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4 Ways to Correctly Budget Shipping Costs in 2022

Jun 20, 2022

16 min read

Common Shipping Mistakes

Shipping is costly, but essential in eCommerce and other businesses. It involves getting the correct orders to customers quickly at the most affordable rate. However, transporting these goods from your warehouse to the delivery destination requires logistical and financial resources. Among them, shipping expenses are a primary factor that can make or break the success of your eCommerce business.

Budgeting your shipping costs helps you keep them under control. This not only improves your company’s profitability but enables you to compete with the likes of Amazon while protecting your margins.

This is only possible when you avoid shipping mistakes that have a negative impact on your bottom line.

In this article, we point out common shipping errors that eat into your margins and discuss some of the best ways you can correctly budget shipping costs for your business.

Are shipping mistakes slipping past your glance? Take better charge of your shipping costs to avoid mistakes with Sifted’s Logistics Intelligence.

1. Inaccurate shipment weight.

The DIM weight of a parcel is one of the main factors that determines its cost of shipping. Based on this dimensional-weight pricing technique, small parcel carriers and LTL (less-than-truckload) delivery services rate lightweight, large-sized packages heavier than small packages, and accordingly assign freight class and charge fees.

Inaccurate measurements can lead to wrong DIM weight calculation. For LTL shipping, this means that if the weight calculated by the shipping company doesn’t match the weight mentioned on the bill of lading (BOL), you’ll be charged an additional fee for re-weighing and reclassification.

Similarly, if a shipment is weighed without accounting for the weight of pallet straps, skid, etc., you’ll get an inaccurate weight measurement.

As a result, you may have to pay higher fees if your package is assigned a new freight class and weight.

2. Inaccurate freight shipping class.

LTL shipping prices are determined based on the freight class of your shipments.

Freight class is a standardized pricing system that classifies LTL (less-than-truckload) shipments based on their “transportability”. This means in addition to the shipping dimensions, your shipping costs will be impacted by the value of your items, special handling requirements, density, and other factors.

Two same-sized pallets containing different items (e.g. laptops and footballs) may weigh the same but have different value, liability, and handling requirements. As a result, they’ll be assigned different freight classes and consequently charged different prices.

If you calculate the weight solely on its dimensional weight without factoring in its “transportability”, you may get the wrong freight class for your shipment. This means you’ll have to pay re-weighing and reclassification charges for the incorrect paperwork at the carrier’s terminal. These fees will be added to the initial shipping quote after the shipment is delivered.

Are shipping charges catching you off guard? Gain full visibility into your supply chain operations with Sifted’s Logistics Intelligence.

3. Relying on a single carrier for all shipments.

The exponential growth in online orders drove the total number of eCommerce order volume to 22.3 million orders for December in the U.S, up 19.3 percent for the same month in 2019.

Every year heading into the fall season, online businesses rush to prepare for the peak shopping season. Even in the presence of a large number of regional, domestic, and international carriers that compete on the basis of fast delivery times and affordable rates, most businesses stick with the carrier they’ve historically shipped with. Unfortunately, popular shipping services like UPS, FedEx, and DHL are overwhelmed during peak season, which affects their efficiency and service.

Failing to create a diverse carrier mix also keeps you from earning the best rates for your business. For example, a regional carrier’s last mile deliveries are typically cheaper compared to larger shipping companies. USPS offers the cheapest way to ship to residential addresses, whereas FedEx and UPS are cost-effective for sending to a business address.

In addition to this, many shipping companies offer free tools such as shipping apps that let you check shipping rates and integrations with order tracking features.

4.eCommerce businesses trying to meet the cheap shipping needs of customers.

According to a Deloitte survey, more than 72% of customers cited free shipping as one of their top reasons to buy online. Similarly, a 2022 Baymard Institute report revealed that 22% of customers abandon their shopping cart if the delivery was too slow.

Knowing that expedited shipping (same day, 1-2 days) is expensive, if you offer free and fast delivery to every customer, you’ll have to pay from your own pocket. Plus, this means you’re offering discounts to some of the customers who would have bought from you even if you didn’t offer free shipping.

