One Year Ago: Report: Shipping Costs Bleed E-tailers Dry

Originally published on February 9, 2001 and brought to you today as a time capsule.

While e-tail fulfillment problems have been a steady source ofdissatisfaction among online consumers, a report concludes that they also often dampen efforts by Web merchants to achieve profitability.

According to an analysis of e-commerce infrastructure by Jupiter Research, 44 percent of Internetmerchants lose money on the multilayered process of shipping and handling.

Moreover, the report said, 37 percent of e-tailers cite the cost ofshipping as a major fulfillment headache.

As a result, the study forecasts that one third of Web vendors willoutsource their shipping to third-party merchandise suppliers, Internet-based fulfillment networks and drop shippers over the next year. Using third parties is expected to help e-tailers in their quest to slash labor expenditures, speed processing times and lower inventory overhead.

“Retailers, online and off, are realizing that the Internet not only affordsnew ways of interacting with consumers, but more efficient ways ofinteracting with suppliers,” said Jupiter research director and senioranalyst David Schatsky.

Boosting Efficiency

In order to automate the drop shipping process, e-tailers mustuse Internet fulfillment networks to directly connect them withmanufacturing and distribution partners, Jupiter said.

These private trading hubs wouldallow marketers to boost their supply chain efficiency and improve customerservice by overseeing order routing, monitoring performance and conductingreal-time inventory checks.

“Merchants that deal with numerous drop-shipping suppliers are finding thatfulfillment nets offer huge advantages over the traditional and widespreaduse of telephone and the fax,” said Schatsky. “With setup costs typically inthe low five figures, and transaction fees typically in the one-dollarrange, Internet fulfillment networks offer a clear economic advantage.”

Clean Shave

In fact, Jupiter estimates that Internet retailers may be able to shave up to 25percent off their labor costs by managing their suppliers throughonline fulfillment networks.

Accordingly, the report projects that Internet fulfillment networks will see”vigorous growth” in the coming years, as spending for private networkinfrastructure mushrooms from US$465 million in 2001 to $37.4 billion in2005.

For their part, fulfillment networks will begin to add an array of services designed to cultivate e-tailer dependency on theirproducts.

Networking Advice

Although fulfillment networks offer e-tailers the ability to eliminate someof the manual shipping processes, the report said one of their maindrawbacks is the cost of maintaining communication with outsidesuppliers.

Jupiter advises that before settling on a particular fulfillment network, online merchants should evaluate prospective providers based on the ease of integration and theamount of work that would have to be redone if a decision were made to switch to another provider.

Unfulfilled E-Shoppers

Fulfillment problems have been an ongoing nightmare for many e-tailers. A report released last month by Accenture found that duringthe crucial holiday season, as many as 67 percent of online deliveries werenot received as ordered, and 12 percent were not received in time for theChristmas holiday.

Similarly, a study from PricewaterhouseCoopers said the most persistentfrustration for online holiday shoppers in 2000 involved order fulfillment,the same issue that plagued e-tail heavyweights and fledglings alike in1999.

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