EP8: 3PL Underpinning eCommerce Growth

COVID-19 has shown us that what is Amazon’s greatest competitive edge – FBA – is also their Achilles’ heel.

From limiting inventory to just essential items, to delivery delays & asking sellers to remove inventory from their warehouses, it’s been a roller coaster ride for those using FBA.

The challenges only grow larger as you grow into an international seller.

That’s where 3rd Party Logistics providers can come to your rescue. Listen to us as we speak with Waleed Shazaad, Founder of ShipHype, as he explains all of the value you can get from using a 3PL.

Raphael: Hello everyone and welcome to episode 8 of DataHawk eCommerce podcast. Today, Prateek and I have a very special guest, Walid Shazaad from ShipHype. Walid, how’s it going?

Walid: I’m awesome. How are you?

Raphael: We’re good, thanks. You’re in LA right now?

Walid: I’m in Toronto. In Canada.

Raphael: In Canada. You’re back in Canada. Okay. Pat, how’s it going on your side?

Prateek: Not too bad. How’s it going for you because I know you’ve got two kids. How are you holding on to your sanity, Raphael?

Raphael: It’s okay. It’s quite hard working from home but just for the record I haven’t seen Pat so at DataHawk we work remotely for more than a month and a half now so you’re still alive. I’m very happy.

Prateek: Yeah. I’ve got a little taste of prison life. This is not the first time I got that taste. The first time I got a taste of prison life was when I ate frozen Pad Thai noodles.

Raphael: Thanks for that. Well, we’re very excited to have you, Walid, on the show today. ShipHype is a prep center and a full 3PL third party logistic company so it’s going to be very, very exciting to learn more about what you guys are doing and how prep centers can help sellers. But, before we dive into all of that, Walid, maybe you just want to give us a little bit on your background and how you got started into this space.

Walid: Yeah, for sure. So, this is actually my third business, uh, ShipHype, right? Before this, I had a cellphone parts wholesale company and I started it from Toronto and eventually I expanded over to the states to grow that business because, in our previous business, 90% of my clients were actually in the states, right? It made a lot of sense for me to move over. I moved to California and, at that time, I was actually looking for a performance center to grow that business before moving myself, right? And because of the nature of that business, we had about 10,000 different SKUs and it was really hard to actually find a performance center that could accommodate that because, you know, 10,000 SKUs, traditionally, even right now, performance centers want product that’s moving fast. Something that’s coming in, something that’s coming out really quickly. When you have 10,000 SKUs, not all of them are best sellers, right? You may have like 50 that are best sellers, and those are the products that they want to keep. But, for a business like mine, it was cellphone parts wholesale and you really have to carry everything and no performance center at the time was able to accommodate me. So, I actually had to move down to California and I didn’t even know a single person when I moved there. It’s way tougher, even though, you know, the language and the culture, everything is very similar in Canada to the US but logistically, there are still a lot of problems. It starts all the way from getting a social security number all the way to finding warehouse space and all of these things are tied. I faced these problems, a lot of them, when I was in the process of expanding my business in the states and at that time, I didn’t think I was going to start a performance center or a prep center, but I realized that there’s a real need for it. Even though they did exist, it’s not like the solutions fit the current landscape. It might be because a lot of the performance centers are businesses that have been established for 30 to 40 years and they’re actually very large businesses, right? A lot are geared towards enterprise-level and large corporations, but a business like mine is a startup and mostly an eCommerce fulfillment rather than doing large-scale warehouse distributions. Maybe for that reason, they didn’t exist, but I always thought about it. As a business person, you’re always thinking about different models. Different business models are one of the ones that appealed to me. Eventually, I went and sold that last business and I thought about what I wanted to do next and the performance center was right in front of me, right? I figured that we were essentially fulfilling orders for ourselves. It was just internal fulfillment and I said okay, why not do this for other people? There are a lot of international businesses who want to sell in the states and Canada because these are huge markets, right? So there’s just so much demand for it and, with the eCommerce space just growing, right? It’s not like…

Prateek: Yeah. Walid, fulfillment is like all the rage now, you know, with Amazon expanding their footprint, I think they increase their fulfillment capacity by 50% they say if I’m not mistaken. They’re now looking to convert all these malls’ performance centers, it’s a very hot topic right now.

