As large sellers on e-commerce platforms gear up for mega festive season sales, starting next month, they have to contend with high delivery costs. Logistics companies are increasing shipment rates to offset rising operational expenses, which may have a spill-over effect on e-commerce orders, with deliveries likely to get more expensive.
A week ago, transport and e-commerce logistics company FedEx announced that it will hike shipment rates in the US market this festive season onwards. An increase in shipment costs may have to be passed on to be customers, though FedEx did not respond to CNBC-TV18’s query on whether there will be similar revisions for the Indian market.
For logistics players, operational costs are an on the upswing on account of high fuel prices, costs associated with moving trucks and drivers to multiple geographies, and general economic inflation.
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A leading domestic package delivery service that CNBC-TV18 spoke to suggested that it is asking anything between 10-15 percent higher shipment rates at the moment, and in some regions like North and East India, the increase is as steep as 15-20 percent. There is a similar trend across surface transport services.
Large vendors on e-commerce platforms have been hit by these high costs, and may have to consider passing some of these on to the customer. This could be done by increasing the value of orders qualifying for free delivery, and by hiking shipping charges, which have already been increased on some platforms.
Of course the impact will be higher on low-value items where there isn’t much room to absorb these costs, or where there was existing inventory with the seller. Further, shipment costs have risen for large consumer electronics companies owing to soaring container prices, and the high costs of inland transportation -- not to mention the high raw material costs and the ongoing semi-conductor chips shortage.
However, for large e-commerce companies like Flipkart and Amazon, investments in hiring and deploying delivery personnel and putting up fulfilment centres to achieve economies of scale and timely deliveries will help.
E-commerce giants have their eye on servicing the new demand emanating from tier 3 and tier 4 towns as well, and the high costs of shipping will pressure warehouses in the region.