How to Effectively Reduce Parcel Shipping Costs

In the midst of surging fuel surcharges and carrier rate increases, many shippers would consider cost containment a strategic win. But simply containing shipping costs is not enough for most businesses to remain competitive.

What if your biggest competitor was offering free shipping for the same product you sell—and you charge $9.95 to ship it? And what if your rival figured out a way to do so without cutting into profitability? How long do you think you’d stay in business?

Now that we’ve got your attention, focusing on taking cost out of your operation is a business imperative. Here are several strategies for reducing shipping costs.

Add deferred shipping options to your catalog and website

How many shipping choices do you offer your customer? Many online retailers offer only UPS and FedEx air and ground services. But the most successful companies offer deferred and postal options—which may take a day or two longer, but at a fraction of the cost.

The goods being purchased often dictate the shipping method—frozen steaks on dry ice must be shipped for delivery within two days. But when presented with choice, many online shoppers will choose the low cost (or free) delivery option, even if it means a longer transit.

A health products marketer client added UPS Basic to its website. Within a year, volume went from 65% three-day air service to 85% UPS Basic service.

Manage transportation information

Detailed shipping data can help you develop routing guidelines, reduce address correction fees, select the right service, reduce returns, identify missing discounts, negotiate contract improvements, and many other valuable analyses to lower shipping costs.

Shippers are often surprised to learn they are not realizing the full discounts negotiated due to shipment minimum charges, offshore destinations, returns, exceptions, and so on. Many shipments are completely undiscounted! Reduce shipping costs by implementing regular use of information and data management tools.

Benchmark

How do your rates compare with other shippers with similar volume and package characteristics? Are they poor, average, good, extraordinary?

Through benchmarking, you gain that understanding. Imagine your negotiating advantage if you discovered your current carrier incentives were the worst amongst a peer group. What if you knew the specific range of eligible discounts and accessorial concessions?

You’d be prepared to enter your carrier negotiations with specific information of what’s possible—and you’d certainly improve your pricing.

There are a variety of ways to obtain rate benchmarks: Conduct research for shipper surveys published online or collaborate with peer companies to conduct a formal benchmarking study; interview other shippers at industry conferences and use social media outlets. Or you might consider the resources and expertise of an outside transportation spend management firm.

Negotiate, negotiate, negotiate

Armed with benchmarking data, work with your carrier reps to improve incentives. And don’t overlook accessorial charges like fuel surcharges, residential add-on fees, area surcharges, weekly service fees, pickup charges and the like.

Many of these surcharges are negotiable, including payment terms, revenue bands, annual rate increases, dimensional formulas, late payment fees, declared value charges, calculation of rolling averages and many more.

Formalize an RFP for negotiations

The request for proposal can be a terrific vehicle to improve shipping rates and terms. There are various RFP templates available, as well as several qualified third-party service providers if you prefer to outsource.

A well-written RFP should clearly state savings objectives and include operational requirements (pick up time, trailer drop, etc.), automation needs (manifesting, integration, etc.), pricing targets based on industry benchmarks, and other key information. Be sure to provide the non-incumbent carrier with actual shipment data (cleansed of its competitor’s pricing), common box sizes, pickup locations, seasonal volume data, etc.

Audit freight invoices

Did you know that each year more than $3 billion in “guaranteed” service claims are not refunded because claims are never filed? There is gold to be mined from your carrier invoices!

And it’s not just late shipments entitled to money back guarantees, but also missing discounts, overcharges, shipments manifested but never shipped, and other erroneous charges endemic to parcel invoices.

Don’t know how to audit your invoices? Outsource it. There are a number of qualified audit and payment firms with weekly savings ranging from 1% to 15% of the total invoice amount. An audit firm ensures you never overpay your carriers.

Of course, there are dozens of other strategies, services and technologies not mentioned in this article that can help you contain or reduce costs. But the strategies discussed should point you in the right direction and make you more competitive in your market.

So don’t just contain shipping costs, reduce them! With some effort (and perhaps a little help), you can significantly reduce your company’s shipping costs. Good luck! L

Trevor Outman (trevor@shipware.com) and Rob Martinez (rob@shipware.com) are principals of Shipware LLC, a transportation spend management firm specializing in carrier contract negotiations, audit and pay and information management to help shippers reduce costs.

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