Walid: For sure. They’re not able to keep up with the demand, right? With Covid as a catalyst and really put it through the roof there. With eCommerce in general, even before Covid, it’s not like the market was a BlueRay DVD player market that’s going down every day, right? There are thousands of new businesses opening up every single day. It’s basically aligned with the growth and it just put me in a position where I could do it and, especially, me being so lucky that I had a warehouse in the US and a warehouse in Canada, I could help get into both markets, and even US brands trying to get into Canada and Canadian brands trying to go into the US, and that’s essentially how ShipHype got started.

Raphael: Nice. Why California? Just a quick question. Why?

Prateek: Yeah. Interesting.

Walid: Initially, in my previous business, right, I had very few markets that I could have moved to. It was an online business so it didn’t really matter where exactly I was in the states. I had the option of Texas, New York, California, and Florida. I picked California because the weather was great and I had heard so many good things about California. Honestly, it’s more expensive to live there than in other places but I’m so happy I did and now it’s really helping me. I got really lucky because, as you know, the Long Beach Port, anything that comes from Asia actually goes to Long Beach Port first, and our warehouse is actually in Long Beach. I’m just really lucky.

Raphael: That’s cool. So, can you tell us a little bit more about what actually is ShipHype and what does it deliver as value to its customer?

Walid: Yeah. ShipHype is a fulfillment center, so we store and ship products on behalf of other businesses. Let’s say someone has a successful business where it’s overseas, even if it’s not successful, let’s say it’s a brand new startup, right? They’re looking to outsource the performance side, which means picking and packing orders and paying out directly to the customers. They can outsource it over to us, right? There’s so much that goes into a business from product development to finding customers to branding, there are a plethora of things. Accounting and all of that administrative stuff. Something like fulfillment is the most simple, right, in terms of there’s very little learning. How much can you really learn, right? After 20 hours of experience, you’ve maxed out everything you know about active costs. 

Prateek: It’s just a manual thing. It’s just a manual job that needs to be done.

Walid: Yeah, and the worst part is that it takes up the most time. If you have 50 orders a day, that means you have to spend 8 hours actually packing and processing those. You literally have time for nothing else. A lot of businesses who are growing and expanding realize they’re running out of time, they turn to a service like ours to help ship their orders.

Prateek: Walid, how automated are you guys? I know that Amazon uses all these keyword robots and all these other robots to pick, pack items, are you guys automated? Are you guys sort of in that state of where you’re looking to automate? Where are you guys on that journey?

Walid: No, we’re not in that stage. Definitely. We’re actually a pretty small company compared to a lot of our competitors, right? We don’t have the technology or the capability to get into that level of robotics. Maybe if we had a hundred thousand square foot warehouse, it would make sense, but right now it doesn’t. We print a packing slip and that packing slip basically has the order, where the items are located, it’s just essentially, where the robot is going, a human being is going.

Prateek: Do you guys also do the prep work? I mean, because I know that if anyone wants to send anything through Amazon, there’s sort of a laundry list of things to be done. The UPC code label, the FNSKU, the **, the pulley bagging, the suffocation label, it’s a huge list of things.

Walid: Yeah. We do all of the above. So, starting from receiving, to storage, to putting on FNSKU labeling, pulley bagging items, bundling them, and sometimes there are the returns that people get and they want us to repackage them.

Prateek: Oh yeah. Yeah.

Walid: On brand name SKUs, or some people actually, well I would say most of the clients, we tell them to get the labeling from their manufacturer because it’s going to be way cheaper to get it done overseas than paying to get it done in the states. We can drip the inventory in for them. So, we store their goods and **, and we have a fill on inventory in Amazon we replenish it and drip it back into Amazon’s warehouses.

Prateek: Walid, that brings me to a question. You know how you just mentioned that supplies of from the manufacturer is preferred, you know, that they would do the labeling or the prep work. I used to work for a retailer in America and shipping was about 12% of our cost so it made sense for us to at least have the suppliers or manufacturers do the prep work and the labeling because, if we were to ship it to a 3PL, there’s a shipping cost there, and then if they do the labeling and then we ship the items from them to Amazon, there’s sort of another layer of cost. My question is, does it make sense to sort of even use a 3PL at all in this case for prepping and labeling?

