Top 5 Areas You Should Look at to Reduce Shipping CostsPosted on June 09, 2020
*UPDATE: Since first publishing this article a little more than a year ago, much has changed in shipping and logistics, including some new costs. Carriers are limiting shipments as they are overrun with demand from increased online shopping. Most recently, carriers have announced rate increases for deliveries to residential addresses in the wake of the stay-at-home orders during the COVID-19 crisis.
However, while some new and ongoing charges are unavoidable, there are others that can be mitigated, if not totally avoided. We thought a trip back to one of our earlier blogs could shed some light on ways to cut your shipping costs during the coronavirus crisis and beyond.
In the old days, it used to be pretty simple to calculate rates. Weigh a package, look up a zone on a zip to zone chart, and then find the cost of shipping associated with the weight and destination zone. Not anymore. Calculating shipping costs has become a lot more complicated, especially with the explosion of new carrier services, dynamic pricing incentives, and of course, surcharges. Reconciling expected costs against actual invoice charges amounts to a game of "truth or dare." With shipping costs increasing at twice the rate of inflation, shippers need to ship smarter and implement cost controls to ensure they are not paying more than they need to.
And it’s not just shippers who struggle with cost calculations. Carriers live in a hyper-competitive world where everyone in the supply chain expects new value-added services faster and on time. It is no wonder the freight auditing business has become a virtual cottage industry. In the midst of increased complexity, it is easy for carriers to make mistakes when they assemble invoices for shipments whizzing through their hubs.
Here are 5 areas that are worth investigating to minimize overpayment:
1. Smart Routing: How are your employees choosing among the many delivery options carriers are now offering? Do they select next- or second-day services when a standard ground service will get it there at the same time? Do they know whether there will be a residential or beyond area surcharge applied by the carrier?
If you are choosing services based on the carrier’s published delivery schedule (or worse, the name of their service), then you are probably wasting a lot of money. You need to implement a routing process that selects carrier services based on an analysis of historical delivery performance to destination zip codes. A multi-carrier management system with analytics capabilities can provide those kinds of actionable insights and then enforce smart routing decisions by automatically “downgrading” service selections without impacting customer delivery expectations.
2. Lean Packaging: eCommerce is driving demand and the supply of truck capacity is tight. Carriers want to “cube out” their vehicles to maximize their return on their capital investments. If you waste space, you undermine their profitability. We have written extensively about how parcel and freight carriers are casting a wider net in the application of dimensional weight rating. This means it is more likely than ever you pay more for shipments if you don’t pack with transportation costs in mind (which OMS and WMS systems generally don’t).
Rather than having your fulfillment personnel guess about how to pack orders, you should think about implementing a process to algorithmically calculate the most transportation cost-effective way of packing and palletizing, based on SKU dimensions, weight, available container sizes, and other business rules. This will immediately reduce dimensional weight (DIM) fees and minimum container fees, while minimizing wasted fill material your customer will have to dispose of. Business rules, such as fill %, fragility, and don’t pack with, can greatly reduce damage claims.
3. Carrier Performance: Lots to consider here. The obvious thing to look at is guaranteed delivery refunds, but many carriers have suspended these refunds during the COVID-19 crisis due to the uncertainty of delivery times. Still, if you want to hold your carriers accountable for living up to your delivery promise to customers, it is important to monitor delivery performance to get what you pay for but also to make more realistic estimates for last-mile deliveries. Capturing data about carriers’ actual delivery performance is also the key to feeding your smart routing processes.
As noted above, the other consideration is damage. Shawn Shaw, CEO of GTMS, observed that, “90 percent of the time damages go unclaimed due to the lengthy process shippers have to go through to get reimbursed. This despite the fact that shippers have to pay notoriously high carrier insurance premiums.” Multi-carrier management systems that integrate carrier invoice auditing processes can both monitor damage and measure how fast a carrier responds to claims.
4. Address Hygiene: Shippers are often unpleasantly surprised to find a significant gap between what they expected to pay for a shipment and what they were actually invoiced by the carrier. A lot of times it comes down to shippers failing to monitor addresses for correctness, completeness, or whether they are shipping to a residence or an extended delivery area. When carriers are charging $16+ to correct an address and tacking on $3+ for a delivery to a home outside of a standard delivery area, it behooves you to put automated processes in place to automatically monitor and correct addresses.
5. Rate Optimization: It’s a well-established fact that every shipper in the civilized world has negotiated the very best rates possible. Just ask them. How do they know? Their carrier reps told them! You can expect to be on the losing end of a negotiation because carriers negotiate contracts every day and you might do it every couple of years. Optimizing your rates starts with the data you capture both at point of shipping and from carrier invoices. Using analytics and outside expertise from consultants who can benchmark your rates and find ways to optimize your transportation spend is fundamental to improving delivery while reducing costs.
6. Plan for the Future [Update Bonus]
The boost in parcel shipping isn’t about to end once the pandemic subsides. A Commerce Hub survey intended to gauge consumer confidence and identify changing shopping patterns amidst COVID-19 disruptions, found that 69 percent of those surveyed would be more willing to subscribe to a delivery service for essential items following the COVID-19 pandemic, up from 43 percent that shopped online prior. Combined with rate increases from major carriers during the pandemic that may or may not be permanent, it is vital to manage your omnichannel, multi-carrier shipping.
Having the right technology in place, such as Transtream multi-carrier management solution, can help your organization manage shipping costs during and after the coronavirus pandemic.