One of the most important decisions eCommerce sellers need to make is whether to handle order management logistics by themselves or to delegate this work to a 3PL provider, also known as a fulfillment service. Whether you are new to online selling operations or you simply like to keep your work space down to a desk, a chair and a laptop, it is recommended to use third-party logistics services. It offers numerous advantages including cost savings and prompt shipping, and ensures higher customer satisfaction.
One of the challenges eCommerce owners face when choosing among all the available fulfillment centers is the services offered and all the associated costs. Language differences, fulfillment provider specialization, and the general business culture can all be the reasons why the end of the month invoice for fulfillment services is higher than the originally budgeted amount. That is why it is important to ask the 3PL service providers about every cost associated with the operations ahead of time and before signing a binding service agreement. We at HappyParcel place importance on our clients making informed decision. Therefore we don’t leave out any information when sending commercial proposals.
Below we present some of the most occurring costs associated with order fulfillment. It should help you select 3PL provider based on your budget. If you don’t see these costs in the original proposal, it doesn’t mean they won’t appear later on in the services contract or on your monthly invoice, so make sure to enquire the fulfillment service provider contact person beforehand.
If you don’t see these costs in the original proposal, it doesn’t mean they won’t appear later on.
Administrative Costs
There are two administrative costs, namely, the set-up fees and account management fees.
Set-up fees is most often a one-time fee, which covers the initial setup cost of the new account. The fee is to cover the cost incurred for preparing the fulfillment center infrastructure (both physical and digital), webstore integrations and software subscriptions, and other business-related costs. This cost is usually shifted to the client and it starts from $100 minimum.
Account management fees are a hidden and unpredictable cost, which varies from $50 to $1000 per month depending on the services offered by the logistics service providers. It might appear to be expensive at first, but eventually it may turn out to be a cheaper alternative to commercially available inventory management, reporting, and shipment tracking solutions.
Inbound and Outbound Shipping Fees
One of the core tasks of an eCommerce fulfillment center is the inbound and outbound shipping activities, whereby the 3PL provider receives the products on your behalf and smoothly processes them to your customers without any additional effort on your side. While the (Outbound) Shipping fee will make up a significant part of your monthly fulfillment service invoice, you should make sure you are clear on the inbound shipping fees, how they are calculated and applied by each service provider.
Inbound Shipping and Receiving Fees entail accepting your products into the fulfillment center’s warehouse, counting and sorting the SKUs and placing them in storage for safekeeping and picking later. This fee varies according to the rate set by the fulfillment service providers and may also be based on the warehouse’s geographical location. Sometimes the rates set by the fulfillment providers can be affected by the product weight, amount, and size. Inbound/Receiving fee is calculated based on shipment volume (container, pallets, etc.) or staff labor hours required to unload, sort and place the goods in storage. Some 3PL providers set out a fixed rate, which is determined by the number of pallets or your eCommerce monthly orders.
Outbound Shipping fees is the cost incurred for delivering the products to your customers – the end users. Shipping fees depend on the carrier chosen, mode of transport (truck or plane), as well as the duration in which the products have to be delivered. US carrier services have various additional fees, which may not be listed straight-up (fuel surcharge, peak surcharge, residential/commercial surcharge and others) – if you like avoid unpleasant surprises in the form of much higher than expected invoice amount, make sure to ask for the shipping fees that include the maximum of surcharges in the fee schedule. Also, if the number of orders you are shipping is on a continuous increase quarter-on-quarter, you may ask your fulfillment service provider whether they can negotiate more advantageous shipping fees on your behalf.
Storage and Warehouse Fees
Storage or warehousing fees are a variable rate and represent a cost incurred by the products taking up space in the fulfillment service provider’s warehouse prior to the products being shipped to your customers. Storage fee can be calculated based on volume, square area, number of pallets, shelves, bins or simply number of units that are held in the warehouse. The fees are either charged for each product that enters the warehouse, or per square foot that remains in the warehouse (unsold) at the end of the month. HappyParcel charges only for the inventory that remains unsold in our warehouse at the end of the month. We think you should only pay for the space used, therefore our storage fee is calculated on a per cubic foot basis.
Reverse Logistics Fees
Reverse logistics (aka Return) fee is applied when the fulfillment partner needs to process the products returned by your customers. You will find that not many of the third-party ecommerce fulfillment service providers offer this service due to the extra staff training and other time-consuming resources this task may require. If you want to acquire this service, you must make it clear with your 3PL. The cost associated with it varies from $5-$10 per parcel returned, depending on the nature of your products and their type. You need to evaluate the return handling charges and what is least consuming to your business. Some eCommerce owners choose to allow the customers to keep the product instead of returning it to the 3PL provider warehouse, yet others ask the fulfillment service center to include a return label with each parcel shipped.
Packaging Fees
There are three main types of packaging fees and together they may make up 30% of the fulfillment invoice.
Packing and shipping materials – mailer envelopes, cardboard boxes, bubble wrap, brown paper, sticky tape, shipping label, “popcorn”, and other materials ensure your products travel safely and reach your customers undamaged. You will pay for the fulfillment centre’s expertise, but in the long run it will save you more time, money and energy than if you were to choose, source, and store everything by yourself. Make sure you enquire about the packaging material fees beforehand. The charges are likely to increase if you require customizations in the form of branded mailers/boxes, or sticky tape..
Order processing fee and Pick and Pack fee is related to processing the order in the provider’s system, picking the required SKU quantities from the storage and packing with appropriate shipping materials. Order processing or pick & pack fee may or may not include one item in the shipment, make sure you ask the ecommerce fulfillment provider about it when you receive a price quotation.
Order Inserts may entail promotional leaflets, printed invoice or other printed material which is also a common cost nowadays.
Wrap-up
All the possible charges may not be obvious from the get-go, but you will learn on the go, as you come to compare different providers and their services. Feel free to refuse the services you won’t be needing. Check where you can automate (for example order tracking pages can be generated thanks to eCommerce platform add-ons that you can find at various eCommerce Apps Marketplaces such as BigCommerce or Shopify). Whatever you feel you will need, feel free to ask the 3PL provider to detail their fees so that you can make an informed decision and feel good about it. We at HappyParcel will be happy to help.
