements not being met when no one is at home to sign for package
The Challenge of “Whatever it Takes”
When problems do occur, the drop-shipper often must do “whatever it takes” to resolve them. As many of us have witnessed, all it takes is one or two unhappy customer reviews blasted out via social media to cause sales to dive and the retailer to lose faith in the supplier.
Troubleshooting and remedial efforts require extra time and resources from the drop-shipper. Delivery issues also create unexpected carrier surcharges that may not be covered by the retailer. Here are examples of how carrier fees can add up, based on typical national carrier fee structures:
- Address correction fees ranging from $12.50 per package up to $91 per multi-package shipment.
- Redelivery or return charges of $10.00 or more.
- Large package surcharge? $57.00.
- Dimensional weight charges.
- Incorrect shipping account number? $9 to $14 per shipment.
Multiplying unexpected surcharges and fees over a month’s package volume can result in significant costs that erode or eliminate profit margins.
If delivery issues are not discussed with the retailer beforehand and your company is paying for the shipping charges, you may end up with a larger than planned freight bill and little recourse for recovering the additional charges.
Optimize Routing on Return Shipments
Returns represent another area of hidden costs that can quickly add up, particularly when it’s left up to the customer to decide how to send the order back. Let’s say a consumer orders shoes in several sizes and they’re delivered via SmartPost or SurePost. They keep the pair that fits and return the others.
“If the customer writes ‘return to sender’ on the package, the USPS will handle the return delivery at the most expensive rate possible,” said Tod Yazdi of Tagg Logistics. “When you’re shipping thousands of orders a month, even a 5% return rate, shipped at the highest rate, can really add up.”
To reduce this cost, Yazdi said, Tagg Logistics works with its customers to include instructions on the package that say, in effect, “For returns, please call…” This can initiate an RMA process in which the shipper chooses the least-cost return method.
How Suppliers Can Meet Retailer’s Service Expectations and Minimize Shipping Costs
Before launching a drop ship program for a retailer, it’s best to set up an onboarding process that covers all aspects of how the order-to-delivery workflow will take place. While this blog post will not delve into all the details of onboarding, many e-commerce experts have covered this topic. Shipwire, for example, offers several excellent how-to posts, including, “The Drop Shipping Opportunity for Suppliers,” which cites many useful points. Another good source of information is the website PracticalEcommerce, which publishes helpful posts such as, “Drop Shipping: How to Manage Orders.”
Five Tips for a More Cost-Effective Drop Shipping
In addition to creating an onboarding process, there are a number of ways to reduce errors that result in redelivery charges.
- Go over freight billing procedures with the retailer to clearly define who pays for freight charges and how they will be recovered. In some cases, for example, when packages are being shipped using the retailer’s shipping account number, certain surcharges may be assessed on the suppliers, rather than the retailer’s account.
- Build profiles in your shipping software for automatic routing. You can also ship faster, with greater accuracy by embedding your retailers’ profiles and routing requirements into your shipping system. This eliminates the need for workers to manually select carriers and also prevents incorrect routing decisions.
- Install address correction software. Many shippers are surprised at how significant costs can be related to incorrect addresses, lack of a residential flag or missing customer phone numbers. You can preempt many of these charges by embedding address verification software in your fulfillment system. If the retailer does not have address verification tools in their order entry systems, you can still resolve many problems by adding it to your shipping system.
- Make sure everything is perfect when shipped! Besides being absolutely sure of the contents and address for the order, unexpected costs can be avoided by providing the carrier with complete and accurate information such as weight, dimensions and signature requirements. Post shipment customer service and remedial efforts caused by errors quickly wipe out a shipper’s profit on most orders.
- Simplify integration. How easy is it for you connect to new retailers and their e-commerce platforms to receive orders, and add the carriers and services they require? If you’re using carrier-provided standalone systems, order processing and shipping can be time-consuming and error-prone. A better practice is to implement a multi-carrier shipping solution from a vendor who has already integrated its solution with the leading e-commerce trading partners.
In this post, we’ve focused on delivery problems that result in customer service issues and unexpected freight charges. In the next post, we’ll discuss the area of order packing and how to avoid packing errors that result in returns, reshipments and unhappy customers.
We’d also like to thank our partner, Tod Yazdi of Tagg Logistics, for his contributions to this post. Logistyx Technologies is a provider of carrier-agnostic e-commerce fulfillment software and shipping software solutions that enable shippers to manage all their small parcel, LTL postal, regional, national and international carriers on one platform. We also help companies automate their reverse logistics process for greater efficiency and lower cost. Contact us today.
Copyright © 2017, Logistyx Technologies. All rights reserved.
¹ Bridget McCrea, “From DC to Final Destination: Last Mile Dilemma,” Logistics Management, June 8, 2016.
²Nate Gilmore, “There is More Than One Way to Drop Ship for Ebay,” www.skipmcgrath.com.