Distribution costs under the microscope

Distribution costs under the microscope

Escalating freight costs and a slowing market are forcing leading hardware distributors to put their cost structures under the microscope.

Ingram Micro has already announced plans to restrict free freight and introduce handling fees in the US from September 2. It implemented similar charges in Europe last week and the managing director of its local operations, Guy Freeland, said a decision on whether to follow suit would be reached within a month.

In a letter to US partners, Ingram said free freight will only be offered for online or non-e-commerce Choice Advantage orders valued at more than $US200; all other orders will need to be above $US600 to qualify for free freight. A $US2 handling fee will also be added to orders of all sizes to cover processing and added transportation management costs, according to Ingram. Non-physical items including software licences and warranties are not affected.

The distributor blamed the rising cost of fuel and freight charges for its decision to increase charges and warned the problem was a global phenomenon.

Although there hasn’t been a mandate from its US parent company, Freeland admitted local freight and handling charges were very much a possibility. He said Australian resellers are likely to be notified within a month.

“We are looking at what we need to do to keep ourselves competitive with the least possible impact on our customers,” he said. “We’ll make an announcement within a month if we are going to do anything – I think at some point we will have to.

“Freight is our second largest cost, after people, and the problem is that the price of IT products has come down substantially in the last couple of years. This has been accentuated by the exchange rate. The costs of distribution are all based on local currency.”

Freeland said Ingram was also talking to couriers and reviewing its order processing in an attempt to reduce freight costs. Although it is the largest IT distributor in Australia, and globally, Ingram’s scale and business model made the company more susceptible to external market forces than its competitors, he said.

“We have a full service model and have to invest in all sorts of areas for the benefit of the channel,” Freeland said. “When there’s uplift in external costs, we see it more in the dollars and cents than any other distributor.

“We understand our position and believe we are a key part of the route to market. We need to make sure we can continue to invest in support and innovation but, without a shadow of a doubt, [other distributors] are feeling the same pressure.”

Dicker Data managing director, David Dicker, said his company would not introduce small order fees. However, a late payment fee was on the cards and could be rolled out within weeks.

“We would be reluctant [to introduce freight charges] because they create ill will and introduce unnecessary complexity,” he said. “But we’re probably going to introduce charges for late payment.

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