← The Foundr Podcast with Nathan Chan
The Foundr Podcast with Nathan Chan
655: (Solo) The Fuel Crisis Is Already Hitting Your Margins. Here Are 4 Moves to Protect Them.
00:13:05
Most e-commerce founders see the fuel crisis in the news and think it's someone else's problem. But if you're shipping products right now, it's already showing up in your bills — and if you're still running last year's shipping model, you're bleeding margin without realising it.
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Hey, founder fam. I want to talk to you about something super exciting. We're officially partnered with Omnisend, the email marketing and SMS platform built specifically for e commerce founders. We've been recommending Omnisend to founder students for a while now because it just works. Whether you're launching your first store or you're scaling to seven figures, it really helps you automate your marketing and get real results. Did you know, on average, OMNISEND customers make $68 for every one. $1 they spend, which is an insanely good return on investment. And because you're part of the founder community, you get 50% off your first three months with the code. Founder50. Just head to omnisend.com founder without the e to get started. All right, now let's jump back into the show. Hey, founder fam. Nathan here. Welcome back to another founder solo episode. So, today I want to talk about something special quite topical. It's hitting e commerce brands right now, and when you read about the fuel crisis in the news, it can feel like it's someone else's problem. But I promise you, it is showing up directly in your shipping bills right now. And I'm talking about rising freight costs. What's driving them, what you actually need to do to protect your margins. Hear the stories, learn the proven methods and accelerate your growth and future through entrepreneurship. Welcome to the Founder Podcast with Nathan Ch. So this is something that, you know, we've been talking about internally at Founder, and I was actually chatting recently with one of my fellow founders and the consensus is super clear. The brands that are going to survive this period aren't just the ones that are crossing their fingers and absorbing the cost. They're the ones adapting their entire logistics and pricing strategy. And that's exactly what I want to walk you through today. So, to be fair, managing shipping margins isn't a completely new idea, but the speed at which this is happening is unprecedented. Now, at the time of recording this, wholesale diesel prices have spiked over 67% since early March. Gas prices are pushing past $4 a gallon in many parts of the US and for those of you in Australia, unleaded is pushing past $2.60 a litre. And almost everything you sell has been on a truck at some point. So the cost to move boxes around is skyrocketing. Now, I don't know what's going to happen, right? None of us do. But here's what makes this moment different from previous cost squeezes. We're not dealing with one problem, we're dealing with three. Problems ex@ the same time. So first we've got carrier rate hikes compounding year on year. Then we've got the geopolitical crisis. Now that's not even talking about sales and being affected from people worried and your conversion rates dropping and, you know, lack of traffic dropping, all that good stuff. And now you've got fuel surcharges being applied on top of them. So it's hard to know what to do. So let me give you the actual numbers because I think there's a lot of founders that are still underestimating this problem. So in the US as an example, USPS is adding an extra 8% PAC package surcharge. Amazon has added 3.5% fuel and logistics surcharge for third party sellers. UPS and FedEx have both implemented general rate increases of 5.9% for 2026. So once you factor in these surcharges, the effective rate increase for E Com brands and sellers is close to 8 to 12%. For our Australian listeners, the Australia Post fuel surcharge for contract customers is jumping from 4.8% to 12% from April 23rd. That's more than doubling. So I'm hitting you with a ton of numbers, right? But effectively our costs are increasing. So if you're running your business on last year's shipping model, you need to stop and do the math right now. So this is the real cost and I want to talk to you guys about how we can solve it in a second. But let's just say you're doing 50,000amonth in revenue with an average order value of $65, and you're offering free shipping over 50, you're shipping roughly 770 orders a month. Now, if your average shipping cost was $8 per order before the surcharge, you were spending $6,160 a month on shipping, which is about 12.3% of revenue. Now add a 12% surcharge on top of that, your shipping cost per order goes to roughly $9. That's $6,930 a month. So that's an extra $770 a month or $9,240 a year just disappearing from your bottom line. And that's before peak season surch a year, which last year added $1.50 to $6 per package on top of everything else. That's not a rounding error. So what do we do to solve this? Because the other side of the equation where I shared was the shift in consumer behavior. Like customers are feeling the squeeze too. They're paying more for fuel, food and costs are starting to go up. So let's talk about what you need to do. The first thing you need to do is run the numbers on your new landed cost. So pull up your shipping carrier portal today. Find out what your actual surch increase is going to be. Then recalculate your cost per order at your current free shipping threshold. Now if you don't have a free shipping threshold, you're going to need one. If you're losing money on your current free shipping threshold, you need to move it. So for most brands, that means moving your threshold from maybe $50 to $75 or even $90. But here's the critical part. Don't just raise the bar and leave your customers stranded. Use that threshold as a lever to drive up your average order value. And the way to do this is what we call the threshold gap strategy. So if your new is $75 and your core product is $50, you need to make it incredibly easy for the customer to spend an extra $25. So that means first make sure you have a frequently bought together bundle on your product page. If you sell skincare, bundle your hero product with a travel size version of your cleanser. If you sell supplements, bundle your protein powder with a shaker. Make it a no brainer product. Bundling done right can lift AOV by 30 to 70%. And up to 30% of e commerce revenue for brands comes from bundles. It can even be higher. I was hanging out with Nick Shack, who's our partner and operator in residence for founder operators. He's like, once you crack an offer, it just changes the game. And I've done other episodes on offers. I'm going to do more because he's so key. Like if you look at some of the founders that we're interviewing, they just get the offer right. And oftentimes