February 8, 2001, 12:00 AM

Jupiter predicts 33% will outsource shipping

Spending for private trading network infrastructure to hit $37 billion by 2005

Thirty three percent of online retailers will outsource shipping to drop shippers in the next year, seeking a solution to fulfillment woes that have thwarted their attempts at profitability, according to a new report released today by Jupiter Media Metrix. The report finds that 44% of online retailers lose money on shipping and handling, but Jupiter analysts say merchants can drastically reduce labor costs and processing times by using Internet fulfillment networks that connect them with manufacturing and distribution partners.

Jupiter analysts say merchants must use Internet "fulfillment nets," a type of private trading networks, to automate drop shipping processes -- including order routing, performance monitoring and real-time inventory checks. Jupiter analysts believe retailers can save up to 25% in labor costs by using the fulfillment net approach.

"Merchants that deal with numerous drop-shipping suppliers are finding that `fulfillment nets` offer huge advantages over the traditional and widespread use of telephone and the fax," said David Schatsky, research director and senior analyst at Jupiter. "With setup costs typically in the low five figures, and transaction fees typically in the one-dollar range, Internet fulfillment networks offer a clear economic advantage."

Jupiter projects that spending on infrastructure for private trading networks will rise sharply, from $465 million in 2001 to $37.4 billion in 2005. Jupiter analysts believe that "fulfillment nets" should experience similarly vigorous growth. Thirty seven percent of online retailers cite the cost of shipping as a major fulfillment headache, according to the Jupiter Executive Survey. According to Jupiter analysts, fulfillment net providers will begin to add an array of services to support procurement and will increase retailers` dependency on fulfillment net providers.

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