As businesses and consumers tussle with record fuel hikes, many of us face increased travel costs and general living expenses; however, e-commerce business owners who deal and trade internationally are among some of the worst affected.
Since so many players are involved in a functioning e-commerce business, getting a consumer’s parcel made, packaged, and delivered is set to become more expensive than the brick-and-mortar store model. This starkly contrasts with recent trends, where owning a small online business was a cost-effective and easy way to earn a second income.
So, what has changed for online businesses? Below, we have outlined five ways the global increase in fuel prices has affected e-commerce entrepreneurs.
1. Increased Cost of Products
A surprising number of everyday products are manufactured from fuel and fuel by-products. These include polyesters used in 60 percent of clothing worldwide and paraffin wax obtained from petroleum used to make cosmetics such as lipsticks. As the price of petrol increases, so will the cost of its by-products and the products made from them.
Increasing fuel prices also affect the cost of electricity. Natural gas has become increasingly important in generating electricity. For example, 40 percent of the total utility-scale electricity in the USA was generated by natural gas in 2020 *. As a result, the cost of manufacturing products has increased as well.
2. Increased Platform Fees
In 2021 Amazon sellers paid almost $103 billion in fees. This made up around one-quarter of the year’s online retail platform’s revenue. **
Amazon’s fee schedule has always been one of the most expensive, worsened by the company’s announcement of an additional 5 percent ‘fuel and inflation’ supercharge earlier this year. As these fees continue to rise, sellers turn to cheaper, less popular sites where they ultimately get fewer sales.
3. Increased Packaging Costs
Products sold via e-commerce are notorious for being ‘over-packaged.’ Most packaging is derived from petrochemicals.
Plastics and other mass-produced products are still the cheapest options. Since sellers are significantly cost-sensitive, even minor fluctuations in the cost of packaging are hard felt by e-commerce businesses.
While many companies have started to make the change toward more environmentally friendly packaging, such as bamboo and biodegradable options, these are costly and not always viable alternatives.
4. Increased Travel Costs
In reaction to the Covid-19 pandemic, many e-commerce retailers introduced faster delivery services. Rising fuel prices have placed an unprecedented strain on this delivery ecosystem, which means longer delivery times or increased delivery charges. This has caused many shoppers to return to the mall and brick-and-mortar shops.
5. Increased Competition
It is a well-bemoaned fact that with increased fuel prices comes an increase in the cost of everything else. This means that consumers have less money to spend, so online retailers are facing increased competition. There is also an increased expectation for e-commerce sellers to be better at scaling, cost-sensitive, and visible.
While the fuel crisis is not something that will be solved quickly or easily, it does not mean it is all doom and gloom. As an e-commerce entrepreneur, you have resources at your disposal that can help keep your spending to a minimum. These include, but are not limited to, import VAT experts, freight forwarding experts, customs experts, 3PL warehouses, and custom market research tools.
Contact Zee for more information on these cost-saving resources and any of your global expansion needs.