Secondly, shipping rates have gone up year over year which means your profit margins will shrink faster as you absorb shipping expenses. This clearly is not a sustainable strategy to keep your customers happy.

5 Ways to Correctly Budget Shipping Costs

It’s a good idea to familiarize yourself with the shipping mistakes we’ve explained above and the actions you can take to avoid them.

Below we’ll go over some of the ways you can protect your bottom line against shipping mistakes.

1. Get a handle on your shipping profile.

Most shippers keep themselves busy with handling day-to-day operations and don’t take the time to look at the big picture of their shipping profile.

In a nutshell, your shipping profile is the weight and size of your package, its origin and delivery locations, and your service types. Your carrier has this information, and they use it to determine what to charge you for shipping.

Keeping track of these metrics will help you compare your cost of shipping over time, enabling you to accurately budget shipping costs and keep them under control.

For example, you can compare your package’s dimensions with corresponding shipping rates to see if you can target a lower shipping rate by reducing box dimensions. This might include using a poly mailer instead of a sturdy box.

2. Organize the hard data for your shipments.

If you want to accurately budget shipping costs, you’ll need access to accurate data. Keeping track of shipping metrics such as shipment volume, shipping costs, warehouse utilization, transit times, and average turnover rate will give you visibility into your domestic and international shipping processes and find areas where you can save money.

In addition to this, you can use a logistics solution to analyze historic data and compare with real-time information. This enables you to understand your budget breakdown and identify optimal locations for your distribution centers in a way that reduces costs and increases delivery speed.

For example, the transit time metric tells you how much time it takes for a shipment to reach a customer from your warehouse. A great way to optimize this metric is to move your distribution center closer to your customer to decrease expensive long-zone deliveries.

Similarly, if you work with multiple carriers, you can compare and contrast their service levels and shipping charges with your particular requirements to identify the best offer.

3. Optimize your contracts regularly.

Shipping is a huge expense and a critical process for many businesses. Parcel contract negotiation is a great way to make your logistics processes efficient and reduce shipping expenses.

A best practice before you start a contract negotiation is to get a clear understanding of your shipping characteristics and requirements, as well as your shipping history. This helps you identify areas where you can get a better deal.

For instance, you may find out that you deserve discounts for your shipment volume or overpaying in surcharges.

Optimize your contracts to identify areas where you can negotiate better rates with your carrier. Then decide whether to pass these concessions to customers or invest them in your business.

Sifted’s Logistics Intelligence empowers shippers through various cost optimizations, including contract optimization.

4. Understand the shipping expectations of your target customer.

When it comes to eCommerce shipping, customer expectations are more diverse than just “free and fast delivery”. Understanding and meeting these expectations can help you provide personalized shipping options to your customers.

For instance, some customers prefer fast shipping (same day, next day delivery) and are willing to pay extra for it, whereas others look for low prices with no preference for speed. For example, consumers ordering to a densely populated area are used to next day deliveries. In contrast, customers living in a remote location, expect longer delivery times.

The shipping expectations of B2B eCommerce customers are different from B2C customers. Businesses are not always interested in free and fast shipping, but they are more concerned with on-time delivery and getting the quality and quantity promised.

In the same way, LTL and small parcel customers generally have different needs, and the shipping costs are determined by different factors.

A great way to eliminate shipping expenses is by offering curbside delivery to your customers. As a result, customers can place the order online and collect their order by visiting the nearby business retail store.

Accurately calculate shipping rates with Sifted’s Logistics Intelligence 

Budgeting shipping costs helps eCommerce merchants and retailers know their limitations when offering affordable delivery to their customers. It also enables them to set rate targets, so they can identify the best shipping partners during contract negotiations.

Shipping mistakes such as inaccurate weight and freight class are a primary reason businesses miss their shipping budget targets. Online businesses can avoid these mistakes by developing their shopping profile, understanding the shipping needs of their customers, and optimizing their contracts.

Sifted’s logistics optimization solution offers tools for shippers to get a better handle on shipping costs for accurate budgeting.

Ready to protect your business from unforeseen shipping costs? Get a demo with Sifted today!

Topics: Shipping Costs
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