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The Amazon Effect – How a 3PL Optimizes Shipping for eCommerce Brands

Psst! We know everyone likes having options, which is why we’ve recorded this blog post about 3PL shipping optimization, so you can listen to it rather than read it if that’s what you’re into. Click the play button below to listen!

Consumer behavior is always changing. In the eCommerce world, changes seem to happen at the speed of light.

How are brands getting smart and strategic with their planning and spending in order to satisfy customers, have them become brand advocates, and encourage repeat buying? For companies that have physical locations, loyalty apps and geo-tagging may do the trick. But for eCommerce brands (or any brand doing business online), let’s take a look at something that’s quickly becoming a key component of the online shopping experience: shipping. Here’s how a 3PL optimizes shipping for eCommerce brands.

3PL Shipping Optimization

Outside of purchasing product, transportation and shipping are a brand’s largest expense. At Dotcom Distribution, as a 3PL, we let our brands use their own shipping rates if they want to. They can also use the negotiated rates that Dotcom has negotiated with the different carriers. They can even use a mix of both their own rates and our rates.

This is where rate shopping comes in. Rate shopping is simply letting a transit management system make the determination about which shipping carrier, shipping method, and shipping service to use. This happens per-package basis, meaning a different carrier, a different shipping method, and a different service can be chosen based on what works best for an individual package.

The Amazon Effect

And this is how brands are adjusting to the “Amazon Effect.” Amazon has set the expectation that their orders will be delivered very quickly. Dotcom can already reach 80% of the US population with a simple three-day ground service. With the transit management system making these decisions across multiple carriers and services, brands can create a reliable expectation with their customers and consistently deliver (no pun intended) on that promise.

All of this is transparent to the recipient. On an eCommerce site, a customer might choose “standard shipping,”  and the brand then relies on Dotcom’s transit management system to determine how best to ship the package based on the defined business rules. We refer to this logic as “best-way groups.” (It’s important to know that not all transit management systems have these capabilities, and different 3PLs will use a different name for this logic).

Best-way group logic may tell the transportation management system to use a slower service level for packages that are being shipped to nearby addresses, and use faster services for packages being delivered farther away. The result is that the slower service equates to lower cost for the brand but still may be delivered next day, in the case of many packages being sent from Dotcom Distribution in Edison, NJ, to NYC based consumers. And, in effect, the packages being sent with the slower, lower cost service can subsidize the cost of the packages sent using a faster service.

Freight Analytics Strategy

Determining this matrix is part and parcel of what our freight analytics team does (pun intended again). That’s why our freight analytics team is involved early on during program design. They are also an integral part of regularly scheduled strategy meetings that we talked about in an earlier blog. The freight analytics team analyzes data points like package sizes, product weights, common freight shipping areas, and uses that data to suggest the best carrier and service mix.

The process of refining the carriers and “best way groups” is ongoing. The type and weights of products change. Packaging gets updated. New markets are opened up. All of this impacts shipping. All of these changes can be accommodated in Dotcom’s Transit Management system. The effect is that a brand can make a reliable promise to its customers about package transit times and give everyone a consistent experience.

Of course, Amazon may be disrupting the online marketplace, but brands aren’t avoiding Amazon entirely. Brands still take advantage of Amazon as a selling platform. A number of Dotcom Distribution’s brand partners are currently on Amazon. Dotcom Distribution handles drop shipments from Amazon on behalf of our partners every day.

Two things are clear here: It will be interesting to see how Amazon continues to set new standards and change consumer expectations. And it will be possibly more interesting to see how the world of retail reacts and responds to these changing expectations.