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The Truth About California Fulfillment Costs and Needs

Geoff Whiting

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California fulfillment locations are often hyped as premium locations because they’re near major ports, but most marketing downplays their high costs. Knowing if they’re right for you can be a tricky proposition. That’s especially true if you don’t look at the total cost across your supply chain and fulfillment efforts. So, let’s look at why you’ve probably heard about California fulfillment. Plus, we’ll discuss what to understand when choosing warehouse and distribution locations from a 3PL. You just might find that a place like Salt Lake City, Utah, offers everything you need at a lower cost. Here’s what to know and ask.

california fulfillment container ships
Photo courtesy of the Port of Los Angeles

Why is California fulfillment so expensive?

In general, California is an expensive place to operate. When companies have facilities in the state, they often face higher taxes, regulatory costs, and payrolls. That’s true for all types of operations, not just California fulfillment services. However, what really eats into most budgets are property costs.

With access to some of the largest ports in the world, many companies see California as a prime location for warehousing and fulfillment services. That has been true for years, long before the current demand. But, thanks to eCommerce fulfillment, warehouse demand has exceeded supply in Q4 2020 and in 2021. That same report notes that many communities in California are limiting or placing restrictions on warehouse sizes. This increases the demand for those locations, which can drive up the price of renting, purchasing, or developing a warehouse.

While average commercial real estate rents increased roughly 7.1% from 2020 to 2021, the industrial zone east of L.A. rose 24.1%. Storage rates for businesses have doubled in recent years, according to the Wall Street Journal. Steady, significant price increases have become the norm in California.

3PL warehouse

More ways you’re paying even more

California fulfillment services also have some added costs that aren’t apparent at first. For example, warehouses need access to fuel for a variety of equipment. California typically has some of the highest fuel costs and taxes. So, California warehouse locations will often pass some of that increased cost to you. You may have noticed a recent increase in fees as the state increased its gas tax on July 1, 2021. New regulatory requirements are also increasing prices, especially for the equipment warehouses need.

What businesses need to ask is if a California fulfillment warehouse makes sense. Does the added expense offer a true benefit? Or, can other West Coast fulfillment locations provide the same access at more affordable rates with higher levels of service?

fast California fulfillment

Does your business need California fulfillment for fast shipping?

California fulfillment presents an interesting logistics challenge. It can speed up some of your inbound shipment activities and lower some expenses because you’re moving containers or LTC (less-than-container) loads a shorter distance. However, companies without a very high order volume and a California-centric customer base may not come out ahead. That’s because of the increased costs mentioned above, plus higher last-mile costs for fast orders.

Companies, especially growing eCommerce stores and national brands, should ask if this location gives you affordable access to all your customers. And, ask if you could get that same reach from a less expensive location. Red Stag Fulfillment, for example, offers a Salt Lake City, Utah fulfillment location. It offers our customers more affordable access to larger warehouse spaces and still ensures our network can reach 97% of Americans within two days. Our customers move their goods a bit further inland to avoid some of California’s high costs. But, they still reach most customers on the West Coast within two days.

Salt Lake City performance statistics

Why would Salt Lake City make sense for your operations? It offers:

  • Lower labor and warehouse costs
  • 99.998% shipping accuracy
  • 99.95% picking accuracy
  • Guaranteed zero-shrinkage allotments
  • Full coverage of your West Coast customers
  • Access to the highly-rated regional carrier OnTrac

Most customers are willing to wait at least two days for their online orders, despite what a certain online marketplace wants us to believe. With central inland locations, you can give some customers options for faster, more expensive shipping while giving everyone default options that don’t break your bank or theirs.

nationwide and California fulfillment coverage

Prioritize national transportation capabilities

While managing inbound costs with California fulfillment locations can be tempting, few eCommerce companies only have customers in one specific region. If you want to reach everyone quickly, it’s better to have a nationwide 3PL partner. They’ll provide you with access to multiple locations designed to meet every customer quickly and affordably.

Using multiple locations allows you to manage inventory better and limit the chance of a complete stockout or unavailability. Moving away from expensive markets and to places like Salt Lake City ensures you can afford more warehouse space, allowing you to stock higher volumes during uncertain times. One common concern during the past few years has been supply chain disruption and container availability. Make the most of all your imports and inbound shipments by making it cheaper to import and store larger quantities so you can continue to support your customers and grow sales.

National capabilities also give you access to regional carriers, which often reach nearby customers as quickly as national brands but at a reduced cost. Many regional partners have high service levels and proven reliability. Red Stag Fulfillment’s regional partners often score among the highest of carriers in terms of customer satisfaction.

Don’t limit your capabilities or harm potential sales by having a single coastal location. Don’t hamstring your business by making it hard to reach across the U.S. Find a partner whose services focus on the entire country and work to help you minimize and control costs from multiple angles. It not only helps you grow but provides layers of protection in the event of natural disasters, supply chain issues, and other concerns.

Don’t let convenience become inconvenient

Many 3PLs will tout California fulfillment as a convenience. Unfortunately, that usually takes a one-size-fits-all approach to fulfillment, instead of looking at what your specific operations need to succeed. Whether you have a tighter budget, ship many small orders, need to control shipping zones, or have customers in every region, a limited, California-focused fulfillment network can turn inbound convenience into an outbound nightmare.

Instead, work with your 3PL partner to determine what’s right for you. Find a solution that makes sense for your orders and SKUs, such as Red Stag’s expertise in heavy, oversized, and luxury items. Ask questions about service and support to ensure you’re saving instead of simply shifting costs down the supply chain. Get guaranteed reliability and service capabilities that you can use to protect sales and delight customers.

And most importantly, get the truth about your needs. Ask if California fulfillment services make sense or if other locations better serve you. Get a realistic estimate of pricing and an understanding of what your average zone would be if you chose to be in California. See if there’s a change if you then switched to Salt Lake City. If your customers are still covered, is California nothing more than an added expense without an added benefit?

Salt Lake City overall service accuracy
Salt Lake City from Q4 ’20 to Q1 ’21

Salt Lake City is a center of fulfillment growth

Always ask your partner how they help you grow. It’s what every 3PL should be willing to do. For Red Stag Fulfillment, it’s just the start of how we help. Our Salt Lake City location is designed to be a reliable part of your network, with a focus on keeping costs down and allowing you to scale. Our shelves are ready and waiting. Click below to learn more.

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Red Stag Fulfillment is a 3PL founded by ecommerce operators, and built for scaling businesses.

A team of fulfillment fanatics who care about our clients’ businesses like their own. We see things from our customers’ perspective, and have the guarantees to prove it.

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