Amazon FBA Case Study: Navigating Shipping & Logistics
In the last episode of Project X we went over how to source your products. We even got our own quotes using Alibaba.
(If you missed it, click HERE).
For more information on how to set up shipments in Seller Central (and much more) check out Freedom Ticket HERE.
In THIS episode we’ll be going over shipping and logistics. We discuss how to get your product to you after you’ve placed your order from a supplier.
In our space, a lot of FEAR surrounds shipping and logistics. Things like duties and tariffs, legal compliance, and other complex issues can be worrisome as they make it hard to truly know costs and consequences.
We hope to dispel these fears. While shipping and logistics can still be complex, especially overseas, as long as you are shown the right steps, you can proceed with comfort and ease.
So we’ll go over:
- Pricing for different shipping options
- Transit times
- Modes of transit
- Freight insurance
We’ll also talk about potential issues, fees, and fluctuations. We’ll discuss holidays too and how that affects shipping.
For transit types, we’ll talk about air and sea and their individual options:
- Air express
- Air freight
- LCL (less than container load)
- FCL (full container load)
First, let’s go over Air Express shipping (since this is the easiest to set up and fastest to deliver).
Why is it the easiest? Because there are more options. All traditional couriers offer air shipping; UPS, FedEx, and DHL being the largest and most well-known.
Typically the supplier simply packages the items in a shipping box and sends them on their way through the courier.
The major downside to this shipping mode is the cost. Air shipping is also the most expensive way to ship. This is because of:
- Shipping space
- Fuel costs
Much less fits in a plane than on a barge. For this reason, more planes must be deployed to get the same amount of goods delivered. This requires more fuel (and more expensive fuel, by about 25%).
And, since flying the goods overtakes MUCH less time than slowly drifting over the ocean, the demand is very high, and demand always drives prices up.
For these reasons, it is not uncommon to see air shipments cost anywhere from $5 to $7 per kilogram (2.2lbs). For smaller shipments, this makes sense, especially since waiting for a slow boat probably isn’t feasible for, let’s say, 100 units (as an example).
As your shipments get larger, air shipments will likely become cost-prohibitive.
However, everyone’s situation will be different.
So, your needs and subsequent choice on air or sea shipping will depend on where your situation lay on the following matrix…
Also keep in mind the size of your product. Some products are limited in their shipment options based on their size and weight.
So, to recap, the fastest and easiest, yet most expensive way to ship is Air Express through a major courier like DHL, FedEx or UPS.
Another air option, that is less expensive and offers options for larger shipments is Air Freight. The main difference between air express and air freight is, while express is door to door, air freight is port to port. So there are extra steps involved to getting your goods shipped out and picked up.
Because of this, the average price per kilogram is between $2 and $4.
Air freight shipments can also be a lot larger, so you can send much more quantity, but again, while the price is significantly lower than air express, it is still more than sea shipments. Refer to the matrix above to see where your specific situation lay.
A quick note on duties…
If you get a door to door shipment, typically duties (import tax called a tariff) are included. If you get a port to port shipment, you’ll usually have to pay the duties separately. So, when shipping door to door, check with the shipper to see if it is “DDP” which stands for Delivery Duty Paid.
Otherwise, you need to know what your duty cost will be so you can factor that into your overall expenses for the shipment.
Now let’s go over Sea Freight (or ocean shipping).
Obviously the appeal here is much more affordable shipping with the ability to handle much higher volumes. The drawback, again, is the time it takes to deliver, clear customs, and otherwise sort the required documents.
When hiring a freight company for sea shipment, you’ll do it in one of two ways, and this is determined by your shipment size:
- LCL, or “Less Than Container Load”
- FCL, or “Full Container Load”
A quick note on containers…
All sea cargo is shipped in what is known as a “container.” These are large metal structures of specific sizes that contain a specific weight based on its size. This keeps organizing sea logistics simple.
There are generally four types of containers you’ll deal with as an importer:
- 40ft Standard
- 40ft HQ (stands for “high cube”)
- 45ft HQ
The “foot” measurement pertains to the length of the container and determines much of its capacity. High cube containers simply differ in shape because they are slightly taller than they are wide, to accommodate differing cargo shapes.
All containers, however, must not exceed their weight limit whenever filled to capacity. This means, 20ft containers, no matter what is placed in them, can only weigh up to 28 tons. So if you are importing bowling balls, the container will only be filled either up to the max space capacity, or weight limit, whichever is hit first.
Ok, so if you don’t have enough cargo to fill up a full container, you’ll be sharing container space with other smaller shipments. This is called LCL, because you are taking up less than a container load.
If you have enough to fit in a full container, your shipment will probably be FCL.
