Undoubtedly, over the past two years, the supply chain has undergone an incredible amount of change. What was once a well-oiled machine came to a crashing halt as businesses worldwide were forced to shutter. And while things have improved since the early days of the pandemic, much of the residual effects remain.
For Amazon sellers, supply chain issues have been an ongoing battle. The past two years have been tumultuous, from shipping delays to product fulfillment hiccups. Today, many FBA and FBM Amazon sellers face a new challenge — a steady rise in freight shipping costs. If freight costs are impacting your Amazon business, take a look at the complexity of the issue and what can be done to limit the impact of freight costs on your overall Amazon selling strategy.
Why Freight Costs Have Increased Over Time
For anyone who has attempted to place a fulfillment order overseas in the last year, the price tag on freight costs was probably an unpleasant shock. But what is the cause of these huge cost increases? For starters, an incredible 80% of the world’s traded goods are transported through shipping containers — a form of transport that has undergone a massive spike in costs. According to a 2021 report, transporting a 40-foot steel container of cargo by sea from Shanghai to Rotterdam costs $10,522, which is 547% higher than the seasonal average over the last five years.
Much of the spike in shipping freight costs relate directly back to the fact that ports were shuttered for long periods during the height of the pandemic.
Additionally, when the world opened up, the consumer demand for goods reached a fevered pitch. Supply chains are spread thin due to logistical backlogs being strained to the point of breaking.
Goetz Alebrand, Ocean Freight Head for the Americas region of DHL Global Forwarding said “The supply chains that are ocean based around the world, are very, very vulnerable to these interruptions or disruptions so it’s really difficult to say right now how these disruptions will impact overall volumes.”
The U.S. tariffs imposed on goods imported from China last year added to the complexity of freight costs. Bearing the brunt of these import fees are U.S. importers, who have absorbed more than 90% of the additional costs that resulted from tariffs on Chinese goods.
In addition to feeling the strain of rising freight costs, Amazon sellers also feel the pain of inflated fulfillment fees. Since 2020, Amazon has increased its fulfillment fees by over 30%.
Altogether, this creates a difficult scenario for those hoping to remain profitable selling on Amazon.
What Amazon Sellers Can Do to Limit Freight Cost Impacts
While there is little Amazon sellers can do to stave off the rise of freight costs, they can mitigate the impact these rising costs will have on their business.
Step 1: Hone in Profitable Products
First and foremost, Amazon sellers need to run an audit on their products and determine which products offer the highest profitability. As freight costs rise, sellers should cut out products with low-profit margins to prevent revenue loss as shipping and fulfillment costs continue to increase.
Step 2: Set Competitive but Viable Pricing
With the incredible number of sellers on Amazon, competitive pricing is key to winning sales. Customers have ample opportunity to shop around for a good deal. However, with the rise in freight costs, Amazon sellers will need to take a hard look at their pricing structure. Competition cannot equate to unviable.
For Amazon sellers who haven’t already, it can be helpful to put technology to work to improve pricing structures. Rather than attempting to set prices through trial and error, the right Amazon Marketplace account management tools can help develop a winning pricing strategy backed by data.
Step 3: Prepare for Peak Selling Seasons
Once the holiday season kicks into high gear, sellers will scramble to keep up with demand amidst rising freight costs. Now is the time to start thinking about inventory options. Sellers who secure inventory ahead of time can avoid some of the inevitable spikes in freight costs during peak demand.
Contact Us to Learn More
If freight costs are impacting your Amazon business, contact our team at Phelps United to learn more about how we can help. We provide a full suite of Amazon Marketplace account management solutions, all of which are aimed at helping you increase profitability.