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Rising fuel prices hitting online businesses hard

The talk of the town has recently been all about the skyrocketing price of fuel. Every day people and businesses alike are both feeling the pinch. Online businesses, in particular, are being hit hard, because their business model is based on deliveries; and so, with fuel prices going up and affecting all aspects of their supply chain, online businesses will have to strategise carefully to navigate their way through this challenge.

Jam Pathirana, CEO and founder of B dynamic, an industry-leading enabler of eRetail and provision of third-party logistics services, explained that diesel prices are up 45 percent year-on-year, while jet fuel prices have soared by more than 50 percent.

“We were already seeing escalating fuel prices brought on by many pandemic-related issues and their flow-on impact,” Pathirana said.

“This was exacerbated by the Russia-Ukraine war crisis and as a result, fuel prices spiked even higher; and unfortunately, analysts are saying that we are unlikely to get any relief soon.

“Fuel prices trickle down to every part of the consumer space and if you are an online retailer, this is going to be a great challenge for your business model.

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“Regular retailers might push click and collect to their customers, but with online businesses, this is not often possible. Fuel prices are beyond your control and with profit margins already being squeezed, it’s more than likely that you’ll have to pass on the costs to your customers.”

Rising fuel costs an added pressure to ongoing logistical problems

“Since the start of COVID, the logistics industry has been hit by a flurry of challenges which have resulted in delivery delays and a reduction in the frequency of deliveries. There have been major supply chain issues and staffing shortages. The cost of operation is constantly creeping upwards, amidst these other ongoing issues,” Pathirana added.

“If there is a short and sudden spike in fuel prices, it’s usually not a problem, and businesses can absorb these added costs, but we are looking at an extended period of elevated fuel costs, with some experts saying that it will be difficult to revert to former prices. Businesses will then be under pressure to pass the costs on to the customers.”

Pathirana has tips for eRetailers on how to manage the rising costs of fuel.

Explore different solutions

“There are potentially a few different ways that online businesses can look to cut their fuel costs, but it’s a fine balance between meeting the rising costs and the risk of losing revenue. The most important step is to do something.  Doing nothing is harmful for the business,” Pathirana added.

Seek out third-party logistics providers

“For businesses that are currently managing the pick, pack and ship process themselves, it might be time to look at outsourcing this work,” Pathirana said.

“While everyone is being impacted by the rising cost of fuel, large logistics companies have the capacity through volume to absorb rising costs better than most. There are efficiencies that can be achieved through sheer volume and scale. Take advantage of logistics providers in this market.

“You will probably find that once you have outsourced this work, you will never go back to doing it yourself.”

Review your geographic market

“Online retailers need to think strategically about their market base and how far they are prepared to service certain areas,” Pathirana added.

“Remote areas cost more to reach. Review your market to determine whether you need to reduce the physical range of areas you ship to. If you continue to do service these areas, you may need to add extra cost to deliveries.”

Consider the frequency of deliveries

“Same day or next day delivery is a brilliant service for businesses that have the capacity to undertake this type of service,” Pathirana said.

“For businesses that don’t perhaps, a revised frequency and cost structure could be put in place to enable the business to absorb rising shipping costs. Give customers the option to pay more for fast shipping or less for regular shipping.”

Green delivery technology

“If your customers are located in areas that are in close proximity to the business and they are easy to access via car or ebike, draw on green technology to reduce your business’ reliance on fuel,” Pathirana said.

“Pizzas are being delivered on ebikes, why not other types of orders. Ebikes just need to charged – no fuel required.”

Tracking and visibility

“Everyone knows that due to the increase in online shopping, deliveries are taking longer, and they understand why, but they just want to know where their package is currently and when they can expect it to arrive,” Pathirana said.

“If your chosen delivery provider offers a parcel tracking service, this can go a long way towards alleviating some of the frustration that customers experience.

“Fluctuating fuel prices is something that all businesses have to deal with constantly. In a way, it’s part of the norm of running a business. As a business owner, you have to be organised and savvy about working these fluctuations into your costs. At the end of the day, it’s about resilience and I’m confident that many businesses have the grit in them to get through these current challenges.”

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