There's more to Free On Board (FOB) delivery than picking up
the tab for shipping
By Kira Vermond
It's hard running a bookstore in Goose Bay, Nfld. Just ask
Gail King, owner of Books Etc... who opened her small operation just over a year
ago after receiving a business loan from the local bank. For starters, the
population is small and demographically erratic -- Goose Bay is also a military
base and the population fluctuates with suitable flying weather.
Then there's the isolation. The small Labrador community at
the tip of Lake Melville is considered a destination point rather than a place
people pass on their way somewhere else, so customers who visit King's 1,000
square-foot shop can hardly be described as part of the freewheeling, money
spending tourist sector. Add that to the high rent typical of many northern
communities, and return on investment is hardly described as inspiring.
"We're isolated," she says. "It's a gamble and I'd say I'm
juggling everyday."
King's original goal was to open a toy store, but quickly
realized she would be more likely to receive a business loan if she opened the
town's only bookstore. Her instinct was right. At present, Books Etc... is just
that: a bookshop that -- out of financial necessity and King's personal interest
-- also sells educational toys and giftware.
"I don't think I could survive on books alone," she says.
But it is the shipping costs and delays that remains the
biggest thorn in King's side. Marking up prices in Goose Bay is commonplace
since nearly all goods are either flown in or arrive on trucks. King, however,
doesn't like the idea of up-pricing in her store even though she has to pay
more for shipping than her colleagues further south.
"You can't turn around and put a higher priced sticker on
your book," she says. "We get enough of that in Labrador where you're paying so
much more for things, so I'm proud to say to my customers that I don't change
prices on books unless I really have to."
Of course she also tries to cut costs by dealing with
publishers and distributors that pick up shipping costs. In fact, King goes so
far as to say that she usually does business only with those larger publishers
that ship for free -- naming publishers such as Random House, Bantam and Harper
Collins.
Booksellers like to use the term FOB (free-on-board) to
describe this shipping process. The term FOB, however, is much more complicated
than that. In fact, historically, FOB was used to describe an aspect of overseas
shipping that involved delivery by ship. If a product was shipped FOB, the
seller would pay for the shipping of the product to the ocean-bound vessel.
Once that product was "on board" the buyer would be responsible for costs to
bring it overseas.
The term FOB can now be used in three ways:
•
FOB Origin, Freight Collect: The receiver (or bookseller)
controls the routing and selection of the carrier and is responsible for cargo
risk in transit and freight charges.
•
FOB Destination, Freight Prepaid: The shipper (publisher or
distributor) controls the routing and selection of the carrier plus is
responsible for cargo risk in transit and all freight charges. This description
fits the publishing and book selling industry's term of FOB, or free freight.
FOB Origin, Freight Prepaid: The supplier (publisher or
distributor) pays for freight up-front and has the right to route and select
the carrier plus determine loading arrangements. When the publisher receives
the freight bill for the transportation charges, however, that charge is added
to the bookseller's invoice.
Although the proper definitions attributed to FOB may
indicate that booksellers may be held accountable for cargo risk including
damaged goods, publishers rarely set up contracts that hold booksellers to it.
If a shipment of books comes in damaged, the bookseller, of course, sends it
back to the publisher for an exchange.
While there are obvious benefits for booksellers when they
receive free shipping, there are also benefits for publishers. Paddy Laidley,
director of sales for Raincoast Books in Vancouver, says one of the biggest
benefits to the publisher revolves around creating an atmosphere of goodwill
between booksellers and publishers. This feeling of trust means that more
booksellers feel comfortable ordering from Raincoast -- despite the fact that
the publisher is often far from its major client base. Its cut-off is a $1,000
order.
"Unless you've got a John Grisham or a Margaret Atwood or
something really big, often booksellers can take or leave any given one of your
books. I think anything that makes it worth people's while to deal with you is
a good thing," Laidley says.
The company has much more to contend with in terms of
shipping than most publishers due to its location, but Laidley says the switch
to FOB prepaid is worth it.
