How do 3rd party logistic companies charge you
Understanding how warehousing and fulfillment companies charge you is the first step in searching for a 3PL partner. In North American, warehouses usually charge their clients based on storage, inbound fees and outbound fees. Unfortunately, it's never that simply. There are many ways a warehouse and fulfillment company can make you pay.
1.Inbound, outbound and storage charges:
This is simple. You pay based on your inventory movement. For shipments from your vendor, warehouses usually charge you based on number of pallets, boxes and units. Sometimes, there's a order processing fee to each shipment. For shipments going to your customers, warehouses may charge you a pick and pack fee, BOL (bill of lading) fee and material charge (i.e. pallet wrap, folklift usage and etc). Finanlly, your warehouse usually charge you for monthly storage fee based on number of pallets. In some warehouses, they charge storage fee by cubic meter your products occupied.
There are other methods of calculating warehousing fees in the market, but they are not common and not many companies are using these. When selecting a warehouse, going with the industrial standard instead of some new methods of fee calculation is always prefered unless the new method is a perfect fit to your business.
Inbound, outbound and storage fees are fair and hard to manipulate. And these fees are easy to check from your side. The tricks warehousing and fulfillment companies use on the invoices are usually in the following areas.
2. Cost reimbursement
You may not be aware, but warehouses have many ways and tricks to increase your bill. Generally, all cost associated to your business will be charged back to you. Bills from trucking companies and carriers, packaging materials and even forklift hours are charged back to you at cost. Some of the warehousing companies mark them up by some percentage and charge back to you.
Most of warehousing company have a high discount rate with UPS, Fedex, and other carriers. Do you know that when warehousing companies get the freight bill from UPS, they have 2 sets of numbers – regular rate charge (the rate before discount) and negotiated rate (the rate they actually need to pay)? Do you know that some warehousing company pays the negotiated rate to UPS but charge you the regular rate (even plus a certain percentage)?
Another example, a box of Avery labels cost $40 at Staples. There’s 3000 labels inside. Your warehousing company will charge you way more than that. We’ve seen warehouses charging $0.5 per label. If this is not bad for you, do you know that most of the warehouse have vendors who supplies even cheaper labels? They can buy 3000 labels at around $10 and charge you at $0.35 per label. When you ask to see the materical cost invoice, it will show the same rate as you would buy them from Staples. The trick is that most of warehouses have suppliers who are willing to supply them two invoices – one with actually cost and another one with a rate for you. We’ve seen one warehousing company in Canada, the amount of money they made from marking up the reimbursement was enough to cover 1/4 of their rent expense.
So, it is really worth to pay attention, right? Always ask your warehouse to provide you the backup for the fee reimbursement. If you think some numbers do not make sense, follow up with them. One suggestion, you want to have a look at the offical PDF file or scan of the invoice instead of an excel spreedsheet. Simply because anyone can manipulate a spreedsheet, but not too many people can change a PDF invoice.
3. Out of Scope Work
If you are running a decent sized business, you will run into situation where the warehouse needs to perform some “out-of-scope” work. These can either be on an hourly rate, on a per unit basis or a fixed rate for the entire project.
Before signing your contract, define “out-of-scope” with your 3PL company first. You want to make it as detailed as possible, or you will pay extra later on.
Generally, product assembling, refurbishment and re-packaging are considered to be out of scope work. Do you know that some warehouses charge you extra as out of scope work for breaking down master boxes? It is really worth to discuss this with your vendor and write in your agreement.
Last note, you want to avoid hourly rate charges unless it is absolutely necessary. If you go with hourly rate, you are not only paying for the real work hours, you are but also paying for warehouse staff’s lunch hours, break time and idle time too.
4. Reverse Logistics
As your business grows, you will start dealing with reverse logistics issue sooner or later. Negotiate a good deal with your warehousing vendor before it’s too late. You want your warehouse to process reverse logistic on an efficient and accurate basis without too much extra cost.
If your warehousing vendor charges your reverse logistic the same way as charging you with regular inbound shipment, make sure they are doing the correct job. Screening for damages, inventory keeping and reconciling with your accountant. Otherwise, your accountant is going to face deductions that he/she doesn’t understand why.
You want to pay the right amount for reverse logistics. If most of your products returned are to be written off, simply tell the warehouse you are only willing to pay a disposal fee (Yes, they will charge you!). On the other hand, if most of your returned products can be resold at a discount or as pristine products, pay some extra so the warehouse will take care of your returns like your pristine products.
5. Account Setting Up Fees
Do you have an unique business? Or maybe you have a busy B2C e-commerce store? Do you require EDI or do you use Commercehub? These are the questions you might want to answer before contracting a 3PL provider. Big 3PL companies have very sophisticated warehouse management system that can integrate with most of the commercial business packages on the market, whereas small 3PL companies may need additional customization to their software to fit your business needs. Most of 3PL companies charge a fee when you need some kind of customization. It might be as simple as sending tracking numbers to your Shopify account or synchronizing orders with your e-commerce website. And it could be as complicated as integrating with your Quickbook, your EDI partners and even building a new warehouse management software for your unique business.
Our advise is to be very careful with the setting up fee. Some 3PL companies give ridiculous quotes for these setting up fees. When you have a special requirement, simply call a software company to get a quote, or ask us at 3PLQUOTE.com. This will give you some basic ideas on how much you should pay for these customizations.
Other types of setting up fees include inventory setting up fees and warehouse setting up fees. These are not common and always discuss with your 3PL providers about what are these before signing.
6. Account Fees
This is not a very common charge. Many warehousing, fulfillment and 3PL companies do not charge you for accessing their warehouse management system. However, there are still some companies do charge account fees.
Paying account fee is not as bad as it sounds if you can get all the services. If you are paying account fees, ask your warehouse to provide you unlimited access to their WMS, a good account manager, and technical support. On the other hand, if you do not access your warehouse's WMS, never needed to speak to a account manager, then you probably should not pay your account fee.