For many years, digital entrepreneurs have been profiting from passive income businesses. But in this new economy, an increase in shipping costs now threatens those online stores. Hundreds of products have suddenly become unprofitable, ironically, during the e-commerce boom.
And if you think these markups will go away along with COVID, we got bad news for you.
Whether your product is successful or not, who doesn’t want to pay less for shipping? This article shares 7 ways to reduce those costs plus 7 ways to increase your ROI. Strategies to keep your product in stock and compete with large-inventory buyers.
- Why Do Shipping Costs Keep Increasing?
- 7 Ways to Reduce Shipping Costs
- 7 Ways to Counter Shipping Costs
- What It Means for Your Business
Why Do Shipping Costs Keep Increasing?
#1 The 2020 Pandemic
The recent pandemic has lead to shortages. Ports offer limited service, there are fewer transportation supplies, and carrier prices have raised.
During COVID, both governments and sellers gave more priority to medical supplies. And if your product doesn’t fit this category, your shipment may delay for weeks.
Mind that China reopened sooner than the USA and Europe. As sellers started to ship, all ports in the importer countries became congested.
#2 The Ecommerce Boom
2020 has been the golden age for the recession-proof Ecom business. Social distancing has increased the relevance of online shopping, which created more business opportunities and jobs.
What happens when there’s port congestion, a strong demand, and an increasing employee number? The price surge is no surprise.
And because of demand, these prices are here to say.
#3 Raise of Indirect Costs
To stabilize the economy, countries have printed more money. It may not sound dramatic if inflation raised by 2-4% this year. But when you include all indirect costs (paying for employee salaries, benefits, vacations, vehicle fuel, insurance), what you pay is well above this rate.
According to Chinese sellers, shipping prices increase every week. If you’re a new seller ordering a few hundred items, you may find a $700 markup on the cheapest plans. Even if you don’t source internationally, all carriers have adjusted to inflation.
7 Ways to Reduce Shipping Costs
#1 Work With Hybrid Suppliers
Hybrid suppliers can offer better rates because their company supports all their services. Because that minimizes their costs (and makes you a loyal customer), these suppliers offer lower costs. It’s like buying Internet, cable TV, and phone services from the same provider at a bundle discount.
Now, suppliers often say they can do it all. What it means is, they’re probably outsourcing it to someone else and charging you a middleman fee. Try to verify that it’s them doing the work because trading companies are the opposite of hybrid suppliers:
- Do they produce all the product pieces?
- Do they have logistics staff for shipping?
- Do they have a location overseas where you want to send inventory?
You may think that only big companies can do it, but so do small companies if you know where to find them.
#2 Anticipate to the Shipping Calendar
To ensure service quality, freight forwarders avoid taking more work than they can handle. Yet every year, thousands of sellers flood the ports on events like Christmas, Valentine’s Day, or Halloween. Because they maxed out their capacity, shipping companies will limit new orders by raising prices.
If you want to have enough inventory during high-sales periods, you must ship before everyone else does. If everyone is ordering in September to sell on Q4, you should order in August-September. If you’re ordering anyway, why not do it asap?
If you make this decision only based on what’s left in stock, you’ll have no control over shipping prices. You get more pricing choices when you ship months in advance.
#3 Include 3rd-Party Logistics
Let’s say you found a high-demand product. You’re moving your inventory to the region that buys it the most. The problem is, shipping prices for that zone are prohibitive.
When selling on platforms like Amazon, you don’t choose where to ship. BUT you can find a cheaper port, send it there, and hire a low-cost carrier to drive to your warehouse.
Yes, you’re paying fees for two delivery services. But if that’s cheaper than the most convenient port, you’re still saving money. And the delivery shouldn’t delay more than a week.
3rd party logistics offer short-term storage. So if you need more inventory but if your main location is unavailable, it can save your business.
#4 Optimize Your Product Design
What’s the cheapest way to build your product without affecting quality? Smaller packages, lighter materials, and minimalistic designs are examples of product optimization.
Once your product gets traction, you might sell hundreds of units per month. And as your sales increase, so do your potential losses. Imagine what a 5% discount can save you over the years:
- Customers prefer lightweight items, which doesn’t necessarily mean lower quality.
- If you bundle your product and use common packaging, you won’t be wasting money on unneeded storage space.
- When choosing resistant materials, manufacturers are less likely to make mistakes. You get better feedback on inspections. For customers, it means lower return rates.
#5 Trade Lower Costs for More Responsibility
Product design and inventory planning aren’t attractive topics. Sellers prefer to do the marketing, as logistics may sound too technical/complicated. So you prefer to choose the default setup and forget about it.
You let your supplier do all the delivery.
If you tried everything and don’t know how else to save money, try DIY shipping. So instead of trusting suppliers for door-to-door shipping, you’re responsible for the inventory once it leaves the factory.
From most to least expensive, your options include:
- Delivery Duty Paid (DDP): Suppliers transport from their factory to your destination, assuming all hidden costs (paid by you plus intermediary fees)
- Free On Board (FOB): Suppliers ship your product, and you assume responsibility for receiving them at the port and moving it to your warehouse.