Walid: Oh yeah, 100%, right? And let me just clarify what I exactly meant by that. It’s not that it’s going to add additional shipping costs if they are having us do the prepping, it’s just going to add more labor costs, right? We actually make more money if people have us do their prepping, right? But, let’s say they’re paying us 40 cents per unit for the prepping. My recommendation, just to provide value to anybody who’s listening, is – if you can get that for free, right, why do you pay the 40 cents? 

Prateek: Exactly.

Walid: Have your supplier do it. It’s not going to add anything to your shipping cost because you are going to have to ship it to us no matter what.

Prateek: Okay. Okay. Okay.

Walid: Especially if you’re shipping, you know, thousands of pieces a month on Amazon. A lot of sellers are selling more than a thousand. Since per unit really adds up, you can put that money somewhere else.

Prateek: Mhm. Yeah. I mean, I know this from experience. The margins are really slim in this case. Even those 40 cents can make a big difference if you’re doing a million orders annually.

Walid: Yeah. That’s a lot of money.

Prateek: You know, Walid, you mentioned overseas at some point in time. My question is, is 3PL or using a 3PL service better for let’s say an American seller or mostly for let’s say international sellers because the dynamics are very different for the two kinds of sellers.

Walid: Yeah. It’s kind of a requirement for both at this point, but there are different reasons why an international person uses versus domestic. So, for an international person, right, they don’t have an actual warehouse here so every time they want the inventory to ship to Amazon, they have to ship in large quantities. Now, with Amazon’s restrictions and the IPI, they’re not able to ship large quantities so they have to use a fulfillment center, make sense? So they can push inventory in. Now, somebody who’s in the states, a lot of Amazon sellers actually have full-time jobs and Amazon is exactly their full-time thing. They’ve got to receive a shipment from a supplier, right, where are they going to receive it? To their house? They don’t have a loading dock at their house and the delivery hours are the same as their working hours, right? Once you get to a volume, it’s not worth it. Also, like I mentioned, it’s one of the things that take up the most time. One thing you could do is hire staff and have somebody else do it for you to save time, but when you hire staff, you also have to manage staff, right? So, it’s easier to just hire a prep center and you don’t have to worry about getting warehouse space of your own, working out of your house, you don’t have to worry about people breaking into your house.

Prateek: Not to mention, Walid, if you’re a retailer and you’re running this business, if you hire just one person to do your picking, packing whatever, it’s going to be between $30,000-$40,000 thousand dollars annually. Basically, that becomes like a fixed cost, right? Whereas if you outsource the function through a 3PL, then they’re able to distribute the cost and maybe charge you per package labeling cost or prep cost as opposed to you having to pay $30,000 flat out.

Walid: That’s actually a very good point. With the prep center, right, they have optimized all of their processes whereas if you have one person doing everything, it’s going to be slower to do and it’s going to cost you more per unit.

Prateek: Exactly. Exactly, yeah. And not to mention, you can have different kinds of packages, right? I know that certain 3PLs will charge you, let’s say, per unit cost, and certain 3PLs will charge you for the size of the package. You can choose from different plans, you know, right?

Walid: So, everybody in prep centers, there are about 200+ prep centers, and there are no set criteria of how they charge price. Everybody has their own way of how they’re charging the customer. Some people actually charge a monthly fee, and some will charge for units. Our company, we charge by the service. So, let’s say you just need storage, then you’ll only pay for storage. I think the reason why everybody is just so different and it’s so confusing is because of prep centers, right, the industry is still pretty new. I think we’ll see in two to three years everybody aligned into a price format that is the most efficient because it has to be easy for the customers. That’s ultimately what’s going to dictate how people end up pricing, or whoever ends up becoming the top leader of the market, they’ll all end up copying their price structures.

Raphael: Would you say that 3PL is better for small or large items or, what would you say?

Prateek: Or food, you know?

Raphael: Or food. Any specific type of item that is better to use 3PL?

