Rising returns volumes have leveled off, but the costs of returns continue to climb according to the Reverse Logistics Association's (RLA) quarterly returns index. For Q1 and Q2, the returns costs index was 156.8 and 174.8, respectively. A reading above 50 indicates growth. The index notes that the Q3 outlook is also for the continued cost increase.
Commentary from the quarterly index survey, not surprisingly, places the blame on economics and inflation. Indeed, transportation and labor costs have greatly increased since the pandemic began in 2020. Parcel carriers such as FedEx, UPS, and USPS pick up and deliver the bulk of returns. Parcel rates and surcharges have jumped since the pandemic began in 2020.
In January this year, UPS and FedEx increased their average rates to a historic high of 6.9%. There are also additional surcharges.
For example, some UPS returns surcharges per package:
- UPS Returns: Print Return Label - $0.50
- UPS Returns: Electronic Return Label - $1.00
- UPS Returns: Print and Mail Return Label - $2.25
- UPS Returns Plus: 1 UPS Pick-up Attempt - $4.00
- UPS Returns Plus: 3 UPS Pick-up Attempts - $5.25
- UPS Returns Plus: Call Tag - $5.75
Some of FedEx returns surcharges per package:
- FedEx Print Return Label - $1.05
- FedEx Email Return Label - $1.05
- FedEx Return Pick-up - $4.00
- FedEx Call Tag - $7.35 - $8.40
In addition, labor costs have increased. Dispositioning of returns, that is, determining if a returned item can be resold, recycled, or donated, tends to be a labor-intensive task. Turnover rates are often high. In 2021, the US Bureau of Labor Statistics (BLS) found that the average turnover rate for warehouse workers was 43%.
As such, the cost to attract and train workers and pay a higher rate to retain them is also rising. According to BLS data, transportation and warehouse workers, average hourly pay for June was $29.07, up from $28.98 in May and up from $27.70 in June 2022.
Transportation and labor costs are major contributors to the cost of returns. A study by Pitney Bowes in 2022 found that returns cost retailers up to 21% of the item's original value when shipping, processing, and restocking are considered.
Mitigating the Cost of Returns
- Review returns policies – Many retailers are rethinking 'free returns policies' instead of charging a surcharge or restocking fee.
- Invest in technology – Optimize return receiving and restocking; Artificial intelligence, data, and machine learning can track returns and identify conditions or problems that lead to increases in returns; Inventory and warehouse management systems can streamline the restocking process and speed up resales; Customer relationship management systems can track the entire post-sales process, keeping the customer informed of shipment and delivery status, and possibly even deliver post-sale messaging.
- Rethink your shipping partner relationship – Maybe it's time to renegotiate your carrier contract or develop a new transportation strategy, such as pick-up returns at consumers' doors, bulk pick-ups at stores, or other strategies.
- Don't forget secondary markets – Recommerce, donations, or recycling are options to avoid leaving money on the table.
- Outsourcing returns management - Accepting, restocking, and reselling returned products can consume a lot of a company's time and resources, so outsourcing these processes to those specializing in reverse logistics may reduce the cost of returns.
Before retailers and other shippers can mitigate the costs of their returns, they must know what their actual costs are. Identifying returns costs across the entire organization is an important first step for businesses, and the RLA offers a calculator to help determine savings. For more information, please visit us at RLA.org.
Tony Sciarrotta is Executive Director of the Reverse Logistics Association. The RLA offers various tools, white-papers, and monthly webinars that provide best practices in managing reverse logistics.
This article originally appeared in the July/August, 2023 issue of PARCEL.