- Ex Works (EXW): After suppliers produce the inventory, you deal with all the shipping. You find a carrier in their country to deliver from their factory to the port, then ship internationally, and deliver to your destination. You take care of duty, taxes, customs clearance, and insurance.
If you used DDP or similar, consider FOB. And if you’re experienced, you might try EXW. It allows you to compare companies and avoid fees.
#6 Prepay Your Shipment
There’s no such thing as reservations in freight forwarding. Companies can’t guarantee a spot because of how quickly prices change. The only way to avoid markups is to close the deal upfront.
Price surges are here to stay. So why not order while it’s lower?
- Early clients higher more service priority
- You have more choices when buying months before
- You can work with slower (cheaper) companies
Some companies accept reservations for a downpayment. But if your order takes longer than the estimate, they may add late fees.
#7 Keep Asking for Quotes After the Deal
In a competitive market, no one has the best prices all the time. It’s not sustainable. And if you get comfortable working with a past supplier, you’re missing out on better deals.
You still need to ship more inventory as long as your product sells. And if you don’t want profit margins to fall by surprise, you need to keep looking regardless of your stock. Plan your next shipment as soon as you ship the current inventory.
Your supplier wants to close deals fast, so they’re not going to check dozens of companies to get you the best price. And if they do, you still pay for their fee. You save money by contacting providers yourself, whether it’s shipping, labeling, or insurance.
After you get dozens of quotes, it’s easier to negotiate because you know the market prices.
7 Ways to Counter Shipping Costs
You can only save so much with shipping. What if your product still struggles despite these shipping suggestions? The following strategies will boost your ROI to compensate for shipping expenses:
#1 Increase Your Order Volume
It might be worth running out of stock so you can increase the order size. When working with tight margins, large orders increase your margins. If you compare 5000 to 500-unit orders, production costs get as low as 50%.
And if you’re shipping before shopping season, you know your inventory will sell out. And the more you sell, the better you rank (to sell even more).
Your inventory may arrive sooner than expected, as big clients often get more priority when shipping.
#2 Offer Accurate Delivery Details
Inventory planning doesn’t end after your supplier sends the products. You have to tell the warehouse staff when it will arrive and what the package IDs are. While it’s not mandatory, it can delay your shipment for weeks.
Weeks that cost you sales (if you don’t have backup inventory).
Like prepaid shipping, your inventory processes faster if you offer the tracking data early.
#3 Consider Air Shipping
Sellers rarely consider air shipping because it costs 2-5x more than sea shipping. Now that sea shipping prices are multiplying, it’s not unreasonable to pay $5,000+ for fast delivery. Whether you should do it or not depends on your opportunity cost.
Are you launching a new product? Skip air shipping.
Have you launched the product that’s selling like crazy? That demand justifies the costs. For new launches, sales matter more than profits.
Do you worry about running out of stock? You can combine both plans. Get a few hundred units in 3-5 days with air shipping, then send the rest by sea (4-7 weeks).
#4 Compare US Suppliers
Arbitrage works because countries set different prices for identical products. If shipping cancels those opportunities, isn’t it cheaper to source within your region?
If you don’t, you’re going to pay about the same, it’s going to take longer, and you risk both your cash flow and stock. If you source in the US, you get fast shipping (even fulfillment services) and may have superior quality.
You can work with US suppliers temporarily while production costs adjust in China.
#5 Minimize Customer Returns
Saving on shipping isn’t just sending your inventory. It’s what you pay when customers want to return your product. And while it’s fair to charge for shipping, you’re not going to get good feedback this way.
If you pay for returns, those people won’t leave bad reviews. If you don’t, they may not buy again. Improve product quality so that fewer people ask for them.
Set clear expectations on your product listing, from the images to customer FAQs. You don’t want to attract the wrong people, who will refund and hurt your profits.
#6 Keep Offering Free Shipping
The recent surge in shipping costs is no excuse to stop free-shipping offers. It’s actually more valuable for your customers because every other competitor is overcharging them. And as you build customer loyalty, your sales volume will outperform your shipping losses.
You can’t save money on sales you didn’t make. Offer free shipping to first-time buyers, so they buy again later. To minimize losses, you can offer “free shipping for orders over $80 (for example).”
#7 Reinvest in Product Design
If the only way to profit from your product is to cut shipping costs, you’re selling the wrong product. Any seller can do what you do, so expect market prices to fall, along with your profit margins.
If these shipping strategies help you profit, use that money to redesign your product. How can you differentiate your brand to charge premium prices? Can you get better materials, reviews, and images to become the no.1 choice?
When you achieve that status, people will happily pay +50% markups.
What It Means for Your Business
24 months later, it’s safe to say that high shipping prices are here to stay. Which isn’t a problem for big clients who can afford 1000s in inventory. But how do you deal with it as a small business owner?
Quit hoping for prices to come back down. Use the shared strategies to cut costs and improve your product to increase your profit margins. Shipping costs affect all sellers, so if you adapt, you beat the competitors who don’t.