Fed Watch: Navigating Fulfillment Costs in a High-Rate Economy

Fulfillment leaders today aren’t just managing operations, they’re managing exposure. In a high-rate economy where costs shift faster than forecasts, even the most capable teams are being forced to rethink how they plan, scale, and execute fulfillment strategy.

Taking a look at a few economic factors:

• The Federal Reserve projects two rate cuts by end-2025, though internal discussions suggest these may not materialize.
• Consumer spending is forecasted to grow more slowly than in previous years, just 0.9% real growth (Q4/Q4) compared to last year’s 3.1%.
• Rising fulfillment cost estimates: warehouse leasing is up 12%, container shipping costs are nearly $500 per unit, and logistics spend now exceeds $2.6 trillion, nearly 9% of GDP.

As consumer spending remains slowed and logistics costs stay elevated, brands are operating in a high-cost, low-margin environment—one that’s increasingly difficult to navigate without operational flexibility.

The Real Cost of Variable Fulfillment Inputs

As of mid-2025, the Federal Reserve continues to hold interest rates at elevated levels, with short-term borrowing costs steady around 4.25–4.50%. Although some analysts anticipate rate cuts later this year, policymakers remain divided. In the meantime, operators are forced to manage rising fulfillment costs amid the ongoing economic uncertainty.

Unlike fixed-cost departments, fulfillment is exposed to a dynamic mix of variables. Shifts in labor availability, real estate pricing, and freight rates—compounded by higher interest rates—are making it harder to forecast and control costs.

Let’s look at four factors that are reshaping fulfillment budgets in real time:

• Labor - Scarcity continues to drive wage increases. Hourly warehouse rates have risen to over $18/hour in many markets.
• Facilities – Industry outlooks show warehouse lease rates are up 12% year-over-year, with long-term contracts limiting agility.
• Inventory Holding - Interest rates directly increase carrying costs which typically run between 20-30% of total inventory value.
• Transportation - Container shipment costs have climbed to $500 per unit, further complicating cost projections.

Each of these inputs brings volatility. Together, they create a fulfillment environment that’s harder to forecast and more expensive to scale without the right support.

Taking Control: The Case for a Fulfillment Partner

Operators are increasingly reassessing what should be owned in-house and what can be externalized. Once seen purely as an operational backbone, fulfillment is now a financial decision point that can either introduce risk or create long-lasting resilience.

MIT’s Jim Rice notes,

“'Organizations should not focus too much time prepping for another pandemic or trying to handicap the next disruption… they should build resilience to protect against any threat.”

Supply chain resilience is about strategic flexibility. That might mean diversifying warehousing to mitigate regional risk, working with 3PL partners who offer scalable labor pools, or revisiting inventory models to avoid interest-driven margin shrink.

McKinsey Reports estimates that many companies are still holding 15–20% more inventory than pre-pandemic levels, even as interest rates remain elevated. That kind of exposure turns fulfillment into a high-stakes financial decision. Interest rates may fall, or they may hold longer than expected. But the ability to maintain execution integrity while managing cost variability is the foundation of competitive advantage in today’s environment.

Source Logistics

At Source, we help brands reduce fulfillment volatility and build operational resilience—without overextending internal teams or capital budgets. In an environment where cost stability and execution integrity are hard to come by, we provide the infrastructure, labor, and visibility needed to scale with confidence.

Here’s how we support that resilience:

• Flexible warehouse capacity in key U.S. markets—allowing brands to expand or contract without long-term lease exposure
• Value-added services such as kitting and display builds to protect sell-in and reduce costly rework
• Omnichannel fulfillment capabilities across retail, DTC, and wholesale—eliminating the need for multiple partners
• Real-time visibility and control tools to maintain service levels, even in volatile conditions

Whether you're reassessing infrastructure strategy or looking to stabilize fulfillment costs, Source acts as a true extension of your team—built to execute under pressure.