Cost of the Cold Chain: Perishable Shipping Solutions

Abstract

As he closed the books on September 2020, Mark Nelson breathed a sigh of relief. He and his business partners had just successfully raised $8.7 million of capital for their business venture, Perishable Shipping Solutions (PSS). The company had only recently seen its first month of profitability, and the cash infusion was crucial. Nelson had his sights set on $80 million of revenue in the next year. The future looked bright for the small, Ohio-based e-commerce fulfillment company specializing in the “cold chain.” PSS had seen an explosion of growth in direct-to-consumer shipments of specialty foods offered by its 70 clients. Shipment volume had exceeded 56,000 orders the prior month, and while utilization at its current storage facilities was low, Nelson knew the company would need to build new facilities and capabilities to reach the $80 million target he had projected for investors. Even without a capacity constraint, he knew that shipping costs, which exceeded $13 per order, were a major cost element for end-customers. PSS charged almost $30 per order shipped, but Nelson expected pricing pressures would increase over time unless PSS could find another basis of competitive advantage. Accordingly, he and his team were considering several expansion options, which the new capital could fuel. His concerns were: Which expansion option would best position the company for growth? And how much cost improvement could be expected? Excerpt UVA-OM-1700 Oct. 9, 2020 Cost of the Cold Chain: Perishable Shipping Solutions As he closed the books on September 2020, Mark Nelson breathed a sigh of relief. He and his business partners, Danny Catullo and Ruben Garcia, had just successfully raised $ 8.7 million of capital for their business venture, Perishable Shipping Solutions (PSS). The company had only recently seen its first month of profitability. The cash infusion was crucial. Nelson had high hopes for rapid growth, with his sights set on $ 80 million of revenue in the next year. The future looked bright for the small, Ohio-based e-commerce fulfillment company specializing in the “cold chain.” PSS had seen an explosion of growth in direct-to-consumer shipments of ice cream, meat, cheese, and other specialty foods offered by its 70 clients. Shipment volume had exceeded 56,000 orders the prior month (Exhibit1), and while utilization at its current storage facilities was low, Nelson knew the company would need to build new facilities and capabilities to reach the $ 80million target he had projected for investors. Even without a capacity constraint, he knew that shipping costs, which exceeded $ 13 per order, were a major cost element for end-customers. PSS charged almost $ 30 per order shipped, but Nelson expected pricing pressures would increase over time unless PSS could find another basis of competitive advantage. Accordingly, he and his team were considering several expansion options, which the new capital could fuel. His concerns were: Which expansion option would best position the company for growth? And how much cost improvement could be expected? . . .