On April 13th, Amazon announced that they will be accepting all shipments of non- essential items into their FBA warehouses starting that week. Since the initial ban on March 17th, Amazon sellers have had their hands tied. Unable to restock their products for nearly a month, they either had to resort to fulfilling their orders using FBM, or simply go out of stock. This new announcement has come as quite a relief, but Amazon sellers are not out of the woods yet.
The rates for transporting goods via cargo planes have skyrocketed since the start of the pandemic. Now that the “gates are open” we can expect that as we speak, thousands of shipping plans are being made and we will have a lot of incoming inventory hitting FBA warehouses in the following weeks. What might come as a big surprise is that once sellers start shipping their inventory from overseas they will find it to be much more expensive than what they are used to.
This is due to the fact that a lot of goods that get transported via air shipping are actually stowed on commercial flights. The fact that almost all commercial flights have basically been grounded means that the goods that would have been on those flights are going to be put onto cargo planes. This is something that has a great effect on the margins of any Amazon seller.
If you are primarily shipping in your inventory via air, this shipping cost may place a heavy burden on your Amazon margins. The reality is that until commercial flights come back online, the prices of air shipping are going to stay up. Even if an individual country manages to completely remove COVID-19 from its population, there still won’t be any border opened until the situation is the same worldwide. This means that we might be looking into a very long time of closed borders and no commercial air travel.
You should plan how you will be replenishing your inventory using alternative methods for the foreseeable future. If you believe you can maintain a decent margin with using air shipping you should continue with that, however, in most cases there will be a very obvious and alluring option – shipping by sea.
The reason sea shipping is attractive is the fact that it is going to be much cheaper in comparison to air shipping. The trade off is that it takes a lot longer to get to its destination. You can expect the average air shipment from China to the US to arrive within 10-12 days, that includes the flight, the unloading and loading to trucks that will eventually drop it off at the proper FBA warehouse. When it comes to sea shipping, you might be looking at 30 to 40 days for your inventory to reach its destination. With such a long time in transit, going out of stock becomes a real problem. We can also expect the loading times to be longer since there will be a lot of non-essential inventory coming into the harbors.
Another challenge with fully switching to getting your inventory in by sea is the fact that you really need to plan your inventory for the long term. Once you send in a shipment via sea and it takes 30 to 40 days, you must keep in mind that going forward the inventory that you have brought will take just as much time to be replenished next time.
This is why it’s important to plan ahead and to accept the fact that things are going to be the way they are for a while. With that being said, the first thing you should do is to get a price quote from your supplier with all the different price brackets for different quantities of manufactured units for both air and sea shipping as we mentioned before.
How Can I Counteract the Cost Difference?
At first glance, the solution for this issue can be a straightforward one: if your costs go up, you can compensate by raising the selling price. However, it would be easy to avoid this. If you opt for this option immediately, you might find yourself in trouble, unless the increased price is somehow beneficial to your product. It is possible that certain luxury items might benefit from an increased price making them more exclusive and therefore alluring. The reality, though, is that most of us are not selling luxury products and even if we were changing the price of any product is not a decision to be made lightly, it requires split testing and planning. The point is that you do not want to corner yourself into a situation where increasing your price is the only way to go. This is why it is very important that you dwell into what exactly goes into your margins and what the costs per product are in order to be fully aware of all the different aspects of it that you might be able to affect and hopefully retain your Amazon margins without having to increase your selling price.
Depending on your situation, you might want to ship in a necessary amount of items via air just so that they can keep the inventory in stock while your sea shipment arrives. That might be a financial blow, but it is at least one that you can minimize and at least stay in stock. It is difficult to truly truly measure the negative impact of going out of stock, however, it is most certainly a scenario you would want to avoid if possible.
This is why you should be ordering large quantities, both for the purpose of staying in stock longer, and with the added effect of lowering the hidden costs of manufacturing. This might cause a financial strain on you as a seller, so you really need to plan your finances and carefully and precisely as you plan your inventory.
What Can I Do as a Seller Now?
Overall, the increased air shipping rate is threatening to cause an issue with the total cost of bringing in your inventory overseas. In order to maintain your margins it is important to be fully aware of everything that goes into your costs per product. The greatest impact on your margins right now is the shipping cost, which is a factor that can be completely circumvented when it comes to the impact on your Amazon margins if you start getting your inventory in via sea. This will require you to plan your inventory in a very long term way as well as your finances. While adjusting to this pandemic may be difficult with heavily impacted shipping costs, thinking in the long term will be key to weathering this storm and coming out the other side mostly unscathed.