One of the downsides to LCL is that the container contains multiple shipments. That means the entire container is at the mercy of multiple other individuals and their understanding of the rules and requirements.
Put another way, if someone else doesn’t fill out their paperwork properly, your shipment could get delayed.
When you get to the point where you are shipping FCL, keep in mind the volume capacity of your container (for 40ft HQ it is usually 65 cubic meters). The volume of your shipment is typically going to be noted on your factory quote so you’ll have all the information you need to plan your logistics intelligently.
A quick note on customs…
The CBP, which stands for Customs and Border Protection, has the legal obligation and capability to inspect any shipment they see fit….at cost to the shipper.
Containers, at random typically, can be flagged and put aside for different types of inspections that vary in intensity. Xray inspections, for example, are a scan of the contents. This is a very quick process.
However, there are also thorough inspections that can last a couple of weeks, because CBP agents are opening every box and checking the contents.
The important thing to note here is:
- You have no control over if this happens to your shipment (other than to just make sure the paperwork was filled out properly and the boxes are clearly labeled and you’ve given them no reason to suspect your shipment is something its not).
- You cannot influence the speed at which an inspection takes place.
- You have to pay the fee for these inspections.
There is no influencing these factors as this is controlled by a law enforcement government agency. Just understand that, with each shipment, there are risks and variables beyond your control.
A note on shipping times…
- Air express – average 4 to 7 days
- Air freight – average 10 to 14 days
- Sea shipping – average 16 to 45 days (depending on where you ship)
A note on shipping insurance…
Insurance will cover potential damage or loss of your goods while in transit. You may be informed by whoever you choose to be your shipping company that they can handle getting your coverage.
It is our advice that you consider getting your own policy.
Before you get shipping insurance, it is important to know:
- When does coverage start and stop?
- What are the deductibles and liabilities?
Also, in the beginning, get single coverage. When you start shipping regularly you can get “open coverage” which covers you over the time period of a year. However, while you still aren’t sure what company you will work best with, single coverage is fine.
Here are the things most policies will cover:
- Temperature fluctuations
Something important to keep in mind too is, insurance is based on the invoice value. That means it is not advised to take short cuts and declare a discounted value to customs (in order to get a lower duty rate) because if your goods are damaged, you won’t get paid the full amount.
A note on shipping destination…
Just like the decision on which mode of transportation you will choose for your shipping, the decision on where to ship will be dependant on your individual needs.
You can ship directly to FBA, but sometimes this isn’t always the best option. This is due to restrictions Amazon places on how shipments must come in. Amazon requires specific labels and pallet dimensions that may require much more effort on the part of your logistics team overseas.
If this is too complex for them, it may be easier to have your goods shipped to a warehouse distribution center, prep center, or even your own home (depending on shipment size).
Also, sales velocity may determine whether you send all of your goods to FBA. You’ll want to minimize storage fees, so it may be wise to warehouse the bulk of large shipments elsewhere.
After choosing the factory with the ability to make our products, the highest quality and the best price, it was time to order shipping. We used one of Tim’s favorite shipping companies and received our shipping quote.
The quote included all of our requirements:
- By Sea
- Door to Door
Our total cost for this first shipment of the coffin shelves cost just over $1,100. This included:
- Shipping from the factory to the port
- Ocean freight
- Duty taxes (tariffs)
- Payment processor fees
While some of those charges may seem superfluous, keep in mind that shipping companies typically run on very small margins, so they aren’t likely to take on any extra fees (like PayPal fees, for example).
With this shipping quote on 500 units, this will add an additional cost of $2.21 per unit to us. We will estimate an additional $0.40 per unit in Amazon fees as well.
Now that we have those numbers, when we put our data into Helium 10’s Profitability Calculator, here’s what we see:
- Sale price: $31.55
- Price per unit: $4.24
- Estimated storage time: 2 months
- Estimated shipping costs: $1.80 per pound
We end up with a $14 profit per unit! 185% ROI. That’s not bad at all.
Even if this item remains low volume and only sells 500 units a month, that’s an extra $7k per month. And if the effort was put into driving more volume, even more income is possible.
*Protip Tactic – The other great thing about these margins is, there is enough room to lower costs dramatically to overtake competitors in keyword rank and then increase prices again.
…But What About the Axes?
We had to drop the axes. When we went to source them, while the price was good, we found out that there is a new rule regulating the import of metal striking objects into the United States from China.
We could still source these from another country. For the purposes of this case study, we won’t be, but the lesson here is, don’t focus on just one product. You can avoid discouragement by “going wide” with your product selection.
In the next episode, we’ll start prepping our listing.
Until then, now that we’ve narrowed down our products we are launching…
Which product (the coffin shelf or egg tray) is your favorite?