The cost of returns is rising faster than volumes according to the Reverse Logistics Association’s (RLA) surveys. In each of the quarterly surveys since they began last October, costs have been a concern to survey respondents, including during the holiday season, a time period in which returns volumes spike.
Indeed, shippers ordered early and paid dearly to ensure inventory was available in stores and online for the holiday season. Transportation rates, including peak surcharges from parcel carriers, were elevated due to the demand and capacity tightness.
According to the National Retail Federation (NRF), retail sales during 2021’s November-December holiday season grew 14.1% over 2020 to $886.7 billion. The number includes online and other non-store sales, up 11.3% at $218.9 billion.
The amount spent and the growth rate are new records, topping the previous records of $777.3 billion spent in 2020 and 8.2% growth that year.
Along with the record increase in holiday sales, the NRF noted that US consumers returned about $158 billion worth of goods purchased between November 1 and December 24, a 56% increase year-over-year, and represented 17.8% of purchases versus 13.3% in 2020.
However, over 61% of the RLA survey respondents noted higher costs, while 34% indicated that costs stayed the same or did not increase during the fourth quarter.
Among the survey commentary was:
- Increased costs “driven by cost of freight.”
- “Labor increases and required surge pay needed for lack of labor.”
- “Labor and inflation pressures.”
A survey from RLA member ReverseLogix found that the biggest cost drivers in managing product returns were:
- Warehousing space
- Customer service team
- Processing returns into inventory
- Unsellable returns
In addition, a survey by global logistics service provider Pitney Bowes found that returns cost US online retailers an average of 21% of order value.
More than two-thirds of retailers surveyed said that they were actively trying to lower the cost of returns by addressing transportation and/or processing costs. However, according to Pitney Bowes, this goal is complicated by shared accountability for returns strategies. The survey found that while 42% of retailers give their logistics/operations leaders final authority in selecting a returns transportation vendor, only 25% give operations leaders the same authority in determining returns technology vendors. This division of responsibility is more likely to create gridlock when it comes to decision-making.
Indeed, understanding and establishing reverse logistics processes are important to manage costs and volumes. Managing the known and the hidden costs of reverse logistics is important. An example of a hidden cost could be when a carrier shows up late for a pickup or delivery; it doesn’t change the cost of freight. True, a carrier may receive a markdown on their scorecard, but who pays for that? What is the opportunity cost of that product not making it to market?
In addition, ReverseLogix notes that data visibility is a challenge for most companies trying to solve the reverse logistics problem.
This lack of data visibility can be attributed to the fact that the management of returns and other reverse logistics operations is often done in various parts of an organization.
As supply chain costs continue to increase, organizations need to identify their total reverse logistics costs, establishing clear processes and procedures in managing this part of the supply chain. Yes, reverse logistics is indeed a part of supply chains, and it needs to be integrated into supply chains to achieve cost savings and insights into new ways to improve customers’ experiences.
Tony Sciarrotta is Executive Director of the Reverse Logistics Association.
This article originally appeared in the May/June, 2022 issue of PARCEL.