Walid: So number one, if your item is hazardous, you definitely want to use a 3PL. You don’t want to be putting yourself at risk with chemicals and that kind of stuff. You don’t want to be living and breathing that, right? I think 3PLs are key for any other business, right? Well, I can’t say key because there are ways to make your business work without having a 3PL, it would just be helpful internally. It works for all sizes, right? There are solutions now to accommodate. The only time it gets tricky is if you have so many SKUs then the amount of fulfillment centers or 3PLs available to you is a very small number. So, you should reach out. 

Raphael: Sure.

Prateek: Walid, one question here. So during Covid earlier in the year, Amazon sort of stopped accepting inventory, or at least they reduced the amount of inventory they were receiving in their centers and stuff. Did that boost your business? Did you suddenly experience a boost in volume because suddenly people couldn’t send stuff directly to Amazon so maybe they were using your service to fulfill orders?

Walid: Oh 100%, right? And a lot of people have nightmare stories.

Prateek: Tell us a couple, please.

Walid: Not only did Amazon put this restriction on sending more items, but people who actually had, were in Amazon, they told everybody to remove those as well. Now everybody in the states and Canada who were selling on amazon.com or amazon.ca, had their own address right? To fall back on and they could say hey, ship my stuff here? International sellers, now, don’t have an address to give to Amazon, so they absolutely need a prep center. When Amazon came out with this, right, FBA removals weren’t exactly something a lot of prep centers reported either because it was just a very small part of the business where removals were maybe 5% of the business and now, all of a sudden, everybody’s calling them for FBA removals. A lot of prep centers didn’t even support that, right? So, it was just crazy, man. A lot of people had an immediate need. Even right now, I was just speaking to a client and he’s telling me he can’t sleep at night because Amazon’s charging him crazy storage fees. And even though he found out the solution, he’s not losing money, it’s not just the price that they’re paying, right? It’s the time they’re losing and this person has tens of thousands of units on Amazon they have to remove or they’re going to lose money on all of it because, as you mentioned, the margins are slim.

Prateek: Yeah. This is interesting. Walid, tell me a couple of things. On the one hand, Amazon was trying to push MFN, Merchant Fulfilled Orders a while ago. And now, I think they’ve stopped accepting MFN applications, right? Why? Because they were sort of betting on FBA being more efficient than anybody else trying to fulfill their orders on their own. But now, Covid has shown that, what was Amazon’s trend, which was their FBA, is also a weakness now because suddenly you’re all independent from Amazon and, you know, they had limited space. So how do you see this moving forward? Do you think they’ll sort of start accepting MFN applications again because they’re like, okay, we can’t only rely on Amazon, right? Because suddenly, when Covid happened, things become a problem.

Walid: So, even right now, you can ship directly to a customer. The only thing is you can’t get the Prime badge. That’s part of their SFT program. I haven’t checked recently but I believe they’re not accepting clients on that right now. I think it’s just because they’re so busy, right? They know if they launch it right now, they’re not going to be able to handle the number of requests that are going to come pouring in.

Prateek: Oh yeah. Yeah.

Walid: Probably, they could easily open applications back up maybe next year or maybe the year after that.

Prateek: I see. Okay.

Walid: They’re really encouraging FBMs, though, which means they’re really encouraging supply sellers. Sellers are now forced to, actually, ship directly to their customers, right? Let’s say you ship them 200 pieces through Amazon. You sell out, right? Now, you’ve got to ship them more inventory than Amazon. But at the same time, because of the way Amazon works, you don’t want to be out of stock, right? Because they’re going to punish you.

Prateek: Exactly yeah. That sort of kills your organic rankings and things like that.

Walid: But you still have to ship orders directly to customers. You just need to ensure that you’re never out of stock, and sellers understand this now because, if they didn’t back then, now they especially do. Amazon is really pushing sellers to get on the FBM side as well.

Prateek: Okay. Interesting. Walid and Raphael, have you guys heard about this term called “Shipmageddon”? I don’t know if you’re aware of this, Walid, but I listen to this one podcast the Jason and Scot Show. Jason is Jason Goldberg, the Chief Commerce Strategy Officer from Publicist, and Scot is Scot Wingo, the co-founder of ChannelAdvisor. They coined this word called Shipmageddon, which means that, basically, fulfillment capacity, and when I say fulfillment I mean shipping capacity, trucks, vehicles, and stuff like that. That’s been growing at 8% per year, which means FedEx, UPS, all these guys, these guys are adding vehicles at about 8% increase every year, whereas eCommerce has been growing at 16% annually. That’s already sort of, you know, a gap there, which is why orders get deeded in Q4 and things like that. This year, what you’re going to experience is a peak on peak, right? Because, already in Q4, there is a peak every year, and this year because of Covid you’re going to experience a peak on a peak. So they’re talking about how a lot of customers aren’t going to receive their orders on time and stuff like that. Are you facing, you know, any shipping-related issues? Are FedEx and UPS still willing to accept all of your packages? How was your experience surviving this Q4?