it's the bundling. You can't make your ads work unless you have a really decent size aova. And you've got to get your bundles right. So that's the first thing. Second, you need to make sure you're using a progress bar in your cart. Show customers exactly how much more they need to spend to unlock free shipping. That's like a simple, you know, psychological nudge. It works because it makes the benefit tangible and immediate. The next thing you need to do is add a low cost, high margin add on product that sits right at the threshold gap. So as an example, speaking to a founder in our community and he's launched a sleep tape brand he's doing pretty well, but he needs to get his aovr. So he's going to launch breathwork audio tapes, right? So when you're doing sleep taping and all that kind of stuff, breath work is really, really important. It's somebody that cares and it's really important to that kind of person. So adding on, you know, some breath work videos, some breath work meditations, all that kind of stuff, like 10, 20 is nothing. So it costs him nothing to produce it. And it's just gonna be some really great guided audio meditations and breathwork guided audios. So that's a great way to do it. You know, something that costs you $3 and sells for $20. A candle, a travel pouch, a brandy accessory, something that feels like a treat, not a filler. You gotta add that in if you can. So that's your first move. How do we increase our shipping thresholds and build out our aova further? The second move you wanna make, rethink your fulfillment model. If you're fulfilling in house, this is the moment to seriously evaluate whether that's the right call. Because here' honest truth about in house fulfillment. It made a lot of sense when shipping rates were predictable and your volume was manageable. But right now you're competing against three PLs that have negotiated next level carrier rates. They can be like 15 to 20% below what you can get on your own. They ship millions of packages a year, you ship thousands, maybe you ship tens of thousands, maybe you ship hundreds of thousands, not sure. But the leverage gap is enormous. So there is a crossover point for most brands. So if you're shipping anywhere between 500 to $1,000 a month, you need to really consider a 3 PL. Below that, the simplicity of managing your own operation just outweighs the fees. But you can get some good discounts. So that's something to seriously consider. Now, if you are not ready to fully commit to a 3 PL, at minimum, you should be running a multi carrier strategy. Don't rely on a single carrier. Use a shipping platform that rate shops every parcel across multiple carriers, automatically selects the cheapest option. All of that good stuff that's going to help you next move, do a packaging audit this week. This one is underrated. I want you to spend some time on your packaging because it's something that almost every brand that I talk to is leaving money on the table with. Looking at your dimensional weight, your or your dim weight, the formula is length times width times height divided by a divisor. So you know if the dim weight is higher than your actual weight of your package, you have to pay dim weight rate. That means if you're shipping a lightweight product in an oversized box, you're paying for air. So guys, the fix is simple. Right? Size your packaging, use boxes that closely match your product dimensions. Hopefully this can save you a lot of money. Guys, right now, beyond your dim weight, there's also the packaging materials angle. So here's something that's not getting enough attention. Approximately 85% of polyethylene exports from the Middle east pass through the Strait of Hormuz. Now, polyethylene is the base material for poly bags, bubble wraps, shipping mailers. Shortages and price increases in packaging materials are already being forecasted. So if you rely on plastic packaging, now's the time to audit your stock levels and consider alternatives. We used to use for healthish, we used to use tissue paper. Game changer, right? And you can get away with it. It looks good from a branding perspective. We had branded tissue paper. So that's that one. All right, now move number four. Make your website do the heavy lifting on trust. So this is the one that is most underestimated. And it's also the one that can have the biggest immediate impact on your conversion rate. So nearly 50% of all cart abandonments happen because of extra costs like shipping and taxes that appear too high on checkout. Think about that. Half the people who add something to your cart they get all the way are abandoning because of a surprise fee. So the fix here is radical transparency. Not just be clear about shipping costs. I mean, put your shipping information everywhere. Put it in your announcement bar, the top of every page. Free shipping on orders above 75 standard shipping from $8.95. Put it on your product pages, right next to your add to cart button. Put it in your cart before they even get to checkout. Put it in your email flows. If you're raising your free shipping threshold, send an email to your list explaining why. And then before you do it, you know, bring in some last minute sales. Please, guys, it's not a corporate defensive email. It's a human one saying like, hey, I want to give you guys a heads up. This is what's happening. Thank you for being a part of the community. Here's 15% off your next order. That kind of transparency builds community. It builds trust. And also displaying precise delivery dates, not just three to five business days, actual dates. And then think about locking in rates. Now this is something I've been hearing from founders who are one step ahead. If you're planning to Negotiate a new contract with a carrier or three pl. Do it now before peak season surcharges kick in. So guys, the big takeaway today is the fuel crisis. This isn't just a news headline. It's going to be a structural shift to unit economics. Don't be fearful though. The best businesses grow during economic downturns. We've had so many ups downs since COVID We're going to get through this together. If you are a brand that is looking for help, go to our website, go to founder.com forward/operators. Book a call with our team. Let's see if we can help you. We've got an incredible fast growing D2C community. It is incredible. But take away these four things that I shared with you guys. I can't stress this enough. Audit your shipping thresholds and rebuild your AOV strategy. Rethink your fulfillment model. Do a packaging audit, please. And make sure your website's doing heavy lifting on trust. All right, guys, I hope you enjoyed this episode. If this gives you a new perspective or if you have any other founders in your network that are D2C founders, please share this with them. Please share this, this pod with them. We'd love to help serve you during this time with your brand. All right, I'll speak to you soon.