Chewy seeks to cut transportation costs with new freight service

Diving brief:

  • Chewy has begun operating some of its transportation needs through its own fleet and network in a bid to achieve more reliable and less expensive transportation, CEO Sumit Singh said on the call to company results last week.
  • The initiative, called Chewy Freight Services, was launched in the Phoenix market in the first quarter. Chewy will look to expand the program further this year, Singh said.
  • Chewy Freight Services provides the online retailer of pet products “a deeper injection into the carrier network and enables a smoother package flow that improves both costs and the customer experience, particularly in the type macroeconomic environment we currently live in,” Singh added.

Overview of the dive:

The middle mile of supply chains has garnered increased attention amid the e-commerce boom that benefits companies like Chewy.

Some line-in-transit goods have already been sold online before a retailer stocked them. This raises the stakes for companies looking to meet higher delivery expectations from customers, Mac Pinkerton, president of CH Robinson’s North American surface transportation, told Transport Dive’s sister publication, Supply Chain Dive. , Last year.

Chewy’s launch of its liner haul initiative comes as the company faces higher out-of-stock levels and expects freight rates to remain high in 2022 – its new outbound shipping contract with FedEx went into effect in January, Singh said. During the company’s December earnings call, he noted that Chewy’s rates would increase as a result of the new contract. Chewy has already seen a 22% increase in cost of goods sold in fiscal 2021, in part due to outbound freight and shipping costs, according to its annual financial report.

Chewy Freight Services is just one way to address these supply chain challenges.

Chewy launched a program in January to bring inventory closer to customers and is in the process of launching an “overseas transshipment initiative” to position international inventory closer to distribution centers, Singh said. Additionally, Chewy has formed an in-house supply chain research and planning team that will enable “geolocated inventory discovery for customers,” as well as other inventory availability enhancements.

These initiatives will extend throughout 2022 and 2023 and will help Chewy mitigate most of the financial impact of its new FedEx contract within two years, according to Singh.

Chewy did not respond to requests for comment on Chewy Freight Services. Building trucking capacity in-house has become an increasingly popular option among retailers facing rising transportation costs. Dollar General, for example, plans to double the size of its private fleet this year.

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