E-commerce logistics is one of the most critical parts to an online store, but costs continue to rise every year. Increased online sales push up demand and limit available freight capacity, with increasing regulations, wages and employee shortages driving prices upwards as well.
What’s more, rising customer expectations for delivery can make things even more difficult. High shipping costs are the number 1 reason for European shoppers to abandon their carts, with slow delivery being the next reason to bail.
So what can you do about this? Finding the right balance between profit and customer satisfaction with your e-commerce logistics can be extremely challenging. In this article, we take a look at the different logistics strategies for your online store and how you can take advantage of these many possibilities.
E-commerce logistics: how to make the most of endless possibilities as an online store
If your logistics is not set up in the best possible way, chances are that your conversions will suffer. Your only option will be to make sacrifices and compromises, resulting in sky-high logistical costs.
Research shows that on average, an online retailer spends between 20-40% of their turnover on logistics. This includes costs for storage, order picking, packing, shipping and returns.
What only increases the costs is the fact that you cannot recover them from the consumer. Today’s demanding (read: spoiled) customer has no intention of paying shipping or return costs. And these customers have plenty of opportunity to search for alternative online stores selling the same products when they see high delivery costs, with over 800,000 online stores in Europe alone.
If you run an online store selling jewellery from your home, you can reduce costs by performing logistics operations yourself. But that’s an impossible task for stores that process many orders per week.
Moreover, it distracts you and takes time away from what you really should be focussing on: generating more conversion.
How can major players like the Dutch store Coolblue, or fashion giant ASOS control logistics costs and still make a healthy profit? And how can you best do this as a smaller or mid-sized business? Is outsourcing the key, or is it sometimes wiser to keep logistics in-house?
In short: what are your options as an online retailer?
What are the E-commerce logistics options for online stores?
You can set up the logistics process in various ways:
Drop shipping
Fulfilment (e-fulfilment)
Using your own logistics system
Entering into a contract with a carrier
Using an automated logistics platform
We are happy to explain these options for you in this article, as well as their advantages and disadvantages!
What is drop shipping?
Drop shipping is another term for direct shipping, which literally means ‘resale’. If your online store uses drop shipping, you choose to offer products that you don’t stock yourself.
As soon as an order comes in, you order the product from the manufacturer or supplier who then sends it directly to the customer.
Advantages of drop shipping
Drop shipping offers a number of advantages. Top of the list: you don’t have to own inventory, you don’t have to buy products and therefore you don’t have to rent a warehouse.
The supplier is responsible for all processes and costs related to inventory management, product processing and shipping. Precisely the things that drive up your logistics costs.
In addition to low risks and limited costs, as a drop shipper you have another big advantage: you can expand your range at any time and the business model is highly scalable.
Sounds like the perfect solution for every online retailer, right?
Disadvantages of drop shipping
So why isn’t every online store automatically a drop shipper? Simple: because there are also some drawbacks to drop shipping, such as:
A lot of competition
Small profit margins
No influence on delivery and customer experience
To attract customers, online stores cannot avoid offering products at low prices. This makes the already-modest profit margin – a significant part of which goes to the supplier – even smaller. Profit margins usually vary between 15% and 40%, depending on the type of product.
In addition, you have no contact with the customer, so you can’t contribute to the customer experience. Nor can you influence the delivery – especially its speed.
What is e-fulfilment?
Another form of outsourcing is fulfilment (or e-fulfilment when it comes to online stores).
It’s a collective name for the process your online store goes through: from storing and managing inventory, processing orders and order picking to shipping the product to the customer, including any returns. E-fulfilment companies have the in-house technology, expertise and quality control to optimise the logistics process from A to Z.
Many (large) online stores outsource the logistics process to e-fulfilment companies. Even if it costs a lot of money, it’s important to many online retailers that they don’t spend time on logistics. They prefer to focus entirely on the core business and growth of the company.
Advantages of e-fulfilment
Unlike drop shipping, where the supplier owns the inventory, the products used in e-fulfilment are owned by the online retailer. That means you as an e-fulfilling retailer have to invest more capital than a drop shipper.
On the other hand, you have a better overview of your inventory and retain control of the sales process.
And perhaps the most important advantage: because you own the products, you benefit from higher profit margins. In short: a lucrative earning model.
