Amazon has impacted seemingly every segment of the modern economy. Take warehousing, for example. High storage fees at Fulfillment by Amazon forces merchants to seek alternatives, creating opportunities for independent logistics providers.
Mark Taylor’s company is a case in point. He’s a former FBA seller who incurred expensive storage costs. He told me, “We started looking for ways to solve the warehousing problem for ourselves, and in doing so, we thought it might be interesting for others.”
That solution is Warehouse Republic, a 3PL serving mainly Amazon sellers, which Taylor launched in 2018.
I recently spoke with him about his business, addressing FBA policies, warehouse leasing, fulfillment technology, and more.
The audio of our entire conversation is embedded below. The transcript is edited for length for clarity.
Bandholz: Give us a rundown of Warehouse Republic.
Taylor: We are a third-party logistics company. I started two Fulfillment by Amazon businesses in 2015 with a couple of partners. We found ourselves with some seasonal products and quickly began to feel the pain of long-term storage fees if we didn’t sell through a season.
We started looking for ways to solve the warehousing problem for ourselves, and in doing so, we thought it might be interesting for others. We spent $100-$200 on a couple of ads on Reddit that said, “Beat long-term storage fees at Amazon.” It worked. We started getting customers and then decided to open a warehouse. Most of our customers are Amazon sellers.
Bandholz: Is it expensive to store products with Amazon?
Taylor: It can get expensive, especially from October through December. Amazon wants the fastest moving products in its warehouses. If an item stays there for more than a year, you start accruing long-term storage fees. The current price is $2.40 a cubic foot. Think about a pallet of goods stacked 72 inches tall — that’s roughly 74 cubic feet of goods. It’s a recurring monthly charge, and it’s costly.
Amazon is about fast inventory turns and ensuring that whatever is in its warehouses sells fast. They don’t want to be in the storage business. They’re in the selling and fulfilling goods business. A merchant who doesn’t sell through product and gets close to incurring a long-term storage fee will spend perhaps 50 cents a unit to get everything shipped back to avoid the charge.
Typically, an FBA seller’s initial shipment to Amazon goes into a single fulfillment center. Then once in the Amazon network, it gets blasted out to 15 or 20 fulfillment centers. A seller who removes 1,000 items from FBA receives boxes from everywhere. There’s no rhyme or reason to it. There can be three items in one box and 20 items in another. It’s messy.
If those 1,000 items ship to us, we have to open every box, re-kit them into master cartons, and then report back to the customer, saying, “We’ve got master cartons of 20, and here are the dimensions and the weights.”
Bandholz: You have two fulfillment centers — one in California and one in North Carolina.
Taylor: Yes. Space and coverage are the two biggest things. Southern California is an incredibly challenging market to get a warehouse. The gross-lease rent for our first warehouse was around 55 cents per square foot.
By 2021, that cost had increased to about $1 per square foot. It’s now around $1.50. The warehouse vacancy rate in Southern California is about 0.3%.
It’s very challenging for smaller tenants to get a landlord to agree without requiring a deposit of six months to a year’s worth of rent. For a 250,000 sq. ft. warehouse, the initial investment could be $4 to $5 million for the deposit, racks, and general setup.
Compare that to North Carolina, with gross-lease rates of 40 and 50 cents per square foot.
Bandholz: How do you price shipping to your clients given the variability in costs?
Taylor: Fortunately, we don’t do anything with the shipping. Most of our clients will work through their freight forwarders for the drayage, the transportation from port to the destination warehouse. If a client ships from our warehouse to somewhere outside the Amazon network, we recommend carriers and aggregators to get reasonable pricing.
One of the benefits of selling on Amazon is the low shipping rates on its fulfillment network. Amazon’s internal trucking network now does most of its shipping.
However, Amazon still has negotiated rates with third-party carriers. The rates have gone up significantly, but it’s still much cheaper than what you or I would get to ship, say, five pallets somewhere.
Bandholz: How should ecommerce merchants approach a third-party logistics company?
Taylor: Merchants should understand the 3PL’s processes. Amazon requires inbound shipments to have specific carton labels. Amazon doesn’t want too many SKUs outside these boxes because it could cause confusion. Your third-party logistics provider might require a box to be labeled a certain way so someone can scan it in and put it on a pallet without looking at markings to determine the SKU.
That sounds simple. But we’ve seen entire containers with unreadable carton labels. You end up with a lot of mistakes.
We’ve tried to make it easy for our customers to get the correct labels to put on their boxes so that when we receive it, we scan it, and it loads into our system. We have a portal that clients log into to upload a CSV file. It prints labels in the correct format. Clients can then send those labels to the manufacturers to place on every carton.
That makes it easy for us and minimizes mistakes. The manufacturer can still have its markings on the cartons. But we can quickly look at the label and see if something is amiss.
Bandholz: How can listeners connect with you?