As shippers face increasing costs, while supply chain issues slowed down parcel volume at the end of 2021, it doesn’t mean that they can sit back and assume that continuing supply chain troubles will keep parcel volume low and carriers with space to ship all of them.
While Pitney Bowes reported a slower than anticipated Q4, processing 47 million domestic parcels, 20% below its planned volumes, its Parcel Index forecasts global parcel volume doubling to 266 billion parcels by 2026. So, without proper planning, an ongoing carrier capacity crunch could leave shippers searching for ways to get their last-mile deliveries into customers’ hands cost-effectively.
Final-mile shipping makes up a healthy portion of shipping expenses
According to a Business Insider article, at 53% of total shipping costs, the final mile takes a hefty chunk out of the bottom line, especially as customers demand low or no-cost shipping faster than ever speed expectations.
According to a report in Retail Touchpoints, 42% of consumers expect two-day shipping for all online purchases, and 77% are more likely to purchase an item if it can be delivered in fewer than two days. In addition, the article said that close to 70% of consumers were moved to click on ads that highlighted fast and free delivery, indicating that shipping speed and price are significant influencers on purchasing decisions.
And costs of final-mile delivery are expected to reach new heights in Q1 of this year, according to the January 2022 Cowen/AFS Freight Index. Rates jumped in the prior quarter “due to the increase in the mix of residential shipments, peak surcharges, increased fuel surcharges, and tighter pricing controls by the carriers,” the report said. And, with fuel prices nearing record highs, costs will keep climbing along with them.
So, the question that ecommerce shippers and the 3PLs and other intermediaries they work with need to answer is, “how do we keep shipping costs in check while delivering the experience that customers expect?” Well, the answer isn’t easy.
It will continue to be challenging to meet expectations set by industry-leading eCommerce sites and retailers that can afford to absorb some fast and free delivery costs. However, a few things can be done to control unexpected expenses from accessorial fees.
Here are a few of the top accessorial drains on retailers and their intermediaries face from last-mile shipping and ways to mitigate those expenses:
- Residential Surcharge
It has always cost a bit more to deliver to a residential address because carriers generally favor consolidated delivery points. Luckily for shippers, many customers arranged to deliver orders to their workplace. But today, with eCommerce on the rise and more people working from virtual home offices, there are more residential deliveries than ever.
If you can’t negotiate lower residential surcharges, some convenient delivery alternatives include offering parcel pick-up at stores or major carrier retail locations. If alternative delivery services are not an option, knowing there will be a surcharge for a residential delivery is essential. That’s not always easy as each carrier may have a different view of whether an address is residential or commercial. It is crucial to have a system in place that can check residential vs. commercial at the time of ordering and time of shipping. Auditing carrier bills is a great way to ensure you are not overpaying.
- Fuel Surcharge
Anyone who has stopped at the pump lately knows that the price of fuel is on the rise, and it is not expected to slow down anytime soon. And when it comes to shipping, those increases are passed along by carriers to shippers.
While negotiating fuel surcharges is difficult, implementing an omnichannel fulfillment can fulfill orders closer to your customers, meaning fewer miles traveled and less fuel. In addition, having centralized pick-up locations such as in-store or hold-at locations may help offset some of those costs. Finally, having systems in place to accurately calculate fuel surcharges is a must if you expect to close the expected vs. actual cost gap.
- Address Correction Fees
Your customers know their addresses. Well, you would think they do. But too often, the smallest of details are not included on orders, such as a suite or apartment number. When information is left out of an address, the carrier may have to do a bit of extra legwork, and you will pay the price.
The multi-carrier parcel management solution can help you fill in the blanks when processing the shipment and printing labels, helping reduce those costs by cutting the work you and the carrier need to do to deliver the package to the right doorstep.
- Dim Fees
eCommerce volumes have created a parcel carrier capacity crunch, making it more critical than ever for carriers to make the most of their space. Increasingly, parcel and freight carriers are applying space-based rating logic to penalize those who ship light containers relative to their size. If you ship air, you will pay more.
Making transportation cost-effective packing decisions is not something that WMS, OMS, or ERP systems do. Asking packers to take carton sizes, carrier dimensional weight [DIM] factors, and other complex packing rules during the rush to get orders out the door is a lot to ask—especially when shipping from stores and other non-traditional distribution locations. The result? Shippers are paying more DIM fees than ever. Fortunately, adding cartonization algorithms can automate packing decisions, clarifying how to pack cartons and pallets to minimize DIM fees.
While the cost of shipping goods isn’t avoidable and passing those costs on to the customer is less likely in today’s competitive environment, shippers that control extra costs from carrier fees and surcharges can retain more profits while keeping customers happy.