Disadvantages of e-fulfilment
Involving a fulfilment partner isn’t cheap. This is also the reason why this method is used almost exclusively by large online stores that have sufficient investment capital and work with large volumes.
In addition, you as the online retailer are responsible for purchasing products with all the financial risks that entails.
Finally, as an online retailer using e-fulfilment, just as with drop shipping, you have no control over the logistics process. If there are no dissatisfied customers, that’s just fine. More annoying is the opposite scenario: your partner makes mistakes and complaints pour in, costing you customers. After all, dissatisfied customers tend not to return.
Using your own E-commerce logistics system
Loss of control and customer contact can be reasons to do e-commerce logistics yourself. That and the significantly higher profit margin that’s involved, of course.
‘Doing the logistics yourself’ sounds like a lot of work and it is. From processing orders, printing shipping labels and delivering the package to processing returns, it’s all on you.
You can, of course, buy software for it, but that comes with a price tag as well.
Entering into a contract with a carrier
DHL, UPS, GLS, DPD, FedEx: it’s easy to get lost under all the options. One carrier offers an even better, faster or more personal shipping strategy than another.
Thanks to the stiff competition between carriers, it is possible for online stores that ship a lot of packages to negotiate a competitive price. Because carriers don’t have it easy, they are willing to go far (offer competitive prices) to attract an interesting business.
But no matter how you slice it, here, too, the carrier will always cut off part of your profit margin.
Shipping via multiple carriers?
It’s dangerous to put all your eggs in one basket. What if DHL employees decide to go on strike for a day? That’s why entering into contracts with multiple carriers is the way to go.
Which carrier(s) you should choose depends on several things. The following factors often play a decisive role:
delivery speed
possibility to track the order
possibility of evening and weekend delivery
possibility to pick up a parcel at service points
network at home and abroad
…and, of course, the rate charged by the carrier
Using an automated platform
To easily involve multiple carriers, you can use an automated platform like Sendcloud. That way, you are 100% certain to have the best shipping process.
We offer two options:
Upload your own contract with a carrier
Use our pre-negotiated rates with our affiliated carriers
If you use our affiliated carriers, you can benefit from our pre-negotiated rates without having to enter into a contract with a carrier yourself. This allows you to quickly enable a carrier and start shipping instantly. It’s also possible to upload your own contract and still use Sendcloud to do business with other carriers.
The advantages & disadvantages of an automated platform
Every customer has different needs. Some people prefer to pick up the product at a service point instead of having it delivered at home. Some prefer evening delivery or Saturday delivery.
The big advantage of an automated platform is that you decide which carrier and shipping method are most effective for which service. You can even automatically choose a different carrier for certain products on your site, or for your international shipments.
E-commerce remains the biggest driver of growth
Many major players such as H&M, MediaMarkt, and Hema are in the process of (re)designing their logistics. It is a fact that the demanding customer continues to determine the playing field.
People do not want to pay for shipping or returns, preferring to receive their order as soon as possible and value customer-oriented communication.
However, there is increasing acceptance around shipping costs: it seems that customers are more often willing to pay them. According to a study by Trusted Shops, customers have fewer or no objections to paying shipping costs in three particular circumstances:
When the customer really wants a product
Where the purchase amount is less than €25
If the shipping costs are less than €5
Zalando has recently started charging shipping costs in some countries and H&M now has customers who spend less than €20 in the online store pay their own shipping costs.
Although the majority still value free shipping, it doesn’t have to be an absolute dealbreaker: only 9% of consumers say they never order from an online store that charges shipping costs.
This seems to pave the way for a cautious increase in shipping costs. Because in addition to being spoiled, the modern customer is also increasingly an understanding customer: they seem to be more aware of how much time and money online stores invest to keep their heads above water. Finally!
Ultimately, what today’s customer wants is clarity. Preferably before they pay. Do you calculate your shipping costs or not offer free returns? Then let them know in good time during the process.
A well and quickly informed customer is a satisfied customer, and they are indispensable to your survival as an online store.
E-commerce Logistics: In conclusion
We hope this article has clarified the endless possibilities in e-commerce logistics. If you still have any questions, please feel free to comment on this article or contact us. We’re happy to help!
If you are curious about how Sendcloud works, schedule a demo soon with no obligation!
