I know you’re probably tired of reading emails like this one– the dreaded price increase email. It’s been coming at you from all directions this year. I hate to add to the pile, but here we are. CVAP will be raising prices on many services in 2022.
I meant to send this email quite a bit earlier, but my disorganization is your gain– we’re not going to raise the rates until Jan 31, in order to give you a little notice and soften the blow.
The State of the Industry
The supply chain is in a shambles. I would tell you where to go to read up on that, but the trouble is that everything is supply chain. We are like the part of the iceberg that rests under the water with only the retail stores poking up above the waterline.
Never the less these are two good posts:
Practically speaking this has had a couple of notable impacts on our business specifically:
- Demand is up, yes. But:
- Box/carton prices went up 40%
- Pallet prices went up 50%
- Tape prices went up 10%
- Labor prices are facing significant upward pressure (more on that later)
Even though we’re able to buy in reasonable volume, we still cannot get around the fact that raw materials are more expensive now.
What You Get When You Work with CVAP
Although warehousing is generally considered a commodity service (commodity means that it is undifferentiated and therefore you should shop strictly on price) anyone who has tried a few different prep centers knows that your experience can vary widely.
At CVAP, even though it’s not the best idea for our margins, we tend to select the option that makes for the best chances of long-term economic success for our clients.
Here’s an example: For our book clients, we exclusively use double-walled cartons and reinforced strapping tape. This can seem like overkill when you think about the fact that Amazon will send that same book out to the customer loosely tossed in a lightweight carton with water-activated tape and no dunnage.
However, big retailers like Amazon, Target, and Walmart have whole departments of number-crunchers who look at losses due to damage and complaints vs the total cost of better tape, more packing material, and heavier boxes (as well as the additional cost in shipping and labor) and conclude that it is not worth the trade off.
At our end, we look at our average book customer, who ships about 4 cartons per month. If one of her cartons gets broken open by UPS and arrives as a total loss to Amazon, she faces a 25% loss of her merchandise purchases that month. Sure, if she keeps going and she doesn’t have any other damages that year, that loss will be negligible eventually. But in the short term it’s a demoralizing and perhaps crippling blow to her business. This kind of thing didn’t happen a lot in the grand scheme of things, but it threw such a monkey wrench into otherwise-promising businesses that when we finally found a suitable box we jumped on it.
Late in 2020 we started trialing heavy-duty cartons even though they were double the price of the regular cartons and after implementation we have not had any reports of total loss. We moved to exclusively doublewalled boxes in spring 2021.
The wholesale/PL clients have a different set of problems. They buy in big, big lots, and in many cases do not get to see the finished product. We act as advocate and agent for customers.
The devil is in the details when it comes to transport and merchandising. What exactly *is* the difference between LTL and SPD? Why is it taking my shipment 30 days to cross the country? Can we pull and inspect a batch of this product to assess for a rash of customer complaints? What is your advice for how to alleviate these complaints? How can we mitigate this in the future?
I spend at least half my day doing these kinds of investigations and writing up detailed reports in the emails because I believe this is a crucial service for small brands looking to differentiate themselves.
A larger brand can liquidate a whole batch rather than spend a bunch of money on the analysis and expertise to figure out how to salvage the product. But, like the packing material tradeoff, a small brand needs to have a better product than their bigger, better-resourced competitors, full stop, and this is how to get it. I am extremely proud of the work we do to help small brands offer a better customer experience.
The Labor Problem, or Why “Nobody Wants to Work Anymore”
I was once, many years ago, a trucker. More than half my immediate family holds a CDL. I’ve been up and down the supply chain and while some jobs pay surprisingly well, the majority pay poorly, under the misapprehension that such jobs are ‘no-skill.’
Waynesboro is full of warehouses, including the largest Target distribution center in the country. The churn is unbelievable. Wages are high, which is meant to make up for the fact that you have to run flat out for the entirety of a ten or twelve hour shift in order to maintain your quota. Miss your quota, and you’re written up. Miss it three times, and you’re fired. That warehouse has been running mandatory overtime since Sept 2020.
Generally speaking, warehouses operate under the assumption that there are an unlimited number of workers willing to make that tradeoff– otherwise, they would do more to prevent churn.
Having unwittingly found myself at the head of a warehouse business myself, I’m in a strange position. As a business owner I see the economic calculus, but I know from experience that I hated those kinds of jobs. I want to offer what is coming to be known as ‘Good Jobs‘. A ‘McJob’, a job that has had all the human judgement and creativity carefully excised so that the workers can be low wage and interchangeable, is not anyone’s idea of fulfilling work.
I dislike almost everything about how the big warehouses are run. The jobs themselves pretty much suck. They are ridiculously hard on your body, with repetitive strain injuries becoming a fact of life. They kill your braincells from boredom. And the hours are really, really long. They want robots, not humans.
So, since the beginning I’ve tried to take the worst of it off the table. We have fixed, but not strict, schedules. We have no KPIs or quotas. We never force OT, and in general we work to avoid needing to. We don’t try to weed out all the thinking– in fact, we feel that’s our competitive advantage. Our team knows that we’re there to protect the clients from mistakes and problems that they don’t even know are possible, and you can only really do that with an engaged workforce that cares about that kind of higher level mission.
So practically speaking, I’m on the side of the labor force. I can’t tell you how often I’ve heard someone scoff, “No one wants to work anymore.” But with jobs like that, how can they blame them? It’s simple supply and demand. There’s a reason Target is paying $25/hr to load trucks (plus OT and bonuses) — they have to.
Additionally, minimum wage has gone up twice this year. Once in May, to $9.50, and again today, to $11. It will go up to $12 next year. Depending on where you live, that may sound high or low to you, but as of the last census, the median wage in Waynesboro was just under $15/hr. So that’s quite a bit up upward pressure to the local wage structure.
Now, it’s quite possible that you could switch to a warehouse in a part of the country with a lower cost of living, where they may not be as impacted by labor cost increases, and that would certainly be a rational economic decision. But at the least I want to reassure you that at least some of the cost increase goes towards paying more competitive wages to the team, not just to paying for pallets and cartons.
The Nitty Gritty
Okay, now that I’ve been probably entirely too transparent, here’s the nitty-gritty. A full table of charges is here, but the most relevant details are below:
- Book Inspection: $1.50–>$1.75
- Photo Request: $1–>$2
- Tradein Administration $2 –>$2.5
- Processing and Packaging Returns (label provided) $0 –>$1
- Pallet Fee $25 –>$30
- Storage $.50/cu ft –>$.55/cu ft
While I regret the necessity, we have done the market research and we are still well within middle range for all our services. These changes will come into effect on Jan 31, 2022
Thank you for your continued trust and patronage,
Shanna & Team CVAP
I for one fully understand your need to increase fees in order to maintain the level of service you provide and your clients have come to expect. Wishing the very best for you and your team in the coming year… Mark