Looking for new ways to reduce parcel freight costs? If you’re not already using the following strategies, then you are missing out on the best ways to whittle down the 75% of overhead that your firm funnels into outbound parcel costs every year. Check our our eBook on parcel cost reduction.
With parcel costs on the rise, now is the time to reassess your strategy and utilize some or all of these tips in your own operations.
1. Shift inner-zone express shipments to ground shipping.
If a customer wants priority service, there is a substantial opportunity to cut costs if you have a fulfillment center close to the ship-to address. We’re talking about shipments within zones 1, 2 and 3. For instance, for a shipment from Dallas to Waco, TX that may have gone Express, you can shift the service to home delivery and still meet the 2-day delivery requirement.
Making this subtle change in service could provide substantial savings. Customers don’t care how you get it there, only that it’s on time. By shifting inner-zone shipments to a ground service, you can save $7–$20 per package − or 30–60% annually for packages shipping to zones 1–3.
2. Match the service desired with the right carrier solution.
Just as shippers can get locked into using a single parcel carrier, they can get locked into a specific service. But there are a wide variety of services available across parcel carriers, each with characteristics that may make it a more cost-effective option for some of your shipments. For instance, you may love USPS Priority Mail, but for certain types of shipments another option could give you that exact service level for 25% less.
One Etailer was shipping a high volume of lightweight packages nationally from two warehouses and paying significant surcharges for fuel, residential delivery and rural delivery. A shift to DHL eCommerce avoided the delivery surcharges, except fuel, and saved as much as $8 per package. DHL would not have worked for larger, heavier packages, but was the right choice for this set of products and distribution requirements. In other cases, a product from UPS, FedEx or USPS could be the optimal choice.
3. Change your packaging strategy.
Most companies don’t pay enough attention to the weight and size of their packages—an oversight that could add significant costs to the parcel shipping process.
For example, you may be incurring additional dimensional weight charges if you use a box that’s too big for the products that you’re shipping (by definition, dimensional weight reflects package density, which is the amount of the space a package occupies in relation to its actual weight).
Outside of dimensional charges, lowering the overall weight of a box can also help reduce parcel costs. For example, a box that weighs 2.04 pounds will be charged at the 3-pound rate—an issue that can be solved by lightening the box by just four ounces. This simple change can shave 5−10% off the cost of these shipments.
4. Change the packaging type.
One of the easiest ways to lighten up a parcel is by switching to a different packaging type.
For instance, for a major direct selling company Amware now uses a bagging machine (versus boxes) to reduce the weight of a package by a few ounces, while still accommodating the products that it holds. And because the machine handles label printing, label application, and package sealing, it also removes the labor component and related costs.
Going from a box to a jiffy bubble mailer can knock anywhere from four to six ounces off the total weight of a package and reduce weight-based costs significantly. One shipper was able to convert a 2.02-pound shipment to a 1.8-pound shipment by switching to a polybag. That resulted in a $0.48 savings per package. For an item that ships out 75,000 times a year, that's a $36,000 savings.
5. Change dunnage type to reduce weight.
Another easy way to make packaging more efficient is by changing the dunnage that you’re using. Seemingly innocuous, the inexpensive or waste material used to load and secure cargo during transportation can elevate parcel shipping costs by adding weight to your package.
Using less or lighter dunnage, for example, allows you to use a smaller package, while more traditional fillers (Kraft paper and bubble wrap) may take up too much space. Another option is the air pillows, which offer good cushioning, are virtually weightless, and are even available in eco-friendly, biodegradable varieties.
6. Leverage a 3PL that has a volume deal with a carrier.
One of the fastest and best paths to reducing parcel freight rates is to align with a third party logistics provider (3PL) that manages parcel transportation for many other companies. They negotiate with carriers using their aggregate spend as leverage.
At Amware, we can get discounts in the 40% range for heavier packages and significant, but lower, discounts for lighter packages. Discounts like this allow smaller and mid-sized companies to move up the food chain with the carriers and secure rates similar to larger competitors—a huge advantage.
