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Are you shipping to homes using one of the large parcel carriers? If so, you’re most likely paying residential delivery surcharges on top of your regular shipping costs.
To avoid these costs, you can use the U.S. Postal Service (USPS) for more economical final-mile delivery. This strategy is most appropriate when shipping items under 15 pounds.
Using USPS doesn’t necessarily mean bypassing the big parcel shippers. UPS (SurePost), FedEx (SmartPost) and DHL eCommerce have programs that ship across the country but use USPS for final-mile delivery. In fact, all of DHL’s final-mile deliveries are done by USPS.
Savings Potential: By eliminating the current residential delivery surcharge of $3.80 per shipment, you could potentially save 20–40% of the total delivery expense. This surcharge typically increases annually.
Shippers seeking to reduce parcel shipping costs can get overly focused on negotiating the highest discount off the published rate. But, according to Reveel Group research, about 35% of a company’s shipping expenses are accessorial surcharges. For instance, you’ll pay extra to delivery to homes, and even more to deliver to rural areas. The price impact of residential delivery and delivery area surcharges could be $1.40–$4.65 per package. Nothing to sneeze at.
To minimize these charges, online buyers’ checkout options for shipping can include delivery to a work address, or they can choose a “pick up at store” or “hold at location” option. For “pick up at store,” national retailers can offer huge convenience to consumers who want their items fast, even same day. For “hold at location,” parcel carriers themselves are aligning with national retailers (Walmart, Walgreens, Kroger, Dollar General and Michaels Stores, to name a few) that serve as delivery points for later pick-up by the customer. This is obviously a more economical delivery method for parcel carriers since they can do many consumer deliveries with a single stop. And, consumers increasingly see it as a “theft-proof” alternative to the package left at the doorstep.
There are also cost-saving advantages from improved packaging and rightsizing (or eliminating) shipping boxes. Dimensional weight surcharges can increase rates up to 30% per package, depending on the dimensions.
Savings Potential: 10–30% annually from reducing shipping surcharges by parcel carriers.
Great ideas and successful businesses are born in every part of this country. But your headquarters location isn’t always your best shipping location.
You need to consider the number of shipping zones between your location and your customer base. If you’re going to be shipping across many zones, consider moving your shipping operation to a distribution center in a more central location.
As an example, a Vermont company was shipping exclusively from its New England hometown and was spending an inordinate amount of money shipping across many zones for most of its orders. When the company added an Atlanta fulfillment center, it began to see significant savings, even after incurring the cost of a new distribution location.
Savings Potential: Typically, about 10% by going from 1 to 2 shipping locations. About 30% by going from 1 to 3 locations.
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.
Savings Potential: 30–60% annually for packages shipping to zones 1–3. Note: You can either optimize the shipment on the back-end and keep the money or program your website to present the customer with cheaper options that meet a rapid delivery goal.
When examining shipping costs for eCommerce ops, too often online sellers focus solely on the transportation mode, forgetting about potential savings linked to how products are packaged. Packaging strategies that could be considered include:
Right-size your packaging. Shipping costs have historically been calculated based on actual package weight. But parcel carriers recognized that they were losing money on larger, lighter-weight packages that ate up truck space. So, they started charging based on dimensional weight, or “dim weight.” Dim weight is the theoretical weight of a package – what carriers think the package should weigh, given its size, at minimum density.
Since 2015, FedEx and UPS have charged based on what is greater, the dim weight or the actual weight. To combat this, start by rightsizing your packages and providing the exact dimensions of each box to the carrier.
Savings Potential: 2–5% annually
Change your packaging type. A box that weighs 2 pounds and 4 ounces will be charged at the 3-pound rate—an issue that can be solved by lightening the box by just four ounces and kicking it back to the 2-pound rate. One of the easiest ways to shave off ounces is to switch to a different packaging type, such as a poly bag or jiffy bubble mailer. For instance, Amware Logistics now uses a bagging machine for a major direct selling company to reduce the weight of a package by a few ounces, while still safely accommodating the products that it holds.
The difference of a few ounces can lead to a noticeable cost saving per package. Multiply this savings across thousands (or millions) of packages a year and the overall reduction in costs can be dramatic.
Savings Potential: 5–10%
Change dunnage type to reduce weight. Seemingly innocuous, the inexpensive 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 allows you to use a smaller package, while more traditional fillers (Kraft paper and bubble wrap) may take up too much space. Air pillows, for example, offer good cushioning, are virtually weightless, and are even available in eco-friendly, biodegradable varieties.
Savings Potential: 2–4%
One of the fastest and best paths to reducing eCommerce shipping costs is to align with a 3PL that manages parcel transportation for many other companies. They negotiate with carriers using their aggregate spend as leverage.
Some 3PLs can offer discounts in the 10-40% 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 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.
Savings Potential: Up to 40% for heavier packages
Undeliverable packages can result in high costs to your company. You’ll have to pay for the return postage and the cost of reshipping the goods to the right address. And that’s not even taking into account the customer service issues that can arise.
As with many things, it’s often the little details that can cause the biggest headaches. Apartment numbers, unit numbers, and phone numbers tend to get overlooked and, if one of these details is missing, incorrect, or invalid, the package may be deemed undeliverable, costing $14–$16 per package.
So, what can you do other than telling your staff to be more careful? You can take human error out of the equation by running your address data through delivery point validation software prior to shipping. Each address will either be deemed ready for shipping or be flagged for correction. And make sure to flag these bad addresses to avoid repeating the mistake.
Savings Potential: 1–2% annually. While the annual savings is not significant, ensuring the delivery address quality will certainly provide for a better end-user customer experience and support the critical objective of repeat sales.
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).
Savings Potential: 10–15% savings. By providing different delivery options, you could potentially have the customer pay for expedited services, thereby avoiding the entire delivery expense.
If you’ve been working with the top 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 many options out there.
Carriers are not volunteering discounts; you’ll need to ask. But you’ll stand a better chance of negotiating a better deal with parcel than with truckload and LTL, which are saturated. Keep in mind that a “better deal” may involve more than rate discounts. Pricing for parcel shipping is more complicated than TL and LTL and is still a “black box” to many given the number of accessorial charges.
If you are working with a 3PL, re-bidding becomes less of a concern since 3PLs tend to be aggressive negotiators and have more leverage with carriers because they aggregate shipping volume across dozens and hundreds of B2C shippers. They’re also savvy to all the accessorial changes that drive up costs and can suggest strategies to sidestep or lower many of these charges.
Savings Potential: 3–5%. Currently, most carriers are not fighting for market share but looking to increase their margins on ecommerce shipments. Still, instilling competition with carriers can be an effective strategy to maintain and/or reduce your delivery expense.
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.
If you are partnered with a 3PL that manages eCommerce fulfillment, they should have an excellent knowledge of the available parcel shipping options and be able to identify cost-saving advantages of better matching your shipping requirements (for different products and customer sets) with the right carrier and service.
Savings Potential: 5%–10% by matching your delivery requirement with just the right parcel shipping service.
eCommerce shipping costs are your richest source of savings within your order fulfillment operations. And each dollar saved goes straight to the bottom line.
If you are already implementing many of the tactics in this article you’re ahead of the game. If not, it’s never too late to catch up and start saving almost immediately.
Not sure where to start? Many fulfillment companies are experienced with parcel shipping and can help examine where you are today and where you should be.