Warehouse Shipping: Benefits, Costs & Tips (2024) - Shopify (2024)

A shipping warehouse is a place to store unsold inventory. Instead of cluttering your retail stockroom or overwhelming customers with too many products on the shop floor, the warehouse acts as a designated place to hold excess inventory.

Shipping warehouses also play a key role in the supply chain by using them as mini distribution centers. If a customer places an order through your online store (or pays for their order in-store and agrees to deliver at a later date), you don’t need to fulfill orders at your retail location. Your warehouse team can manage the logistics of your shipping, leaving your retail team with more time to do what they do best: serve shoppers in-store.

If you’re unsure on how to incorporate warehouse shipping into your retail strategy, fear not. This guide shares what shipping warehouses are and how to manage them—even with a list of services to consider if you want to outsource the entire process.

Why are shipping warehouses important?

Increase customer satisfaction

Shipping warehouses are where your inventory is stored before it arrives at your retail locations. It’s also a place for online-bought inventory to be picked, packed, and shipped to a customer once they’ve placed an order.

How you operate your warehouse significantly impacts the experience someone has with your brand. Consumers expect ultra-fast delivery, with retailers like Amazon paving the way for even quicker delivery times (sometimes within the day). Warehouse shipping allows you to quickly fulfill orders and partner with shipping carriers to get your orders there fast, which opens the door for happy customers to place repeat orders.

Reduce costs

Our survey found that 34% of retailers underestimated the cost of shipping when starting their own business. Shipping accounts for just under 9% of the average business’ first annual expenses, but a smart warehouse shipping strategy can help reduce these costs, especially if they’re located nearby major transportation hubs or cities where your customers are.

Suppliers also often offer a lower price per unit when you buy in bulk. Although warehousing means extra costs to keep the new facility running, it can work out more cost-effective because you can lock in bulk discounts with suppliers and have a safe space to store inventory.

Limit inventory shrinkage

Inventory shrinkage costs retailers an estimated $142 billion per year. Instead of storing and shipping items from your retail stores, a warehouse offers greater security. You can hire a dedicated team to track inventory in your warehouse, conduct regular cycle counts, and ensure that the general public don’t shoplift from your store. Only approved warehouse staff can access your stock.

How the warehouse shipping process works

There’s a lot that goes into warehouse shipping—most of it happens before your parcels leave the facility. Here’s how the entire process typically works from end to end:

  1. Preparing warehouse shipments. A customer places their order through your point of sale (POS) system or online store.
  2. Aggregate and manage order information. Your warehouse management system (WMS) determines which warehouse is best suited to fulfill the order based on available inventory and the shipment’s final destination.
  3. Pick and pack the order. Your WMS creates a packing slip—a list of products that a customer has ordered, the quantities, and where they’re located in the warehouse. Your order picking team selects these products and packs them into a shipping box.
  4. Choose a shipping carrier and label. The warehouse team uses the shipping information from the WMS to choose a carrier. They purchase the label and print it with the customer’s address on.
  5. Ship the package. The parcel leaves the warehouse and makes its way to your customer via the shipping carrier.

Common shipping issues

The shipping industry is notoriously unpredictable. Just take the shipping container that got stuck in the Suez Canal, for example. The six-day blockage disrupted around $15 million in global trade each day it was jammed.

Though there’s unlikely to be a repeat of the Suez saga, it proves how factors outside of your control can impact your customer’s likelihood of getting their parcels on time. This is where a risk management strategy is key. You need a plan of action to solve any issues that might crop up in the future—be that using multiple fulfillment warehouses or relying on different carriers as your needs change.

There are also shipping issues that are within your control that are worth planning for. Limit the damage that shipping issues have on your business and its reputation by preventing:

  • Order accuracy. Customers who receive items that differ from those they’ve ordered will need to return the item and wait for a replacement.
  • Delayed order processing. Nearly two-thirds of online shoppers expect their order to arrive within 24 hours, but labor shortages and inefficient warehouse layout can cause delays before their order leaves your warehouse.
  • Inventory shortages. Speaking of delays, there’s likely to be a hold up if you’re waiting for stock to be replenished. An inventory management system can prevent these stockouts from causing delays, especially if you set up safety stock alerts that notify you when quantities are running low.

Fulfillment center vs. shipping warehouse

A fulfillment center is a place for retailers to pick, pack, and ship customer orders. The same tasks can take place in a shipping warehouse, but warehouse tend to be bigger than order fulfillment centers and have lower inventory turnover because items can be stored for a longer period of time.

Types of warehouses

Public

A public warehouse is available for anyone to use. Most often, they’re owned by third-party logistics companies. They’re not limited to a specific company; anyone who pays for the 3PL’s services can store and ship their inventory from the public warehouse.

Most 3PLs offer flexible storage terms, allowing retailers to rent space on a short-term or long-term basis. Because of this, it tends to be the cheaper option for retailers that don’t store or ship enough products to make it worth operating their own warehouse.

Private

A private warehouse is owned, leased, or rented by a single company. It’s only your inventory that will be stored in a private warehouse, making it more secure than a public one. There’s also less risk of your inventory being mixed up with another brand’s.

That said, it’s much more expensive to operate a private warehouse—and you might not always get that cash back, especially in periods of low demand. They’re most often used by manufacturers, wholesalers, or large retailers with multiple store locations that have consistent storage requirements year-round.

