The Issue: Carriers Raise Their Shipping Costs Annually
Major shipping carriers like FedEx and UPS announce a yearly increase in shipping rates of about 4 to 6%, known as the General Rate Increase (GRI). Shipping surcharges are also included in the GRI.
Moreover, the increase in shipping fees is not uniform through service levels. For example, there might be a 4.5% increase in ground shipping, but a 5.5% increase may apply to express mail. Similarly, carriers charge different additional handling surcharges for each shipping zone.
As you can imagine, the uneven shipping rate distribution directly affects the profitability of the shippers.
In this article, we look at the best ways to effectively manage shipping cost changes and save money for your business.
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7 Solutions You Can Implement to Reduce Shipping Costs
If shippers are not careful, the regular rise in shipping costs can destroy their bottom line. These rate changes affect your shipping spend just as much as other factors like shipping distance, DIM weight, and taxes.
Let’s look at some ways you can reduce costs and protect your business from carrier rate changes.
1. Consider outsourcing portions of order fulfillment to a 3PL.
Fulfilling all your orders from the same location gets expensive when you factor in the shipping across multiple shipping zones. Carriers charge higher fees for shipping to customers living in higher shipping zones. This means you either absorb the cost of shipping and reduce your profit margins or make your customers pay for them and risk losing sales.
By outsourcing portions of your inventory to a third-party logistics company, you can fulfill customer orders from fulfillment centers located closer to their geographic location. This helps speed up delivery times, reduce shipping costs, and save on your own warehouse space.
3PLs manage and fulfill a large number of orders each month. Sheer economies of scale gives them access to lower prices on everything including packaging supplies, so they pass on these cost savings to their customers.
Similarly, 3PLs can provide you with lower rates because they can negotiate volume discounts from carriers due to their large shipping volume.
2. Weigh packages and reduce dimensions.
Package dimensions and weight are two critical factors that affect the shipping fees charged by carriers. Optimizing your packaging can help you reduce the cost of shipping and boost your profit margins.
Whether you take the packages to the post office yourself or schedule pick up at your location, you should measure the weight and dimensions of your package beforehand, and attach the right shipping label. Sometimes a 1-2 pound weight difference results in double the shipping cost. Using a postage scale and tape measure, you’ll get closer to an accurate estimate of the shipping costs and avoid any unexpected fees and surcharges.
Most major carriers use the higher of the actual weight and dimensional weight to calculate the shipping rates. The dimensional weight takes into account the space occupied by your package to determine the shipping cost. This means that using a large box to pack a relatively smaller product could lead to higher shipping fees than if you would use the right box size to compactly pack your products.
A good rule of thumb is to measure the actual and dimensional weight of the product and packaging, especially if you sell products that are lightweight and large in size. If their dimensional weight is more than the actual weight, you should consider designing custom boxes that match the size and shape of your products. This option is particularly helpful if you sell such products in high volume.
Similarly, you can reduce package dimensions and weight by using lightweight packaging materials like bubble wrap, air pillows, and foam inserts. Corrugated boxes are also a lighter alternative to cardboard boxes and offer more impact resistance.
3. Offer a flat rate shipping fee to all customers.
FedEx and UPS increased their shipping fees by an average of 5.9%, and USPS hiked rates by an average of 2.7%. And when you factor in surcharges, the shipping process becomes more complicated for both shippers and customers.
In contrast, flat rate shipping offers the simplest pricing system as you charge the same shipping fees regardless of the order size and weight. This option is only feasible, though, if your products are similar in weight and size (e.g. cosmetics products), or if most of your customers order similar quantities (e.g. subscription boxes). You can encourage your customers to order within a specific weight or quantity range to qualify for discounted flat rates.
Alternatively, you can use flat rate boxes provided by your shipping carriers to mail your packages. They take the guesswork out of calculating the cost of shipping, so shippers don’t have to worry about any surprises.
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4. Look into offers from platforms and marketplaces you sell on.
An effective way to save money is to outsource your shipping to Amazon, AliExpress, or a similar shipping solution. It may seem like a costly option, but it lets you cut down on other expenses such as hiring workers, warehousing and storage, and order processing. Plus, Amazon offers free 2-day shipping, enabling shippers to delight their customers with fast delivery times. This option is only available, however, if you are selling on these platforms.
Amazon Prime Day also provides a great opportunity for retailers to offer free shipping to Prime members. It lets them select a day of the week to receive all their orders. Similarly, Amazon offers discounted rates to eligible sellers for LTL and FTL shipments.
Etsy is another useful eCommerce shipping option for small businesses that want to keep costs low. It lets you create and print shipping labels online and even offers order tracking to your customers.
5. Keep an eye on shipping carriers’ pricing changes.
Shipping carriers like UPS and FedEx announce a change in shipping charges on a yearly basis known as the General Rate Increase (GRI). This pricing change is the adjustment of shipping rates depending on the requirements of demand and supply chain in the shipping industry and increased prices of fuel and labor.
In addition to the base shipping rates, carriers also change their surcharges (e.g. fuel surcharges). However, you can still negotiate discounted rates, especially if you have a high shipping volume with your carrier.
The implication of an annual rate increase for shippers and eCommerce store owners is that they might need to adjust the prices of their products to protect their bottom line.
Carrier price changes along with different shipping options and shipping zones make shipping parcels more complex.
Sifted’s software helps businesses stay on top of carrier rate changes and optimize parcel shipping costs.
6. Choose the right packaging.
The weight and size of your package greatly impacts the total shipping cost. One of the most effective ways to target lower rates is to use alternative packing materials like poly mailers instead of cardboard boxes.
Cardboard packaging is heavy, and using lightweight poly mailer bags to ship packages helps you cut down on package weight. Similarly, cardboard box sizes are fixed, meaning its package dimensions decide the shipping costs even if there is empty space inside. In contrast, poly mailer bags are compact, making them more cost-effective than cardboard boxes for shipping non-fragile items like sweaters and pillows.
Another great way to lower shipping costs is to use packing supplies provided by your shipping carrier. Major carriers like FedEx, USPS, and DHL offer discounted packing materials to small retail stores and eCommerce businesses. In fact, USPS Priority Mail customers get better rates (along with shipping insurance) when they use the carrier’s shipping supplies compared to using their own packaging.
Experienced shippers know that buying packing materials like boxes, poly mailers, and dunnage in bulk achieves cost savings in the long run. Each unit cost reduces for each parcel when you buy packaging in bulk quantity.
7. Utilize a logistics intelligence tool.
When you self-fulfilling orders, you usually spend a lot of time receiving and processing orders. As a result, you have less clarity about the effects of shipment cost trends on your business.
A logistics intelligence tool gives you access to data analytics and automation tools that help you identify opportunities for cost savings. It lets you compare and analyze different shipment scenarios to understand true fulfillment costs. With this information, you’ll can optimize your logistics budget, and drive supply chain performance while substantially reducing your costs.
Optimize your shipping costs with Sifted Logistics Intelligence
Outsourcing your order fulfillment to a 3PL, offering flat rate shipping, and investing in a logistics solution are just a few simple ways you can reduce shipping costs and better manage the impact of carrier rate changes on your business.
Sifted Logistics Intelligence offers tools for shippers to better optimize and understand their shipping costs and where they can be reduced.
Ready to protect your business from shipping fee changes? Get a demo with Sifted today!