Walid: We haven’t had issues with them not accepting the packages except for one scenario where UPS decided not to show up one day.

Prateek: Oh really? Geez.

Walid: I have no idea. They just didn’t fill up. Maybe, you know, they missed the schedule or something on their end. We had to actually deliver the packages to a UPS hub, and we actually went to four different locations to deliver packages.

Prateek: I thought you were going to say you hired some reindeers, got your sleigh on and you went on to deliver packages.

Walid: I wish man, but no.

Raphael: So, only one time that happened?

Walid: Yeah, so far. I hope it doesn’t happen again. We were able to talk to the account manager, whoever deals with us, to ensure it doesn’t happen. And they value us as a client, we’re giving them a lot of business. But we had to actually go to multiple hubs to deliver it and a lot of them were saying hey, we don’t take more than 12 packages from a single client, and they would have never said this if it wasn’t for Covid. Which I understand, though, but you know what’s interesting is every single week, we have a lot of companies reach out to us, there’s a lot of private companies growing now and they’re actually doing a great job of bridging that gap. So, these private companies actually operate in larger cities like Toronto, Miami, Los Angeles, right? A lot of the bigger cities because there’s a lot of population and it’s working for them. They’ll work with brands that have large volumes and they’ll have their own network of delivery people and they’ll make deliveries within the cities using their own cars, or sorry, their own vans, whatever they have.

Prateek: Do you think…? Oh sorry. Go ahead.

Walid: It’s working both on a parcel level and a trucking level, and every single week a van company contacts us.

Prateek: So, let me digest. These small companies that you’re talking about, you know, these private companies which are also delivering orders in the metros and stuff like that, are they operating in a model which is let’s say similar to Amazon’s DSP program where Amazon doesn’t hire the people themselves? They’re working with these contractors who deliver packages on behalf of Amazon. So, do you think these private companies are operating a similar level?

Walid: Yeah. They’re operating a very similar model and it’s more profitable for them because Amazon, right, the way Amazon’s program is made I don’t think it leaves a lot of room for people to make a lot of money. It might seem like something that makes sense but once you account for the initial cost and the operating cost and the administrative cost, people have just formed their own companies and they get to pick their own customers and they’re able to pick their own routes and their own areas, right? Which is way better for them. They’re making it work really nicely and I think they’re doing a good job bridging the gap. You might see an increase in software companies who are able to facilitate for these private companies and help more companies because there needs to be, uh, offer service like this and make it into a proper business, you really need really, really good software, right?

Prateek: Absolutely. To sort of keeping all sides of the transaction aware of shipping updates, where the package is at any point in time, whether it’s been collected, dropped, whatever it is, right? All that stuff. And create shipping labels and things like that.

Walid: I do see people finding solutions, really good solutions. So, even though it’s a problem, people are definitely going to solve it quickly.

Prateek: So, Walid, tell me something. When you guys get packages out the door, what percentage of your packages are getting delivered by UPS or FedEx, you know the giant – or USPS, and what percentages are you using the smaller, private players for?

Walid: We’re not using any of the smaller ones right now. We are only using the larger UPS, FedEx, DHL, USPS, and in Canada, we also have a few other large companies besides these ones. But right now, their software isn’t there. That’s primarily the main reason.

Prateek: I see. Makes sense. And, Walid, today, Amazon sellers have been expanding their shipping capacity and they’re talking about how, by the end of this year, their shipping business will sort of become bigger than that of FedEx. Right? So, are you also using maybe Amazon’s carriers at all? Does Amazon only use their carriers to deliver packages to customers? Or do they also use their carriers to, let’s say, facilitate transfers of packages from manufacturers to Amazon’s own warehouses?

