Wearing the rising cost of freight

Wearing the rising cost of freight

Freight charges are one thing but there are plenty of other cost concerns

Ingram Micro’s decision to increase the cost of freight was some time in the making and an inevitable one, its managing director told us. The question ARN then had for the distributor’s customers was whether the extent of the rise was justifiable.

Following an operational review, Ingram will lift its general freight charges to resellers by 9 per cent across the board from November 1, as well as introduce a $5 nominal fee on drop ship orders.

While nobody, quite understandably, wants to have to pay any additional costs, many resellers realise oil price hikes mean freight gets more expensive and that everyone has to wear at least a portion of it. Most we spoke to planned on passing some of the extra cost on to customers and absorb the rest, but one or two argued freight should be incorporated into the basic services a distributor provides.

It will be interesting to see whether Ingram’s freight charge hike will trigger similar moves by other broad-based hardware players such as Synnex, Cellnet or Altech. Synnex has suggested it could look at a handling fee or similar freight charge already, and in the US and Europe, Ingram, Tech Data and Avnet have either cut free freight or introduced handling fees. Last month, Cellnet also introduced general terms across all reseller accounts and claimed distributors couldn’t wear rising freight costs forever.

Some of the infrastructure-based distributors, such as Express Data, Westcon Group, Avnet and itX, have so far remained adamant they will not increase customer freight charges. Given the higher average cost of products they ship, and the levels of service attached to those, they could be in a better position to wear freight costs because of the value-added offerings they provide.

One side effect the $5 fl at fee on drop shipments could have is squeezing more smaller, online-only retailers out of the game. With Ingram’s drop ship service (Synnex also has a similar service available), resellers are able to set-up a website and directly ship orders from the distributor’s warehouse to the customer’s front door.

For years, rivals with physical shop-fronts or warehouses have accused these types of businesses of pulling margins down by relying on distributors for stock holding and management. But what these online sites often lack is long-term customer loyalty. Having to cop a $5 fee for every future shipment could be the straw that breaks the camel’s back.

Ingram’s freight changes will touch a large portion of the channel community, but there are much bigger clouds looming. Last week, the Australian dollar sunk to a five-year low of $0.66 against the US greenback, a drop of 17.6 per cent in a month and 30-odd per cent since the 25-year high of just over $0.98 on July 16.

With such volatility, no one can guarantee a quote from one day to the next. Product price hikes are guaranteed – already we’re hearing many branded vendors have upped price lists by at least 10 per cent – so ensuring you constantly review costs and explain the situation to customers is crucial.

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