How to Reduce Ecommerce Logistics Costs

Every e-commerce business has a bottom line, a goal to reach when it comes to managing costs and gaining profits. A company that breaks even every month is likely to struggle more when it comes to growth and development. The ecommerce logistics industry is filled with sudden expenses and hidden costs that can end up putting a heavy monetary burden on online businesses. These can include added costs for services like COD or express delivery, hidden costs for specialised services such as co-packaging or bulk shipments, and finally there are the overall costs associated with logistics and shipping.

As an ecommerce business, your progress can be measured not only by customer satisfaction but also how well you manage your logistics expenditure. So how can your business save money while spending money? Well, when it comes to logistics, there are a few clear cut ways you can keep your costs low and efficiency high! 

Top 7 Solution to Reduce or Lower Down the eCommerce logistics Cost

Here are 7 highly effective ways of reducing eCommerce Logistics Costs.

1. Choosing the right logistics partner

There are a wide variety of different types of costs involved in logistics, for handling and labour charges, packaging fees, insurance, fuel surcharges and many other services. While choosing the right logistics partners for your business, you have to make sure all these possible costs are clearly discussed during negotiations. This ensures you get the lowest cost for all the services you need. Some logistics companies offer certain services like COD and temperature-controlled transit at lower rates than others or in discounted bundles.

2. Reducing delays

Delays in deliveries can lead to a lot of indirect logistics costs, like increased warehousing fees, transportation costs, and cancellations. You can combat these costs by maintaining a system for reducing delays. This will allow you to proactively identify the various causes for delays and reduce them with strategic measures.

3. Stuck Shipments

Stuck shipments are one of the reasons why delivery exceptions might occur. A delivery may get stuck at a storage facility or in transit if there is a problem while transporting it. Not only is the order likely to be cancelled, but there are also chances the shipment can get lost. Much like with delayed deliveries, you can maintain a system for identifying and keeping track of stuck shipments. With it, you and your logistics partners in India will be able to understand the causes behind stuck shipments and work to address each of them more effectively, reducing the number of stuck shipments.

4. Reducing RTO

Delayed deliveries and stuck shipments have another thing in common besides increasing your logistics costs. They are also both possible causes for a high RTO (return-to-origin) percentage. There are numerous other reasons for RTOs alongside these two. It typically takes multiple failed delivery attempts for a shipment to become an RTO. One common cause for failed deliveries is fraudulent or fake delivery attempts. Customers may also provide an incorrect address or contact number. Some may simply refuse to accept the delivery.

Making use of an efficient NDR system that automatically reaches out to customers after a failed delivery attempt allows you to track the different causes for RTOs and actively bring down those numbers. You can reduce fake deliveries through careful monitoring, and ensure the second delivery attempt goes smoothly by collecting the right information from customers.

5. Optimizing Returns Process

Returns, i.e., customer-initiated returns, are another element that add to your overall logistics costs. Customers may return damaged or incorrect items, and inefficient tracking and reverse logistics mechanisms can lead to returned items getting lost in the journey back to its origin warehouse. Reverse logistics requires as much focus and attention-to-detail as forward logistics.

The best way to deal with the wastage and costs associated with returns and reverse logistics is to select a logistics partner that is equipped with a reverse logistics mechanism and maintains an effective returns management system. Many eCommerce logistics companies have services for providing doorstep QC (quality checks) on items being returned and tracking returned orders to ensure they reach the origin warehouse and are safely returned to the inventory.

6. Close monitoring of KPIs

Costs can be reduced on a wider scale by creating a clear list of goals for your business to reach, i.e., KPIs (key performance indicators). A system needs to be maintained that effectively monitors and measures different KPIs, like SLA breaches, RTO percentage, causes and the number of fake delivery attempts, stuck shipments, and delayed shipments, among many others. Monitoring these allows you to understand how to fix those problems and build them into your relationship with your logistics partners.

7. Periodic negotiations with couriers

The only way any relationship can grow is through communication, and the same applies to every eCommerce business and their respective logistics partners. With all systems in place to monitor and identify different KPIs, you will always be able to figure out what mistakes have been made and what your needs are. Armed with this information, every 3 months (or after an interval of your choice), you should engage in a discussion with the logistics partner to review their performance over that time frame.

You can renegotiate your contract by placing limits on various KPIs and specifying targets to be hit, failing which the logistics partner will be penalised. For example, you can place an upper limit on the number of stuck shipments per month or a lower limit on the number of NDRs converted to successful deliveries. In case the limits aren’t met, the logistics partner will be held liable to pay a certain sum as fine or penalty. At this time, you can also negotiate for better rates or payment options based on your increased volumes.

Final Thoughts

The eCommerce Logistics Market accounts for nearly 1/5th the total revenue of the total logistics industry and it is steadily growing. This, unfortunately, means a steady rise in logistics costs for ecommerce businesses. However, these rising costs can be combated through careful monitoring and strategic planning. As philosopher Sir Francis Bacon once said, “Scientia potentia est”. That means “Knowledge is power”. Being aware of the major pain points in your business and the causes behind them allows you to address individual issues head-on. The best way to save costs is to understand where those costs are coming from. Make use of innovative resources that enable you to ascertain what your business priorities are and how you can achieve them by strengthening your relationships with your logistics partners. Improving efficiency of operations for main areas of performance will play a huge role in lowering your overall logistics costs.