How to Lower Shipping Costs
Rising shipping costs are the biggest challenge for more than half of eCommerce retailers. Small businesses may find it easier to weather the storm, but if your business ships a large number of domestic, freight, and international shipments, you need a robust shipping strategy to reduce your shipping costs.
But shipping is about more than just lowering costs. This guide will point to all the resources you need to develop a robust shipping strategy that meets your needs and makes your customers happy.
1. 7 Solutions You Can Implement to Reduce Shipping Costs: High shipping costs are one of the major causes of shopping cart abandonment. Offering fast, affordable shipping options can help you avert lost revenue and increase profitability.
Instead of sticking with the first shipping carrier you come across, negotiate with several carriers to get better rates based on your shipping volume.
Another way you can control your shipping costs is to eliminate unnecessary services such as signature requirements and declared value if you don’t need them.
Read our guide on how to track, optimize, and reduce shipping costs
2. 4 Ways to Correctly Budget Shipping Costs: Smart shippers reduce shipping costs by budgeting these expenses, eliminating mistakes such as inaccurate shipment weight and assigning incorrect freight shipping classes, and regularly optimizing their contracts.
Carriers use the dimensional (DIM) weight pricing technique to calculate the shipping fees for each package. They do this by determining a package’s cubic size (multiplying its length, width, and height) and dividing the total by a standard DIM divisor. You can use our DIM weight calculator to compare billable weights between FedEx, UPS, and USPS.
3. How to Lower Delivery Area Surcharges: Carriers apply delivery area surcharges on shipments outside their standard delivery area, such as remote and rural areas (e.g., Alaska and Hawaii). These charges help them cover the costs of additional fuel, labor hours, and time to deliver the package to distant locations.
Shippers can lower their delivery area surcharges by hiring a regional parcel carrier or offering customers self-pickup options.
Best Packaging Options
Packaging increases the perceived quality and appeal of your products and protects them during the shipping process. When done right, packaging can create a memorable unboxing experience for your customers.
Packing materials are also important for safely delivering your products to customers. Padded and bubble mailers are lightweight and useful in transporting small goods. Pallets are ideal for shipping large cargoes that require forklifts to load and unload on trucks, and paper and cardboard packaging is reusable, effective, and eco-friendly.
Read about 6 companies innovating eco-friendly packaging.
1. Shipping and Package Dimensions: DIMmed If You Do, DIMmed If You Don’t: Major carriers like UPS and FedEx use the dimensional pricing (dimensional weight) technique to factor in the cost of carrying large-sized, lightweight packages. This means your shipping fees are calculated based on the space they occupy on the delivery truck.
2. 3 Ways Package Dimensions Affect Your Shipping Costs: Shipping carriers apply additional handling surcharges on packages that exceed their set weight and dimensional requirements. In addition, you may be charged oversized/large package surcharges on residential deliveries, which are higher than commercial shipments.
An effective way to avoid dimensional pricing is to use flat-rate shipping boxes provided by shipping companies.
Read more in our blog Non-conveyable shipments: what it means and how to avoid it.
Carrier Options
Since the pandemic, more shippers are turning toward regional carriers to fulfill their customers and implementing a multi-carrier strategy.
Major carriers like FedEx, the United States Postal Service (USPS), UPS, and DHL provide national and international shipping services. In contrast, regional carriers such as OnTrac, CDL Last Mile, and Lasership operate within a limited geographic location.
Most regional carriers make deliveries within a localized area – offering same-day and next-day delivery services. In addition, they provide less–than–truckload (LTL) services for freight shipping.
1. When to Use a Regional Carrier: Consider using a regional carrier if you want more flexible delivery options, such as direct routes or overnight shipping options. Similarly, if you have clusters of customers within the same city or state as your distribution center and you want faster transit times.
Cost reduction is another reason why you should use regional parcel carriers. They have significantly lower minimum charges compared to national carriers for moving goods within a shorter distance. In addition, regional carriers apply fewer surcharges during the peak season and offer faster last-mile delivery times.
