A lot of shippers start thinking about return logistics around the beginning of the year: The holidays have just ended, a new year is starting, and you’re flooded with returned presents. Overall return rates in 2023 were as high as 14.5% for all retailers, adding up to $743 billion in returned merchandise, according to the National Retail Federation. In 2024, that number is projected to hit $890 billion, with rates climbing to 16.9% — a 17% increase!
If you’ve just started thinking about reverse logistics now, it may seem like it’s too late to save your bottom line, but reverse logistics isn’t just for holiday shoppers who picked the wrong color. It’s a necessary part of shipping that most shippers deal with throughout the year, and not just for returns. That’s why the beginning of the year is a great time to reexamine the way you handle reverse logistics and make sure your process saves you time and money while keeping your customers happy.
What Is Reverse Logistics?
Reverse logistics is the process by which your goods return to you. This could be an end user shipping back something they purchased or a distributor returning unsold merchandise.
Types of Reverse Logistics
Some common applications of reverse logistics in shipping include:
- Merchandise returns and exchanges from end customers
- Packaging return for recycling or reuse
- End users returning products for repair, maintenance, remanufacturing, or recycling
- Products returned for disposal at their end-of-life
- Distributors, 3PLs, or your retail locations returning products that haven’t sold
- Failed deliveries
Not all shippers will need to deal with every one of these situations, but it’s a good bet that all will have to deal with at least one.
Why It’s Important to Plan for Reverse Logistics
To put it simply, returns cost big money: $25 to $30 per return, on average. Whether you pay for return shipping or leave that to the person making the return, every package that arrives at your door comes with a cost. These costs can include:
- Shipping, if you offer free returns.
- Labor hours spent processing the physical package, which can include unpacking, examining the return for damage or defect, and moving the returned item through the returns process.
- Additional labor hours spent processing the return, including checking it into your inventory system, creating support tickets, and possibly working out complications with the customer who returned it.
- Restocking and repackaging costs, plus costs to dispose of or recycle return packing materials.
- Shipping back to the customer in the case of exchanges or repairs.
All those costs can add up if you don’t have systems to move returns smoothly through your reverse logistics process. And as an added and often forgotten cost, customer satisfaction hinges heavily on how well you handle their returns! The NRF found that 67% of customers would be discouraged from shopping at a retailer after a negative return experience, while a survey from GoDaddy revealed that the vast majority of shoppers check return policies before making a purchase.
Shippers must balance their reverse logistics process between protecting their bottom line and keeping their customers happy.
Tips for High-Performing Reverse Logistics
1. Set Proper Expectations
For customers, the difference between a good and bad experience often has more to do with how they expected an experience to go rather than how it actually went.
By setting clear expectations about the return process (what can or can’t be returned, who will pay for shipping on every leg of the journey, how long the shipping will take, and how quickly you can process the return), you can fine-tune the balance you need to avoid escalating return costs. The most important thing is to set a clear policy and consistently follow it.
2. Choreograph and Automate
Lacking a clear and streamlined return intake process will cost you money, space, and time at every step. Fixing this process is one of the easiest ways to boost your bottom line, especially if you handle a significant reverse logistics load.
Optimizing your reverse logistics starts with making sure you have a smooth return initiation mechanism: How do customers request a return, who is notified, and what gears begin to turn as soon as that happens?
Once the return arrives at your facility, your number one priority is to keep it moving while keeping track of it at all times. The less time a returned product sits in one place, the less it costs you. Have a designated intake area and a step-by-step plan for how it gets from intake to wherever it needs to go.
Make sure the plan includes responsible parties, time considerations, and tracking requirements so that returns aren’t lost. Then, train on that process until your shipping associates can do it in their sleep.
Having tools that can choreograph all of this for you is icing on the cake. Great shipping software like 3G can turn manual processes into a well-oiled return automation machine by:
- Identifying the most cost-effective carrier for return shipping based on factors like location, shipping speed, and package dimensions. Automating carrier selection with 3G Pacejet Shipping eliminates the need for manually comparing carriers, while ensuring the best rates.
- Consolidating multiple return shipments into a single load using historical and predictive data can improve efficiency and reduce overall shipping costs.
- Preprinting return labels to include with outgoing shipments, improving the user experience (and user satisfaction) while reducing admin overhead and minimizing errors.
- Providing tracking and visibility into returns, reducing the risk of damage or loss, and optimizing inventory management to reduce costs.
- Allowing for alternate return addresses, letting you automatically direct returns to the nearest warehouse, 3PL, or repair facility, and saving retailers the shipping costs and logistical work of running a central return processing line in the same facility that the shipment originated in.
3. Plan for Problems
Even if you plan for how to do it right, you might get into trouble when things go wrong. What happens when a customer sends in an expensive watch for repairs, for example, and it gets lost or damaged in the process?
It’s impossible to plan for every eventuality, but the highest-performing shippers and retailers have layers of contingencies for when their reverse logistics process fails. Sit down with your team to identify potential failure points and create mitigation strategies for all of them.
Not only will these contingencies help you avoid costly pitfalls, but they’ll also give you cover when dealing with unhappy returners — and maybe even prevent them in the first place, with good communication.
Equally important is to know what happens at the end of the process: Where does discarded packaging material go? If you can’t fix something, how will you dispose of it, and what will it cost to do so? And is the customer aware of these end-of-the-line plans? If you choose to dispose of an unfixable part or product without first informing the returner, you might find yourself on the unpleasant end of a furious end user — even if they would have been happy to let you deal with it had they just gotten a heads up.
Building Strong Reverse Logistics Processes
Whatever types of returns you handle, having the right process in place is critical. Getting it wrong means unhappy customers and unhappy balance sheets; getting it right means not worrying about the after-holiday deluge every year and delighting and surprising your customers.
If you’re ready to untangle the web of reverse logistics and turn it into a process that works for you, get in touch with 3G to find out how our shipping software can help.