Will rising costs throw a wrench in e-commerce operations?
Last week, e-commerce providers were hit by a double whammy of negative news: a proposed hike in postal rates as well as a report indicating warehouse space remains scarce.
The U.S. Postal Service (USPS) proposed last Wednesday that traditional parcel delivery — which applies to packages weighing more than a pound — would go up 9.3 percent, while the rates for lightweight packages would rise 12.3 percent. The changes will take effect on January 27, 2019 if approved by the Postal Regulatory Commission.
Major carriers, FedEx and UPS, have raised their own delivery rates in response to USPS increases in the past. According to MarketWatch, Barclays said in a note on Amazon, “Our math … suggests Amazon will have five percent lower retail operating income from this shipping cost inflation, if we assume there are no offsetting factors.”
At the same time, The Wall Street Journal, citing a CBRE report, says warehouse availability in the third quarter reached its lowest level since 2000 due to expanding online growth. About 50 million square feet of distribution capacity was added in the third quarter, but e-commerce fulfillment operations are quickly filling those spaces.
Retailers bringing in holiday product earlier than normal ahead of proposed tariff hikes may also be partly driving warehousing challenges.
A CBRE report from early September forecast that the rapid growth of e-commerce will create demand for another 452,000 warehouse and distribution workers in the U.S. this year and next. Investing in more automation and recruiting from other industries may help mitigate labor scarcity, but the report states that site selection will become more important for the already labor-strapped industry.
“The most intelligent site selection efforts never lose sight of the fact that labor accounts for more than 20 percent of total supply chain cost and up to 75 percent in final-touch distribution. Its importance can’t be overstated,” said Adam Mullen, senior managing director – Americas leader for CBRE.
- Notice And Order Concerning Changes In Rates Of General Applicability For Competitive Products – U.S. Postal Service
- The Post Office wants to raise the fees it charges Amazon and other shippers – CNBC
- Amazon could suffer 5 percent income drop if proposed U.S. Postal Service price hikes go into effect – MarketWatch
- Warehouse Space Growing Tighter on Rising E-Commerce Demands – The Wall Street Journal
DISCUSSION QUESTIONS: Will retailers be able to offset, or will they have to absorb, higher costs related to postal rates and warehousing? How might higher operating costs and warehousing shortages affect retailers’ financial performance?