Parcel shipping is getting expensive. The recent announcements by UPS and FedEx that rates will increase an average of 4.9% in 2018 came as no surprise to anyone, even with the current rate of inflation at 2.2%. That means rates are outpacing inflation by … well you can do the arithmetic.
eCommerce continues to drive the demand for parcel delivery services to new heights. It has become a critical issue for many businesses to reduce the cost of “free” parcel shipping without sacrificing service. This is hard to do when there is a margin-agnostic elephant in the room – Amazon. In 2016, the company’s shipping revenue amounted to $8.98 billion whereas its outbound shipping costs were $16.17 billion. That’s a loss of over $7 billion. And it continues to raise the free shipping bar with premium last-mile delivery services, including 2-day, same-day, and Sunday delivery in urban areas.
Clearly, most companies cannot directly compete with that. To keep up, eCommerce businesses need to focus on how they can protect their margins and control shipping costs. Here are 5 things shippers can and should be doing to keep costs in check.
1. Rate Benchmarking
Making sure your shipping rates are competitive starts with understanding what a company of your size and shipping characteristics should be paying. Small parcel shipping rates are largely a function of volume and actually quite formulaic from the carrier’s perspective. Shippers should always be sure to enter pricing negotiations with an understanding of market rates, which starts with benchmarking how their rates compare with market rates. You only negotiate rates maybe once a year. But there are consultants who can do this for you. They do it every day, just like the carriers, and may be worth working with to reduce your shipping spend.
2. Rate Selection Controls
A lot of companies fall into routines and make decisions about carrier service choices without really thinking about it. They don’t have decision controls in place that ensure the best carrier service is selected every time based on customer expectations, delivery area, weight, and other business rules. Adding to this puzzle are that rates, fuel surcharges, and service coverage change, which means that the “best” carrier service is not a constant. And these decisions don’t just happen in the warehouse. Purchasing, order entry, shopping carts, suppliers, and office workers pick carrier services every day. Leaving carrier service selections to chance can be an expensive mistake.
Few companies have the ability to know the most cost-effective way to pack or palletize orders. Yet, with the parcel industry increasingly applying dimensional-based pricing to shipments (and with LTL carriers such as ABF following its lead), this has become an urgent and serious need. For many shippers, the size and shape of their packages are unnecessarily increasing their shipping costs — and some aren’t aware of it, or if they are, they don’t know what to do about it. Like carrier service selection, many leave carton selection to chance. Recent advances in cartonization technology enable shippers to use algorithms to optimize cost-effective packing, taking transportation cost, carrier dim factors, pricing characteristics, and other business rules into account.
4. Accessorial Controls
Accessorials are often ignored as a cost of doing business. Many companies figure that the time it takes to prevent their unexpected use isn’t worth the trouble. But smart shippers have automatic controls in place to avoid unexpected and costly accessorials like address validation, residential/commercial status, dimensional rates, and out-of-area surcharges. They build business rules into their rate selection process to avoid penalties. For example, if it’s a local delivery why not use USPS or a regional carrier who have higher dim factors and avoid a dimensional surcharge?
Prevention is worth a pound of cure. But like your friendly doctor, business analytic tools can help diagnose problems and provide insights about cost savings that would otherwise escape even the most discerning professional. And it all starts with data. If you have all your shipping data in one place (forget it if you are content with using carrier-provided shipping systems), then you have the basis for doing something about reducing transportation costs. And more data is better. If you can import and match audited carrier invoices against expected costs, based on industry averages, you can recover 5-10% of the costs in the form of incorrectly billed rates and accessorials, guaranteed service refunds, manifested but not shipped, and other charges. Shippers who ignore or who do not have the tools to analyze audited data are leaving a lot of money on the table.
The ability to manage what you spend on parcel shipping can make or break a company. You need to be able to ship like an Amazon but control costs like Ebenezer Scrooge. Taking simple cost control steps can help your company avoid unnecessary shipping expenses and also take back money that is rightfully yours.