Walid: Oh that’s a good question. I’m not sure if Amazon is letting other people use their service and I don’t think they are just because Amazon also uses other carriers. They use UPS a lot, right? UPS is their primary shipping partner. It’s already so hard to work with Amazon so I prefer to go more directly to UPS, right? If I have a performance center and don’t know that Amazon offers their service as a carrier, I’m sure that a regular business probably doesn’t either.

Prateek: I see. Makes sense. Agreed. Agreed. And Walid, that brings me to another question. Economies are scaled. You know, because you said you’re a small business at this point, you said you guys started up recently. Unless you scale, you can’t get discounts from carriers, right? And in order to scale, you need to have volumes coming in, but then customers won’t come to you unless you’re giving them let’s say good shipping rates and things like that. So, how do you tackle that problem? Sort of the chicken and the egg story, right?

Walid: Yeah. It actually helps us a lot so as we get – this is something that Bill Gates talked about a lot when he was building Microsoft, right?

Prateek: Really?

Walid: Yeah. He said that, well, one day, for example, if they build a good application, they’ll attract better developers. As they have more developers, they’ll be able to make better apps. As we get more customers, we’re able to get higher volumes, and the higher volumes that we have, we’re able to negotiate better rates for the carriers. And once we have better rates, now we attract even more customers.

Prateek: Exactly. It’s the flywheel.

Walid: It’s not a battle, we’re just going uphill, right? And the aggregated volume we’re able to get from all of our clients combined, right, is way larger than what a business would have on its own shipping. This puts us in the power to negotiate a better rate and when we pass these on over to the clients, that gives us a competitive edge.

Prateek: Absolutely. I’m very aware of that because, as I said, I used to work for a 3P retailer and this was one of our competitive advantages because we were working with about 1000 smaller brands and we had them use our UPS account to ship packages. Because we were working with 1000 different brands, we got like 40%, 50% discounts from UPS whereas those guys, if they had their own account, they’d be shipping much smaller volumes, so they simply wouldn’t get the same discount from UPS.

Walid: Exactly. That’s the name of the game.

Prateek: So, Walid, tell us are there other, like you said there are around 200 other prep services and performance centers, etc. operating America. So why should people come to ShipHype? What’s the one thing that you’re doing better than most other people in this industry?

Walid: As far as prep centers go, right, we actually are very software-focused compared to a lot of other prep centers. You have a dashboard where you can view your inventory in real-time, you know, exactly what’s going on. Because a lot of the prep centers are new they haven’t really focused on that, and because there is no real need for integration if you’re just doing prep centers like if you’re storing it on Shopify and Walmart and all those platforms then you have to integrate your store. But if you’re just doing strictly FDA, then there’s no real need to have integration which could defeat the purpose of a dashboard but it’s still required because once you get to a certain volume, taking orders on email and phone is just not feasible. And at the same time, the other 200 prep centers that do exist, have their own value as well because we only have two locations. We’re in Toronto, Canada and we’re in Los Angeles, California, right? So, if someone’s looking for a warehouse in California and they reach out to us, we’re able to help them. But if someone needs a warehouse in New Jersey or let’s say Boston, then we can’t really help them. In this case, we’ve actually prepared a list of over 200+ prep centers and we’ve shared this with our clients I’d like to share it with your audience as well.

Prateek: Oh, nice. Thank you very much.

Walid: Because if someone needs a warehouse in Boston, right, then there’s little I can do for them. But we can definitely point them in the right direction.

Prateek: Or you could launch a 4PL business where you are just sort of helping people find performance centers and maybe making a commission on that.

Walid: Or maybe when my reminders come back out, I can ask them.

Raphael: Well, Walid, this has been really great, man. Thank you. Thanks a lot for being on the show today, for your honesty. I learned a lot. We definitely have to bring you on again, Walid. I think the Amazon landscape changes by the minute so I’m sure we’ll have more stuff to talk about very, very, very soon. Pat, thank you so much for being there also.

Prateek: Thank you for giving me this opportunity, Raphael.

Raphael: Of course. Always. Guys, make sure you subscribe on our favorite platform to the DataHawk eCommerce podcast. You can get notified of every new episode that comes out. See you next time, bye-bye.

Prateek: See you. Bye-bye. Thank you.