If we are not already into a recession, then that dreaded, severe economic downturn is just around the corner. If you are an e-commerce merchant, the signs of a recession are clearly visible:
- Big box stores like Walmart and Target are reporting declining sales growth rates.
- Those same big-box stores are canceling product orders due to an overstock condition.
- While Amazon’s e-commerce revenue is marginally up, volume is down.
- FedEx reported horrible earnings and suggests we are already into a recession.
- Spot quotes for ocean freight out of Asia are down. (https://www.freightwaves.com/news/container-spot-rate-fall-much-steeper-and-less-orderly-than-expected).
- Prominent economists are saying that a recession is inevitable.
Our nasty economic condition further exacerbates the challenge of peak season planning for both the merchants and e-commerce-specific supply chain service providers:
- Should merchants that are sitting on an overstock condition discount early?
- How many temporary, seasonal employees should the carriers hire?
- For e-commerce merchants, decreased peak-season shipping revenue could lower their carrier-based earned discounts.
- Lower than usual peak season shipping revenue can also drive severe, carrier-based financial penalties if the merchant does meet minimum net revenue requirements, depending on how the shipping agreement is structured.
The 3PL e-commerce order fulfillment service providers may face the most difficult challenges as they must now manage the potential of a peak season shipping decline across the multiple merchants they service. What can these fulfillment service providers do to manage recession-driven, lower business and volume during the peak shipping season and beyond?
- Communicate early on and often with their merchant clients and understand the impact of downward adjusted volume on your operations.
- Talk to their parcel carrier sales professionals early and ask if there is any flexibility on reducing revenue requirements that drive earned discounts and minimum net revenue spend requirements for the whole year, not just Q4.
- Be conservative with temporary hiring and be prepared to reduce labor hours if merchant-driven shipping is softer than expected, even after being adjusted downward in anticipation of a recession.
- Track down those merchants you previously could not support during the holidays and offer them a discount for coming on board now in return for sticking with you for a one-year commitment.
- Make sure legacy customers understand that you may be able to accept higher holiday-related volume than previously indicated.
- Look into targeted digital marketing campaigns to drive new business if you have not already done so.
- Take on smaller clients that previously did not necessarily fit within your customer profile.
- Get C-level management in front of business prospects, which is impactful when trying to close new business.
- Recessions drive increased competition. Talk to your carrier about rate reductions in targeted areas.
- Take a 2nd look at the non-profile product you previously declined because it is hard to handle.
Finally, expect the worst and assume we could enter a multi-year recession, so start planning for 2-3 years of negative growth and down revenue.
Dean Maciuba is the Co-founding partner of Crossroads Parcel Consulting and contributing editor to the Newegg Logistics blog. This content has been republished with the permission of the author and Newegg Logistics, where the article originally appeared.
Photo by Klára Vernarcová on Unsplash