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The truth about hidden costs in logistics

The truth about hidden costs in logistics

Inspired by these results, many e-merchants manage their logistics themselves, but underestimate the costs involved. As a result, most e-commerce companies don't know how much they spend on logistics each year, and find it very difficult to make forecasts for the following months. One of the reasons for this is the hidden costs!

What are these hidden costs? We have tried to summarize them chronologically, from the order to the delivery of the parcel by the end customer.

Before the order

Logistics begins even before the order is placed, and includes costs that are difficult to predict in advance. In the office or warehouse, you will first need to know your stock and products well in order to :

  • Buy the supplies needed to pack the parcels: bubble wrap, kraft paper, tape, special packaging, cardboard in the right size, etc. In order to make economies of scale, it will be necessary to order them in large quantities to benefit from interesting prices.

  • Manage your storage space with a place to store the products and packaging, organize a "packing" area, etc. Each square meter represents an additional cost for the company. Renting the place, electricity and water, insurance, pallets, tools...

  • Create processes and train employees to pack products to avoid waste, errors or breakage.

Packaging: a source of unsuspected hidden costs. Supplies, scotch tape, various papers, space dedicated to their storage... Beware of loss of earnings!

At the time of the order

Once the order has been placed, it will be a question of being as quick as possible to limit costs on the one hand, and to satisfy customers on the other hand. The costs will thus include the man-time necessary to pack each package as quickly as possible. Knowing that most small e-commerce businesses do not have dedicated handlers, it is the employees who pack the orders. By the same token, they no longer work on their main tasks. This accumulated opportunity cost represents a large loss of revenue for every company. Once the packages are packed, of course, they must be shipped. And there are two ways of doing this: waste time bringing the parcels to the nearest post office, or organize often expensive collections with a carrier. The transport itself is also an additional cost. Although an e-merchant often negotiates the contract with the upstream carrier, there are tons of extras in case of unforeseen circumstances. Processing technologies, handling, prices that differ depending on the delivery method (express, relay or standard), and the locations delivered (metropolises or hard-to-reach areas). Other charges may appear before you even realize it. Diesel tax, security tax, product insurance, customs duties, not to mention reprogramming in the event of customer absence at the time of the first delivery. In short, delivery time is a significant logistics cost factor... and difficult to predict!

After the order

Unfortunately, not everything goes according to plan, so unexpected costs can arise even after the order has been placed! Refused parcel, cancelled order, customer retraction or guarantee: 35% of French people have made at least one return in 2017, and this is a costly headache for every company. In the case of a return, you will have to pay for the transport of the product to your storage space, check the product and repackage it, put it back in stock, and often return a product in exchange, for example in the case of a garment that was not the right size. In addition to these returns, which represent a significant logistical cost for e-merchants, there are also costs if there is a problem during delivery. If the package arrives damaged due to a packaging or transport error, or if it is lost or stolen, you will need an efficient after-sales service so as not to tarnish your brand or reputation. Customer support is a significant expense and will be calculated in terms of opportunity cost if you don't have a dedicated employee, or in terms of man-hours otherwise.

While in most cases shipments run smoothly, delivery problems can be a real financial drain. Breakage, loss, theft, returns, are all situations that must be anticipated.

What are the solutions to avoid hidden costs?

Several solutions are available to you to avoid these hidden costs, but they often require a heavy initial investment. In all cases, it will be a question of constantly optimising each component of your logistics. This will enable you to automate part of your warehouse processes. Hire one or more people dedicated to logistics, use applications that will help you to better synchronize e-shop and stocks, standardize your products, etc. You can also tighten your returns policy or increase the price of delivery to your site. However, this could be detrimental to you and encourage your customers to order from one of your competitors. We also advise you to renegotiate your contracts with carriers. But the latter only apply preferential rates in case of very large volumes! Taking control of your e-commerce logistics in an efficient way can be summed up in several factors: managing your human resources, implementing the right technology, and having the necessary infrastructure for the correct implementation of the logistics process. If you do not have the necessary resources for this implementation, the most interesting option is to hire an e-commerce logistician like Cubyn! Cubyn will help you manage your logistics from order to delivery to the customer. In addition, benefit from more interesting negotiated rates, with premium logistics services... and no hidden costs.

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