E-commerce is an innovative way of doing business. E-commerce small businesses have been flourishing since the last decade. But particularly during the covid-19 pandemic. The waves of the pandemic have compelled the consumer to stay at home, stay safe, and do shopping online. Previously, before the pandemic covid-19, although the trend for online shopping was there and was picking up the pace. It skyrocketed during the pandemic.

E-commerce is an advanced way of doing business through which the seller. Can sell their product online without physically displaying their products at any store. The consumer can buy the product from e-commerce small businesses. On multiple payments and delivery methods but the most popular is DDP delivered duty paid. DDP has given the consumer the ease of doing shopping online and getting the product delivered at its doorstep. This option has increased the sales of online e-commerce small businesses. But on the other hand, it is a bit tricky for the seller to handle.

DDP and Freight charges

An option like DDP involved the e-commerce small businesses to take responsibility and cost of the product from their warehouse till delivery to the consumer. The seller has to bear the freight cost, manage the complete supply chain process. The increase in E-commerce businesses especially during the pandemic covid-19 has put pressure on the shipping industry due to the rising demand in container and shipping load. This increase in demand for containers has resulted in shortages of containers. These shortages are also a reason for port congestion and delays in the supply chain processes of especially the e-commerce small businesses. 

In today’s blog, we will discuss in detail the reasons and impact the high freight cost especially in the context of e-commerce small businesses. These high freight cost has translated into higher cost for importers, who have passed these cost to the consumer. The consumer is bearing the high freight cost and all the costs that have resulted due to the supply chain disruptions. To understand this issue we have to study the shipping lines businesses since 2020 before the pandemic has hit the globe.

Global Business and Freight cost

The global businesses were going on routine, and the ocean carriers were booking the cargo for shipments as per routine. However, as soon as the pandemic covid-19 hit the globe that resulted in the closing down of the international border. Lockdowns were imposed by different countries, which resulted in delays at the land transportation as well as the delays at port. The delay of shipment at port resulted in port congestion. The real story started from this stage of port congestions. For example, as China is one of the biggest exporters of the world. As soon as the pandemic hit the globe the containers started to stuck at different ports. The world was closing down and not much was felt. Ocean carrier’s businesses started to decline, due to fewer orders, which was due to the fact of lesser businesses due to lockdown.

But as soon as the first wave of the pandemic hit the world, the need for medical products and other fast-moving consumer goods started to get short from the market. The orders started to come especially in china. Now the problem was that the container on which china was required to make fresh shipments was either stuck at some port in the USA, Europe, Asia or Australia. The delays of the container resulted in higher demand for the containers. The result was the increase of ocean fright by many times, this issue is still persisting and expected to ease out only by the end of the current year 2022 if other factors remain the same.

Effects of high freight cost on importer

Let’s discuss in detail the effects of increased freight cost on the importers and particularly the e-commerce small businesses, whose business is mostly suffering. The impact of higher cost has a bigger impact on small businesses as compared to large established businesses. The large businesses have better margins, diversified businesses that made them have a lesser impact of freight cost.

• High freight costs, result in high capital

For e-commerce small businesses the higher cost means high capital investment into the product due to the rise in product cost. The higher product cost will result in a higher financial cost for the company. The higher financial cost will translate into lower net profits. Lower net profit will highly impact the growth and sustainability of small businesses. 

• High freight costs, result in low sales volume

High freight rates for small businesses will result in lower sales volume. This is true due to the dual effect. Firstly, the consumer will buy lesser due to the limited budget. And secondly, due to the high capital cost of the product, the small businesses will have to reduce their business volume due to the capital constraint. This lower sales volume will translate into lower net profits and harm the growth and sustainability of small businesses.

• High freight cost results in higher sales value, high taxes

The high shipping cost has a dual impact on the importer due to the fact that firstly it reduces the sales volume, due to increased cost. The second impact is the higher tax liability on the product as the price of the product increase. It is due to the fact that although the tax% is the same, the value of tax increases owing to the higher value of the product. This effect of the tax will impact the net profits of the small businesses and resultantly their sustainability.

Effects of high freight cost on the consumer

The consumer is the worst affected segment as he has to bear all the costs at the end. The following are the effects on the consumers, Being the end segment of the supply chain process

• High freight costs result in higher product cost, frustrate the consumer

Disruption in ocean shipping, container shortages, and port congestion all impact the most to the consumer of the e-commerce businesses. Higher cost impacts the consumer not only financially but also emotionally. It has been observed that the rise in inflation or cost makes the consumer depressed. We have observed this behavior of the consumer during the pandemic, as more and more people are frustrated with higher product rates due to global freights.

• Higher freight costs result in less consumer satisfaction

Higher freight rates result in lesser consumer satisfaction, as he is now getting the lesser volume or amount of product while paying higher for the same satisfaction.

•  Result in fewer purchases, due to budget

The higher shipping cost involved will result in a higher cost of the product. Which is being transferred by the supplier to the consumer. This higher cost will result in a lesser purchase by the consumer due to the fact. That he has a limited budget, as it was prior to the freight increase.

Solution for importers to manage higher freight cost

Although all of the importers around the globe have been affected unanimously across the board by the high freight cost. But still, there are some solutions that can help in managing particular the small businesses in e-commerce some levels.

• Multiple carriers

The importer must engage in relationships with multiple carriers. The multiple engagements will help in getting better competitive quotes from ocean carriers.

• Dealing directly with shipping line, instead of agents 

Another option in reducing the impact of higher freight costs is to deal directly with the shipping line, instead of engaging with shipping agents.

Solution for the consumer to manage higher freight cost impact

• Checking products from multiple suppliers

The first solution for the consumer to avoid the rising cost of product due to higher freight cost is to get their required product quote from multiple suppliers. When the consumer gets quotes from multiple suppliers instead of one, he gets better rates.

• Getting product from a country near to the buyer.

Another solution for the e-commerce consumer is to book online products from the origin country that is nearer to their country. This will result in lower freight costs to the consumer.

CONCLUSION:

Pandemic covid-19 has resulted in disruption, delays around the globe. These disruptions and delays resulted in an increase in freight rates by the ocean carriers. The increase in freight cost resulted in a direct impact on the importer, and an indirect effect on the consumer, which has to bear it in the end. Although it is a global issue and all the importers and consumers are facing the issue. Unanimously across the board, but still it can be managed to some extent through proper planning. The high freight cost problem is expected to remain in place at least during the current year.