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.
Use parcel consolidation.
Parcel consolidation is a great way for shippers to reduce parcel freight costs by leveraging the last-mile capability of the United States Postal Service (USPS).
Shippers consolidate many individual packages destined for a specific city into a full truckload and then deliver these packages to the USPS terminal in that city, where they are injected into the postal system for final delivery. It avoids the worst parts of the USPS system (the hubs and handoffs that make it inefficient) and takes advantage of what is best about the system – daily home deliveries.
Explore zone skipping.
Zone skipping allows shippers to combine parcel distributions and ship them together to the destination region.
Parcel carriers assign rates, in part, based on distance and how many “zones” a package travels through. With zone skipping, packages enter the carrier’s system in the final delivery zone, avoiding the high cost of multi-zone moves. By consolidating shipments into a single, full-truckload shipment —and then delivering it within a specific zone—you can reduce the cost of parcel shipping, speed up delivery times, and even minimize the likelihood of delays and potential damage.
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 two pounds and four ounces will be charged at the 3-pound rate—an issue that can be solved by lightening the box by just four ounces.
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.
This strategy can also help reduce costs for programs like Parcel Select Lightweight, where everything is weighed and priced out by the ounce.
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. Multiply this savings across thousands (or millions) of packages a year and the overall reduction in costs can be dramatic.
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.
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.
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.
Change the service.
We know that consumer expectations for delivery are shifting to a same-day, next-day, 2-day mindset. But does that package really need to get there that quickly? In some cases, for example, would a 3- to 5-day window do the trick? These are the types of questions that you need to ask if you want to reduce overall parcel costs.
One way to address this issue is by offering customers a variety of shipping time options and then setting expectations around those parameters. Most customers want a lower cost and will wait an extra day or two for the delivery.
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’ve been working with the top two parcel carriers for the last few years, it may be time to consider alternatives in your quest for higher quality and lower prices. Don’t be afraid to put your contract out on the open market and shop around a bit for a better deal.
“There are a lot of other options out there,” says Patrick Kelley, executive vice president at OSM Worldwide, which provides residential and package delivery services worldwide. “During your search, be sure to consider all factors – the quality of services, customer support, and pricing.”
Work with a local sales rep of the large carrier.
According to freight transportation consultant Giles Taylor, of Trans-solutions, the current market favors parcel carriers.
“Shippers understand truckload and less-than-truckload shipping and how to negotiate the best deal from the many competing carriers out there,” he says. “But parcel is still a black box to many. When determining small parcel rates, parcel carriers are masters of accessorial charges, which include dimensional weight surcharges, residential delivery surcharges, and other costs over the base rate. Big rate discounts don’t always result in less money paid.”
One way around this challenge, according to Taylor, is to work with the parcel carrier’s local sales rep. The national reps are regularly exposed to bigger deals and may be less inclined to get aggressive with smaller shippers.
Watch your accessorial fees if you’re using UPS or FedEx.
If you’ve been using one or both of these carriers for a while, it may be time to audit your accessorial fees and make sure they’re in line with what you should be paying.
Ask yourself questions like: Are these fees correct? Did the carrier deliver on time? Am I paying any “junk fees” that don’t apply to my situation? Many times, shippers overlook how much they’re shelling out every month in accessorials.
Basically, the key is to maintain oversight over what you’re being charged and look for areas where you may be able to reduce costs.
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.