Online merchants turn to drop shipping to bypass warehousing costs
DROP shipping is growing in e-commerce because it enables the transfer customer orders to the manufacturer, wholesaler or another retailer, so the first retailer avoids warehousing costs
11 July 2019 - 19:00
'Everybody wants to focus on marketing and not spend time and money on infrastructure and holding product. They don't have time to deal with warehousing and associated costs like heating, or with logistics and fulfilment,' said eShipper vice-president Imtiaz Kermali.
'They want to concentrate their resources on the end consumer and not get bogged down with fulfilment,' adding that the concept has strong appeal to online merchants, especially start-ups, reports London's Loadstar.
The Brampton, Ontario company's customers are predominantly small and mid-size who 'get access to a number of suppliers without having to order in bulk. That's one big advantage,' pointed out eShipper director Mo Datoo.
Furthermore, the more-established online merchants also see benefits in the concept. 'A lot of people want to leave Amazon and move to a more boutique-style set-up,' said Mr Kermali given that the massive platform is customer-centric and less focused on the preferences and requirements of the merchants it hosts, he explained.
Warehousing costs in North America have been continuously rising owing to a shortage of available space, mainly due to the rise of e-commerce. Mr Kermali believes this is an another factor that makes drop shipping more attractive.
His company recently took on a 60,000-square foot warehouse near Toronto, raising its total there to 90,000 square feet. It also teamed up with a warehouse provider in Vancouver to set up a depot in the city.
A number of eShipper's customers employ drop shipping to import products from manufacturers in China. For these, eShipper handles the full logistics, including communication with the manufacturer. Often it moves the goods in bulk from China to perform pick & pack in its facilities, which is cheaper than moving them individually.
Theoretically, online merchants can go for very low drop shipping costs out of China by instructing the manufacturer to send the goods through China Post, or use a Chinese logistics firm. However, some companies that have gone down that route have experienced problems with order fulfilment or delivery, Mr Datoo noted.
According to e-commerce software provider Americommerce, 22-33 per cent of the entire e-commerce industry uses drop shipping as a primary inventory management model. In light of surging warehousing and logistics costs and high customer expectations, the concept's appeal is not likely to fade any time soon.
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