- Outsourced shipping is when your product distribution is fulfilled by another company.
- There are many different solutions for outsourced shipping.
- When choosing a shipping provider, you should consider the size of your product and your projected shipping volume.
- This article is for small business owners who want to streamline their logistics process and move their current processes out of their garage.
When you run an e-commerce business, one of the most important details is how you ship your products to your customers. While shipping out of your garage works well when you first start a business, that model becomes unsustainable as your business grows.
There comes a point in every business owner's life when they realize they need to streamline their logistics process, said Krishna Iyer, director of strategic alliances for ShipStation. If you've reached that point, you may wonder how to affordably outsource your shipping needs to third-party providers with the least disruption to your customers and business.
We spoke with industry experts to help small online retailers determine when it's time to outsource shipping – and how to do it.
How does outsourced shipping work?
The outsourced shipping process starts when your company purchases products from your supplier. Your product will then be shipped to your third-party logistics center for storage.
When you make a sale, you'll forward the order to the center, and they will fulfill the order by sending your product directly to the customer. The third-party logistics center will pack up and ship your products directly, so you'll never need to handle items before they reach customers.
Once you have your process established, customers will be able to seamlessly buy a product, and your outsourced shipping provider will fulfill the order.
Should you outsource your shipping?
If you've been shipping products out of your home, trusting a third party can be difficult. Iyer said business owners need to look at their finances to decide if it's time to use shipping software or hire another company to handle shipping.
"When looking to outsource shipping, business owners should consider where they are shipping products to most often, how intricate their fulfillment procedures are, what the returns experience looks like for their customers, and what markets they would like to expand to," Iyer said.
Iyer listed some of the major pros of outsourcing your shipping.
- A shift in focus: Outsourcing allows you to focus on your core competencies, such as product development, marketing and long-term growth strategy.
- More professional shipping: Third-party shippers are often better suited to handle shipping, packing and fulfillment.
- Time and money savings: You can decrease your business's order-fulfillment time and potentially save your customers money.
Of course, there are also some cons of outsourced shipping.
- Costs: If you sell large products, outsourcing your shipping may cost more in the long run, because of the extra warehouse space needed to store your products.
- Complex pricing: Some shipping companies have complicated pricing structures that make it difficult to understand how much you'll ultimately pay.
- Issues with returns: Your returns process may suffer when you use a third-party shipping company, as some customer service functions are out of your hands.
How to outsource shipping
Online retailers have a few different options when outsourcing, including renting warehouses, dropshipping and using third-party logistics (3PL) companies.
"It really depends on your business and what you're selling, and the materials you need to do business," said Sam Ely, director of LTL operations at uShip.
Warehouse rentals
Renting warehouses is common among growing online retailers. Merchants rent warehouse space near high-population areas so goods can be delivered to consumers faster and cheaper than they could from the business owner's or manufacturer's location.
Dropshipping
If you don't want the hassles that come with renting warehouse space, dropshipping bypasses warehousing and allows you to ship orders and track inventory directly from the dropshipper.
With dropshipping, when a customer buys a product, you (the merchant) buy the inventory from the dropshipping company, which then ships the products to the customer directly.
Third-party logistics
Third-party logistics, or 3PL, encompasses many different services. Essentially, it means hiring another business to optimize your supply chain. This company could handle shipping and warehousing, manage the inventory process, provide in-depth reports, and more.
A 3PL comes with a hefty price tag, which might be difficult for some small businesses to handle. As a business owner, you need to weigh the pros – not having to deal with the nightmarish web of shipping duties – with the cons, like the significant upfront investment these services require.
How to choose a shipping provider
As you weigh your options, here are some tips from Iyer for finding an outsourcing partner:
- Understand your business's shipping needs. Envision the fulfillment and delivery experience you want your customers to have, and then communicate your business's needs to the providers you're considering. Involve your company's various departments early on, mitigating potential issues later.
- Shop around for shipping providers. "Understand the line-item costs for each item fulfilled," Iyer said. "Don't be afraid to ask for a sample invoice breakdown and a projection of what a bill will look like." He noted that most 3PLs are locally owned and operated, so they can be flexible with invoicing structures. If you go the 3PL route, find one that really fits your needs, and ask for references with companies in similar industries if possible. [Learn more about invoices and price quotes in our guide.]
- Ask questions. As cliche as "open communication" and "asking lots of questions" may seem, these factors are crucial to finding the right provider, saving you a lot of headaches further down the road. "[Third-party shippers] should … have a lot of transparency in what they are doing, how they are doing it, and why they are doing it," Iyer said. "After all, it is your product and why a customer is buying from you."
- Consider how a provider handles returns. An important area to consider is how a third-party vendor might handle customer returns. "How much do they put on the customer versus utilizing tools – i.e., printing a return label on the front end for a product, or having the capability to print and email a return label?" Iyer said. "How does the third party process the return when it comes in? Can they utilize low-cost return methods? These are critical questions [to ask] in keeping costs down and ensuring a better customer experience."
Top outsourced shipping options for small businesses
There are many excellent shipping options for small businesses, some of which are household names. Each major carrier has its own small business solution with benefits and drawbacks.
USPS
The United States Postal Service is ideal for small businesses sending out a low volume of smaller items. It offers programs that make it easy to fulfill orders in-house, including allowing users to pay postage and print shipping labels online with an at-home pickup option.
USPS runs local routes daily, so it won't have to go out of its way to deliver to your customers. However, USPS delays can affect small business operations and customer satisfaction.
FedEx
If you ship large items that need fast delivery, FedEx is a sound option. Its small business options include a rewards program and packaging dashboard that allows you to calculate the weight and size of your packages to determine your shipping needs.
UPS
UPS, or the United Parcel Service, can deliver large shipments in one to five business days. It also has many resources for small business owners, including the ability to schedule pickups and manage customer support, and a program that offers shipping discounts and consultations to small businesses.
What is outsourced shipping?
Outsourced shipping is when another company handles and fulfills your product distribution. After you start selling online, operations can grow quickly, until managing the supply chain becomes a challenge. An outsourced shipping provider can deliver your products into your customers' hands more quickly.
An outsourced shipping provider can help you meet current customers' demands and facilitate gaining new customers and reaching far-off markets. Expanding into foreign markets doesn't have to be complicated, either. Outsourced fulfillment centers can reduce the delay caused by international customs, lowering your return rates and increasing your profit margins.
The future of logistics
To get a glimpse into the future of e-commerce logistics for retailers, you need only to look at the industry's biggest player: Amazon.
"All eyes are on Amazon, given its enormous investment in logistics and desire to control the supply chain, from sourcing to transoceanic movement to warehousing to final-mile delivery to the home," Ely said. "Technology will play a big part in optimizing that effort for them."
"Products are getting from the manufacturer [or] vendor to the customer faster than ever," Iyer added. "It will be interesting to see if the creation of more shipping options then creates new products, modes of transport, or other levels of innovation that we have not foreseen yet."
Sean Peek contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.