Logistics

How fuel price hike has been impacting the e-commerce logistics ecosystem

Debangana Ghosh Mumbai | Updated on August 30, 2021

According to logistics players, for every 5 per cent hike in fuel prices, there is at least one per cent hike in delivery costs.

Grappling with all-time high fuel prices and peak Diwali sale season approaching, e-commerce sellers and logistics players are taking the hit on their margins while cutting other expenses to accommodate higher logistics spend.

Both logistics aggregators and D2C sellers are contemplating increasing product prices eventually -- passing on the cost to the customer -- if higher costs sustain.

According to logistics players, for every 5 per cent hike in fuel prices, there is at least one per cent hike in delivery costs. The fuel prices started increasing towards the end of last year, and as of now, it is up by over 25 per cent.

While Amazon has already announced their annual fee revisions for sellers across product categories and other requirements including a 5 per cent hike in logistics costs applicable from September 1, Logistics aggregators including Pickrr and Shiprocket have been either absorbing the costs in to their gross margins or negotiating and splitting it with courier partners.

“Initially, up till 5-10 per cent fuel price hike, we were absorbing the increased costs on our gross margins for at least six months. But as prices went on increasing, we had to negotiate it with our courier partners. We haven’t yet passed on the costs to our e-commerce sellers,” Subodh Garg, Chief Financial Officer, Pickrr Technologies told BusinessLine.

Pickrr ties up with courier partners offering monthly packages to the end sellers depending on the number of orders they are shipping per month. These packages let sellers ship orders at lower prices starting at Rs 22 per order. The package also includes add on features like e-commerce site integrations, chat, call and email support, easy billing and COD remittances etc. Shiprocket too has a similar business model, but it also allows sellers to opt for pay per package, charges starting at Rs 19 for 500 gms.

Garg is currently reviewing the costs and doesn’t plan to make any changes before the Diwali sales happen. “We are taking the costs on us till Diwali. Sellers having planned sales beforehand. They will find it difficult to manage otherwise, considering they are already working on thin margins. For them, in regular times delivery costs can go up to as high as 10-15 per cent of the total costs involved in selling a product,” said Garg .

At present, after sharing the cost burden with the courier services players, Pickrr’s logistics costs are still up by three to four per cent.

Gautam Kapoor, Co-founder and COO, Shiprocket told BusinessLine, “Due to higher fuel costs there has been an increase of around Rs. 3-5 per 500 gms of package shipped over air movement. Likewise, costs have also gone up for roadways and other mode of transport. We have been absorbing some part of the total costs.”

Cutting corners

D2C sellers like sleeptech solutions brand Wakefit which deals with mattresses and bedroom furniture shared a similar picture. Though it sells through e-commerce marketplaces like Amazon, Flipkart and Snapdeal, Wakefit gets around 70 per cent of its business from its own website and prefers to use its own delivery methods instead of choosing logistics services of the marketplaces.

While its last mile delivery costs despite increase continues to stay manageable, costs have gone up exorbitantly for middle mile transport, which involves moving produced goods from factories to warehouses.

Chaitanya Ramalingegowda, Co-founder and Director, Wakefit.co told BusinessLine, “We do a lot more local deliveries with our truck drivers in the last mile. The last mile has always been short distances of around 8-10 Kms. There the price impact is not so much. The costs for us have gone up in the middle mile. Because we have factories in Bengaluru and Rajasthan, the stock has to be transported in a truck from Rajasthan to our warehouse in Indore or Bengaluru to Hyderabad. Again, when we have to ship a mattress to Delhi which is currently produced only in the Bengaluru factory, it will be at least 1500 Kms. That’s the massive difference.”

Wakefit uses a combination of delivery methods. For far off areas, they uses courier services like FedEx, Blue Dart and Delhivery. For major towns and cities, they have their own delivery teams —but the staff delivering is contracted and have their own trucks.

Wakefit doesn’t own the fleet. Contracted staff is paid on a monthly basis. This cost gets negotiated when there is a fuel cost hike. “If the costs persist for a long time, we might review product pricing. We haven’t passed any costs to the consumers over the past one year,” he said.

“It’s always tough managing margins. We review our spends on a monthly basis. Some months we cut down on marketing spends, or we reduce discounts. Overheads and staff salaries are fixed, but other costs like logistics, marketing, tools, raw materials, growth can be managed differently every month,” Ramalingegowda added.

Uncertainty

While there is uncertainty around the draft e-commerce rules and an added possibility of compliance costs in the near future, the immediate concern for most e-commerce sellers is the fight to get the trucks to deliver shipments as Diwali nears. Everybody from Amazon, Flipkart to D2C sellers will be using it, and there will be shortage in both middle-mile and last-mile delivery. And not to forget, a further jump in delivery costs.

Published on August 29, 2021

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