Friday, February 9, 2001

Shippers Dropped Over Outsourced Shipping

Thirty three percent of online retailers will outsource shipping to drop shippers in the next year, seeking a solution to fulfillment woes that have thwarted their attempts at profitability, according to a new report released today by Jupiter Media Metrix, the global leader in market intelligence for the new economy. The report finds that 44 percent of online retailers lose money on shipping and handling, but Jupiter analysts say merchants can drastically reduce labor costs and processing times by using Internet fulfillment networks that connect them with manufacturing and distribution partners.

According to Jupiter analysts, merchants must use Internet "fulfillment nets," a type of private trading networks, to automate drop shipping processes - including order routing, performance monitoring and real-time inventory checks. Jupiter analysts believe they can save up to 25 percent in labor costs by using the fulfillment net approach.

"Retailers, online and off, are realizing that the Internet not only affords new ways of interacting with consumers, but more efficient ways of interacting with suppliers," said David Schatsky, research director and senior analyst at Jupiter. "Merchants that deal with numerous drop-shipping suppliers are finding that 'fulfillment nets' offer huge advantages over the traditional and widespread use of telephone and the fax. With setup costs typically in the low five figures, and transaction fees typically in the one-dollar range, Internet fulfillment networks offer a clear economic advantage."

Key findings and forward-looking analysis from the new Jupiter Commerce Infrastructure report include:

- Jupiter projects that spending on infrastructure for private trading networks will rise sharply, from 465 million dollars in 2001 to 37.4 billion dollars in 2005. Jupiter analysts believe that "fulfillment nets" should experience similarly vigorous growth.
- Thirty seven percent of online retailers cite the cost of shipping as a major fulfillment headache, according to the Jupiter Executive Survey.
- According to Jupiter analysts, fulfillment net providers will begin to add an array of services to support procurement and will increase retailers' dependency on fulfillment net providers.

Advice for Selecting a Fulfillment Net Provider
For retailers who are selecting a fulfillment net provider, Jupiter analysts advise the following:

- Evaluate prospective service providers on the ease of integration and the amount of work that would have to be redone if a switch to another provider was necessary.
- Look for vendors that have signed large clients that provide good base revenue streams and a vested interest in the survival of the provider.
- Choose the connection type that makes the most sense based on the merchant's volume. Browser-based applications are best for low-to-medium volume vendors and XML-based interfaces for high volume merchants.

Holiday Returns Exceed $1 Billion
According to the Yankee Group, holiday returns for the 2000 holiday season exceeded $1 billion. Return rates for many online retailers are much higher than in prior years -- reaching as high as 20% to 30% for many retailers. With online sales in the US exceeding $9 billion for the fourth quarter of 2000, the dollar volume of returns for the holiday season will exceed $1 billion, and could easily approach $1.5 billion. The Yankee Group's estimates are based on surveys over the past few weeks of online retailers and several returns management outsource providers.

According to Paul Ritter, director of Yankee Group's Online Retail Strategies Planning Service, there are many reasons for the higher volume and greater return rates for the 2000 holiday season:

· Online sales for the 2000 holiday season were 70% higher than the sales for the 1999 holiday season;

· Online Shoppers "hedged their bets" by purchasing the same product on multiple Web sites, with the hope that at least one of the orders would arrive in time and the one that didn't would just get returned; and

· Shoppers are becoming more comfortable buying products online that have traditionally been bought in stores in which consumers can actually see, touch, or hear the products they are buying. Many of these online purchases aren't what they were expected to be, so they return the items are returned.

News Tidbits (appears every day on the front page)
- The high tech industry is resulting in high tech pain for many workers according to an article in USA Today. The article, titled "Young Tech Workers Face Crippling Injuries," states "The very technology that is powering the Information Age is also leaving many of its workers with a painful malady: repetitive motion injuries. Ergonomic injuries are afflicting technology workers as young as 20 to 30 years old, many of whom have been using computers since childhood. Some problems are severe enough to end careers that have barely begun."

Return to February 2001 News Archive