I recently shipped a board game I printed to friends (more for fun than profit) and realized that shipping prices were a larger chunk of my budget than I intended. It got me thinking: how do big businesses like Hasbro afford to ship? Is there something I’m missing or is this just something they had to power through?
In: Economics
Logistics works out much better for large quantities. Let’s say you have a part to ship. You load it in a truck and deliver it. Other than slightly increased fuel costs, it doesn’t matter if you ship 1 part or the entire truckload of parts. The costs are nearly the same.
Large companies will size their products to fit efficiently in trucks so they can send as few shipments as possible.
Volume discounts and non-linear pricing. If you have to ship one item from your door to someone else’s door it requires a lot of people handling it that need to be paid. The pickup driver, the warehouse team that unloads and sorts it and loads it, air freight cost, ground freight cost, loading it on to the delivery truck, and the delivery driver. All of these levels have related overhead costs that go up if the package is being handled by multiple companies.
If you ship one pallet to a store or distributor, you pay for the handling of a pallet and not each individual box. A pallet is a standardized size and can be on and off loaded as one unit. The store builds the cost of shelving it into their final price, and the customer handles taking it home themselves.
Once you start dealing in pallets you can look at scale pricing not just for one pallet, but for fractions of a shipping container or a whole container. What if you supplied a chain store? They would need multiple pallets or containers on a regular basis. If you have that kind of reliable output and revenue then you can invest in more efficient processes for making the product which saves you money. Then, maybe direct hire drivers and buy your own trucks and bring some of those overhead costs in house where you can mark them up and raise your price, but also offer new delivery options to customers. As a business scales up it finds new ways to save money and new ways to generate revenue thru more products and services, shipping is one aspect of that.
This is where economies of scale come into play. A company like Hasbro isn’t packing and sending individual board games to customers. They are sending 1000’s at a time to Target or Amazon warehouses. It’s more much economical to ship a pallet of games together than 1 or 2 at a time. Let’s say it cost you $20 to ship the one game. They might spend $200 to ship a pallet with 1000 games, or just 20 cents per unit.
And if you order that game from Target or Amazon? Well, they have bulk shipping deals with the carriers because they label and pre-sort their shipments, and because of the huge volumes they ship. And there are cost savings to selling online from a central warehouse vs. selling in a store that help balance the shipping costs.
You shipped a board game. That one box had to be handled all along the way individually, loaded and unloaded from various crates and trucks, and tracked individually to its destination.
But let’s say you wanted to ship a 40-foot container of board games. Still one thing to ship, one thing to track. The shipping more expensive, but it’s far less expensive per-game since you’re shipping maybe ten thousand games.
You pack a container, it’s put on a truck to a port. It’s put on a boat. It’s taken off the boat and put on a truck, it’s delivered to you. You now have ten thousand games.
LPT: Get an account. I think I was advertised 40% off by both FedEx and UPS just for signing up a business account.
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