Freight and the Costs of Doing Business

Freight has been a huge issue for the book industry in the last 4 years. Ever since a UK internet retailer (that rhymes with Suppository) started using free shipping, as well as deep discounting, as their way of luring customers. It worked for that company. Not because they made money from selling lots of books but because they disrupted another company’s business model so much that the company bought them up for millions of dollars. Meanwhile everybody else in the book industry were collateral damage.

The tyranny of distance to Australia, which is often a disadvantage when it comes to accessing goods and content, also helped a relatively small economy compete against much larger ones. Australia’s population is around 22 million and cannot generate the economies of scale available to countries like the United States or Britain. There are also major differences between each economy including taxes and wages. Combined with the cost of freight, book prices generally evened out.

However a loophole was discovered in agreements concerning postage to Australia and subsequently exploited. In very simplistic terms Australia does not have a first class mail agreement with the Universal Postal Union which means parcels under 2kgs can be shipped to Australia at the same price as a local stamp. Any fair-minded person can see that a parcel being shipped to Australia from overseas should cost significantly more than 60 cents.

Not only does this mean that an overseas retailer can afford to not pass the 60c of postage onto their customer but the destination country (Australia) has to foot the bill for domestic delivery. As the volume of international parcels to Australia has increased, thanks to the high Australian dollar, a bigger burden is placed on Australia Post. This has seen domestic parcel rates in Australia increase 30%. In effect Australian retailers and consumers are subsidizing international business’s freight costs.

To try and compete many online businesses now offer free delivery. But this is a significant cost to waive. Australia is a large country with many sparsely populated regions. Domestic post particularly to non-metropolitan areas is expensive. Added to any other discounts a retailer may offer and there is not a lot of margin left.

To combat this issue and also find a way of speeding up delivery Australian publishers through TitlePage are now offering bookshops a Customer Direct Fulfillment (CDF) option. A customer order can be placed with a publisher who will ship the book directly to the customer within 24-48 hours with “free” freight. It is “free” freight because the customer doesn’t have to pay for it but the cost of freight is funded from a bookshop’s margin.

An average bookshop receives a 40-45% discount from the publisher. This can be higher depending on whether a bookshop is part of a chain or buying group. For a CDF order this publisher discount is reduced to 20-25%. The freight is “free” to the consumer but is paid by the bookshop. And just like offering free freight themselves there is not a lot of margin left for the bookshop to offer any other competitive discounts.

Bookshops are well aware that they must compete internationally. But it gets near impossible to do so when you give away a 10% advantage because of GST, have an overvalued domestic currency, high wage costs and a freight imbalance which sees many, many books coming in and very few going out. Hugh Howey’s Shift was recently published in the UK and Australian in print but not in the US. I was lucky enough to have Hugh Howey come to my store and sign copies. I ended up getting a lot of interest from US readers wanting signed copies but didn’t sell any. Firstly because our $AUD29.95 trade paperback was more expensive than a US hardcover and secondly because the freight cost to send it to the US was another $14.

Direct customer fulfillment is a great service to be able to offer. It is one book wholesalers in the UK and US have offered for many years. But to make “free” freight a component solves a publisher’s problem not a bookseller’s problem. In fact it makes a bookseller problem even bigger. Rather than solving the issue of free freight from overseas CDF will exasperate the problem. CDF will reinforce in consumers’ minds that freight is a cost that should be waived. Bookshops that don’t offer free freight, because they can’t afford too, will be marginalized.

Rather than perpetuating the myth that freight should be free the book industry should be solving the root cause of the problem. Australian business is being exploited and international business is getting an unfair trade advantage.  The Federal Government needs to intervene and negotiate a fair arrangement that doesn’t see international business gain an unfair advantage over domestic business and exploit Australia Post and its many customers.

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