2. Shipper & Carrier Agreement vs. Contract: What’s the Difference?: You can reduce exposure by diversifying your dependence on a single parcel carrier. Having an informed view of your spend and carrier’s performance gives you more negotiating power in parcel carrier agreements.
Read more in our complete guide to how to boost your confidence before your next contract optimization.
Carrier Considerations
It is becoming increasingly difficult for shippers to keep costs in control, thanks to the annual General Rate Increase (GRI) and peak season surcharges imposed by shipping carriers. The increased demand for expedited package delivery has led shippers and eCommerce businesses to look for cheaper and faster ways to meet customer expectations.
1. 2023 UPS & FedEx General Rate Increase (GRI) Analysis: UPS and FedEx announced a 6.9% average increase in their 2023 tariff rates, along with higher accessorial charges, including packaging requiring special handling and residential and remote area deliveries.
The impact of the shipping rate changes on shippers varies based on their carrier agreement terms and shipment characteristics. For example, shipments going to higher shipping zones will be impacted more due to additional fuel and remote surcharges.
Read more about how zone skipping can transform your parcel shipping strategy.
2. 7 Parcel Shipping Companies: What’s Best for Your Business?: Choosing the right carrier can be a tricky decision with long-term consequences. Shipping carriers have a significant impact on a business’s supply chain ROI. Hence, it is essential to carefully evaluate and analyze your shipping options based on their cost, quality, shipping methods, reliability, and capacity.
3. Minimize Shipping Costs And Package Delays With FedEx And UPS Service Guarantees: Shipping delays are not uncommon, but sometimes even a few days’ delays can result in a considerable loss of revenue. This is where carrier money delivery guarantees could make all the difference. FedEx and UPS fully reimburse your shipping costs if they fail to make deliveries within the promised time.
Third-party Logistics Providers (3PLs)
Most small and medium-sized eCommerce businesses understand the importance of outsourcing their warehousing and delivery operations to an order fulfillment service.
1. What Are 3PLs and How They Help Reduce Supply Chain Management Costs?: A third-party logistics (3PL) company is a logistics provider that enables businesses to outsource and improve their warehousing, packaging, transportation, and distribution services.
3PLs seamlessly integrates their logistics management system with the customers’ WMS to improve workflows and fulfill orders in a streamlined and cost-effective manner. As 3PLs work with multiple manufacturers and retailers, they can negotiate volume discounts from carriers and procure shipping supplies and equipment at wholesale prices. This enables them to pass on these cost savings to their customers.
2. Everything You Need to Know About 4PLs: 4PLs (Fourth-party logistics) providers are companies that provide 3PL services along with additional services such as supply chain management and consultancy services. They manage the entire supply chain for their customers and serve as the main point of contact between a company and its logistics partners, including suppliers, distributors, and carriers.
Reverse Logistics
Reverse logistics is the set of activities that moves returned goods from the customer back to the manufacturer or point of origin. This process helps recapture value from the returned items by recycling, reclaiming raw materials, or reselling them.
Due to the high costs of return management, large retailers like Amazon and Walmart often refund the purchase price of products and tell the customers to skip returning the product when they ask for a return.
1. 15 Things You Need to Know About Reverse Logistics: Some 3PLs offer returns management services, including collecting returned items from customers, restocking them in the warehouse, or delivering them to the point of purchase.
Read more about forward and reverse logistics.
2. How to Get Your Reverse Logistics Costs Under Control: You can reduce your reverse logistics costs by carefully analyzing and improving your product design and manufacturing processes, implementing the proper practices to improve customer service, and hiring a 3PL partner to better manage and repurpose your returns.
Simplify Your Shipping Operations with Insights from Sifted
Shipping is the last warehousing process and critical to your business’ success. Successful logistics planning and strategy are essential for delivering products to your customers cost-effectively and efficiently.
Sifted Logistics Intelligence offers tools for shippers to measure the performance of their shipping operations. It uses AI prediction technology to improve the efficiency of your supply chain by simulating alternative scenarios to existing procurement, inventory management, and transportation processes.
Make better-informed decisions that result in improved profitability. Get a free demo from Sifted!