3PLs will add some margin points, obviously, but the parcel discount they can negotiate is still far better than smaller shippers will get through direct negotiation.
7. Ensure good address quality.
Undeliverable packages can result in high costs for shippers, which have to pay for the return postage and the cost of reshipping the goods—not to mention the customer service issues that may ensue—to the right address.
You can avoid these costs by ensuring good address quality on the first go-round. Here’s how. Before shipping, address data can be run through delivery point validation software. Every address is sent to the USPS’ electronic files in 11-digit delivery point validation barcode quality that increases deliverability and helps shippers reduce parcel costs.
8. Offer multiple shipping options at different price points.
We know that consumer expectations are becoming more and more speed-driven as 2-day, next-day, and even same-day shipping become more ubiquitous. But cost is still very important. In fact, given the option of spending $8 for next-day shipping or spending zero for shipping that takes 3+ days, most consumers will choose the latter.
You can increase your chances of satisfying all of your customers by offering shipping options with varying costs and transit times. If some customers want to pay for express shipping, while others are willing to wait to get free or heavily reduced shipping, it may be in your best interest to provide both options (along with others if appropriate).
9. Add more fulfillment locations.
By getting the goods closer to the final destination, you shorten transit times and lower parcel freight costs.
Having your own network of sites to ship from has its advantages, but it is hugely expensive. A more economical option is to work with a 3PL that has its own national fulfillment warehouse network and can get you closer to your customers without the need for a big infrastructure investment.
If you distribute all orders from a single shipping fulfillment center, that also increases risk. In the event of a pandemic or natural disaster that shuts down operations, can you ensure business continuity?
10. Diversify your carrier base.
The pandemic created serious freight capacity challenges for parcel shipments. You need to be able to operate in a tight-capacity freight market.
To ensure your business has the eCommerce shipping capacity it needs, the first thing you may want to do is diversify your carrier base. Even if you’re getting a great rate from FedEx or UPS or DHL, that rate will do little good if the carrier can’t take your freight due to capacity issues. In this market, it’s best to expand your options by putting your eggs in multiple baskets.
If you use a 3PL to handle your warehousing needs but you ship under your own contract, you may want to rethink that strategy. 3PLs will have relationships with all parcel carriers. A single 3PL relationship gets you the carrier diversity you need and eliminates the risk associated with exclusive parcel shipment arrangements. Whether through a 3PL or your own transportation operation, creating competition may also open the door to better rates.
11. Watch your accessorial fees if you’re using UPS or FedEx.
If you’ve been using UPS or FedEx for a while, it may be time to audit your accessorial fees to ensure they’re in line with what you should be paying. Over the past several years, carriers have expanded or increased accessorial fees. For example, they’ve expanded the number of zip codes that trigger Delivery Area Surcharges. Also, dimensional weight surcharges can add 30% to the cost of every package if you haven’t rightsized your shipping box.
Ask yourself questions like: Are these accessorial fees correct? Which service fees are being charged the most by the carriers? Did the carrier deliver on time? Am I paying any “junk fees” that don’t apply to my situation? Many times, shippers overlook how high accessorial fees are as a percent of total parcel costs.
12. Audit invoices.
A parcel audit can extend beyond just the accessorial fees noted above. According to Reveel, somewhere between 3% and 5% of carrier shipments are late or incorrect and, therefore, eligible for a refund. A comprehensive audit would look at rates, billing adjustments, late shipments and compliance issues, such as excess over, short and damaged percentages.
13. Be wary of bundling.
If you have a deal with a major carrier, and that deal covers a range of services (i.e., truckload, less-than-truckload, and lightweight freight), you may be paying for those services as part of a bundle. The carrier may assign an attractive discount to the bundle, but you may actually be paying more than if you negotiated discreet agreements for each service.
Parcel freight drives fulfillment costs
For Ecommerce and direct selling companies, controlling overall fulfillment costs is a key to profitability.
While warehouse and pick and pack logistics costs are part of this equation, most of your logistics operating expenses are tied up in getting products shipped to buyers. To maximize profit, you need to reduce parcel freight costs.