"Obviously it costs us, but we factored that into the
equation and decided we could afford to do it," she says.
While the biggest benefit to publishers that are shipping
FOB prepaid is their books are more likely to make it on the shelves, one of
the largest disadvantages of picking up the shipping tab is in the shipping
itself. Shipping freight is a variable cost that publishers cannot control. For
example, if the price for oil and gas go up, so can the cost of shipping. This
variability can make it hard to forecast next year's profits.
Mike Bazinet, a distribution manager with Firefly Books
Ltd., which doesn't pay for shipping, says whether a publisher pays for freight
or not can come down to how it wants to handle discounts.
"Most people are asking, why freight prepaid and why freight
collect? And the answer is very easy. It's just all a matter of finances. You
offer somebody a big discount, but you have them pay the freight -- or you offer
somebody a smaller discount, but you pay the freight. It all depends on
finances and where your profit line is," Bazinet says.
Some Toronto booksellers use FOB prepaid as a negotiating
tool when ordering stock. Gerry Ruby, president of Litchman's News and Books,
says when an out-of-town publisher charges him for freight, there isn't much he
can do about it, but when a Toronto-based publisher tries to charge for freight
he might argue.
"When they try to charge us freight, then I say, 'well, give
us a bigger discount so you're competitive with the people I don't pay freight
to,' " Ruby says.
So does free-on-board prepaid delivery really create a level
playing field? On the surface, free freight across the board, from Halifax to
Victoria, seems to point that way. Still, if Toronto booksellers are receiving
higher discounts on orders because of their store's location, the playing field
could become rather muddy.
To make matters muddier still, some questions remain: does
the price of books go up because the cost of shipping to places such as Goose
Bay or Whitehorse costs money -- money that comes from production? Should
booksellers in remote areas pay for their shipping so others don't have to
subsidize the cost?
Having to pay for shipping would spell hard times for Gail
King in Labrador. If her main publishers were to suddenly expect her to pay for
her own freight costs, she could be in trouble.
"The thing is, it's like your hands are tied. I mean what
can you do? You have to order your books from these publishers," she says. Unless
you go to an American publisher like Ingram that has everything. But the
Canadian dollar is so low that it's like you're giving your books away if you
order from them."
Ruby is well aware of the hardships that smaller independent
bookstores face and feels for them.
"Those little stores aren't getting more than 40 per cent
anyway. I sympathize with the smaller individual because he has no leverage so
instead of making 40 per cent, he's making 36, 37 or 38 per cent, depending on
the shipping costs.
"It's ethically wrong for me to say, 'well, don't charge me
freight, but charge everybody else.' "
At the same time, Ruby admits that free-on-board prepaid
delivery can have a negative effect on smaller publishers that don't offer the
service, especially if they're approaching a larger bookseller such as
Litchman's News and Books.
"If somebody came to us and said, 'here, order two copies
for every store and it's going to cost you for freight,' we would probably say,
'wait until you become a bigger publisher and have more of a selection.' "
Raincoast Books is no longer a small operation that asks
booksellers to buy two copies of a book at a time. The company has a division
that acts as a regional wholesaler and has also set up a fulfillment division
that allows University of British Columbia Press, Red Deer and others to use
the warehousing facilities. By adding these groups, Raincoast Books now has
enough bulk or critical mass so that if a bookseller wants to buy a few books,
they can combine their order with books from the wholesaling division to
generate a $1,000 order and receive free freight.
Gail King is happy about that. She says that since the Chicken Soup
books are now being sold by Raincoast, she would be more likely to buy from
them when her new business picks up enough to need $1,000 orders.
"I don't think the idea of free freight is going to go
away," Raincoast's Laidley says. "I think booksellers want it, and in many
cases need it, so we have to look at ways of making it work for both sides. I
don't think it's realistic to think that publishers can ignore the issue and
say, 'we can't afford to do it' because I don't think booksellers are going to
accept that."
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