Cooperative

A cooperative warehouse is a storage facility that’s a middle ground between public and private. In this scenario, the shipping warehouse is owned and operated by multiple businesses or members of an organization.

For example, if you’re a food and beverage retailer that needs refrigeration systems but you don’t want to invest in your own private warehouse or join a generic public one, you could find a cooperative warehouse that’s specifically designed for other food and beverage retailers.

Bonded or duty-free

A bonded warehouse is a place for inventory to be stored temporarily without paying import duties or taxes. Also known as duty-free warehouses, they’re typically owned and operated by customs authorities.

Bonded warehouses are worth considering if you plan to import products from overseas but want to stagger the customs fee to improve cash flow. They can stay in the bonded warehouse for a certain period of time. Only when you remove them are they subject to the fee.

Warehouse shipping services for retailers

Inflation and lack of space is causing warehouse rates to skyrocket. According to one report, the average price per square foot for warehouse space in 2024 is $8.31. That’s an increase of over 4% from two years prior.

Warehouse shipping services help spread the cost of storage space while also outsourcing fulfillment. Most rent space in their warehouses to retailers who don’t store or ship enough inventory to warrant paying for their own warehouse space. And for a small fee on each order, their warehouse employees can pick, pack, and ship orders to your customers with no intervention required on your part.

Shopify Fulfillment Network is a great example. You can send inventory to warehouses owned by Flexport, a leading logistics company. As soon as an order is placed through your online store, Flexport receives it and enlists the help of its fulfillment team to pick, pack, and ship orders directly to your customers.

Warehouse Shipping: Benefits, Costs & Tips (2024) - Shopify (1)

Tips for using warehouse shipping

Warehouse shipping is an effective way to deliver products to your customers quickly and cost effectively. Here are seven tips to keep you on track:

  • Optimize the warehouse layout. It should be as easy as possible to locate a specific product and pack it in a customer order. Optimize your layout to have clear packing stations, and situate best selling inventory on organized shelving close to these stations. It’ll limit how far your fulfillment team has to travel—and therefore, help them pack orders more efficiently.
  • Use warehouse management software (WMS). Warehouses can be big places; it’s not always easy to find a specific product that you’re looking for. A WMS tool can manage all aspects of warehouse shipping operations: it can tell you where products are, designate tasks to each staff member, and manage how you receive new inventory.
  • Automate as much as possible. Not all tasks in the warehouse have to be completed manually. You can reduce human error and increase productivity by automating processes like the creation of packing slips or restocking low quantities of inventory.
  • Use real-time inventory management systems. Inventory can be sold quickly, particularly if you’re shipping products from your warehouse that have been bought through various sales channels. An IMS like Stocky can help with demand planning, show how many products your warehouse is holding, and inform you of any inventory discrepancies.
  • Implement quality control procedures. Warehouses aren’t just places to store unsold inventory; they’re ideal places to manage customer returns and receive shipments from suppliers. Set up a designated area for unapproved inventory that’s separated from approved goods. This will prevent subpar products, such as damaged items sent back as a return, from making its way onto your shelves.
  • Think about health and safety hazards. Shipping warehouses have machinery to transport or lift inventory. Products can also fall from vertical shelving units. Make sure every warehouse worker has health and safety training to prevent accidents in the facility.
  • Secure discounted shipping labels. The final stage in the warehouse shipping process is passing on parcels for shipping carriers to deliver. Work with services like Shopify Shipping to secure discounts of up to 88% on shipping labels from carriers like USPS, UPS, and DHL Express.
  • Choose appropriate packing materials. Opt for lightweight options that are more sustainable and cost-effective, such as corrugated cardboard, when packing and shipping orders from the warehouse

Consider using warehouse shipping for your retail business

Warehouse shipping is a superb way to hold unsold inventory before it arrives at your retail store. And if you’re taking online orders alongside those processed in-store, you won’t need to draw resources away from your retail team to fulfill them. It becomes the responsibility of your warehouse team.

Shipping warehouse operations FAQ

What are the key services and capabilities to look for in a warehouse shipping provider?

  • Storage fees
  • Minimum requirements
  • Warehouse location
  • Team size and capacity
  • Use of technology
  • Automation for shipping processes
  • Integrations with your ecommerce platform

How do I determine the optimal number and location of warehouses for my business?

The best warehouse location is close to your customers. The less distance a product has to travel, the quicker and cheaper it’ll be to deliver. Choose a warehouse within this region and ask how much space they have available. If you have too much inventory to store, consider spreading it across multiple facilities.

Why is the shipping process important in a warehouse?

The shipping process determines how fast your orders are picked, packed, and shipped to the customer. This significantly impacts costs. The less time you spend dealing with shipping, the more orders you can get out of the warehouse and into a happy customer’s hands.

How do I set up a shipping warehouse?

  1. Determine how much storage space you need
  2. Find hotspots where your customers live
  3. Choose between a private, public, or co-op warehouse
  4. Organize the warehouse with shelving and a designated packing station
  5. Train staff on health and safety
  6. Create warehouse shipping procedures
  7. Consider outsourcing to a 3PL and using its warehouse
Warehouse Shipping: Benefits, Costs & Tips (2024) - Shopify (2024)
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