Parcel packages may be small, but they can have a big impact on the bottom line for subscription box businesses. Whether you’re sending curated boxes, replenishment or orders from an ecommerce store, rising shipping costs put pressure on limited transportation budgets.
If shipping represents an ever-increasing portion of your order fulfillment costs, it might be time to reevaluate your approach to parcel management.
Start by establishing a clear understanding of your unique shipping needs. The following questions serve as a good starting point:
- Are your subscription orders batched and shipped at the same time every month, or are they spread throughout the month (the anniversary model)?
- Do your fulfillment operations support daily ecommerce orders as well?
- What is your average monthly order volume?
- Do you typically experience periods of higher volume (i.e., holidays)?
- What is your average package size and weight?
- What is the point of origin for shipments?
- What is the geographic range for deliveries – local, regional or nationwide?
- What are your subscribers’ service level expectations?
- What is your average order value?
- What is your growth strategy?
Once you have a firm grasp of these variables, you can begin formulating your shipping strategy. Following are seven considerations to help guide your parcel management decisions:
Monitor Rates and Surcharges
Always stay on the lookout for rate increases, as they have the potential to significantly impact your parcel spend. For example, FedEx and UPS instituted general rate increases (GRI) for parcel averaging 4.9%.
In addition, carriers layer on shipping so-called accessorial surcharges to offset added costs related to handling, fuel, delivery area, peak season, etc. In recent weeks, some carriers have added a temporary surcharge on international shipments due to the coronavirus. These charges add up, representing as much as 10% to 40% of a merchant’s parcel spend.
Minimize the Impact of DIM Weight Rates
Be sure to compare the actual weight and dimensional weight (DIM) of your packages since shipping charges are based on the greater of the two. To calculate DIM weight rates, multiply the length, width and height of a package, then divide by a divisor established by the carrier. Because these rates are based on package density, they have the greatest impact on merchants that ship lightweight products in large boxes.
Don’t pay extra to ship air. As your package weight increases, confirm that you are adding value. Optimize packaging density by using the smallest package size possible and positioning products to take up the least possible amount of space inside.
Analyze the Data
Reviewing historical shipping data also can help to identify patterns and trends. Parcel analytics software can help you better understand your average cost to ship and visualize the impact of a number of variables. You might consider how accessorial charges are impacting your shipping costs or the difference in rates for shipping ground vs. expedited air.
If you ship orders nationwide, confirm that your distribution network is strategically positioned to minimize transit time and cost. The parcel analytics software described above can be useful in this exercise. For example, based on your desired delivery speed and destination, would it be more cost effective to have two distribution centers, located on the West and East Coasts, instead of a single, more centralized facility?
Balance Cost and Service-Level Expectations
If ecommerce represents a significant portion of your business, you’re well aware of consumers’ preference for fast, free deliveries. While it is important to meet their expectations, expedited service may be cost prohibitive. You don’t want to offer overnight shipping on a $20 order. Your average order value (AOV) should dictate your carrier options.
You may be able to achieve desired delivery times using more affordable ground service. In fact, with strategically located DCs, it’s possible to reach 90% of U.S. consumers in just two days more economically via ground service.
Consider Zone Skipping
If you have a high volume of orders going to a specific area, it may make sense to directly inject that volume to the region via truckload before breaking them into individual shipments. Often, zone skipping can help to provide savings in parcel costs and/or transit time.
Take a Proactive Approach to Carrier Management
Establish relationships with a variety of carriers and negotiate competitive rates, leveraging economies of scale wherever possible. Rate shopping software can be a useful tool to compare rates for multiple carriers and service levels, so you can identify the best available carrier for any given shipment. It also makes good business sense to audit carrier activity in order to validate charges, ensure rates and discounts are applied accurately.
If parcel management is not your area of expertise or your fulfillment operations are already stretched thin, a third-party provider may be a good resource. With strategically located facilities, robust software, established carrier relationships and parcel expertise, 3PLs can help you implement the best strategies to meet your needs.
Whatever way you choose to proceed, make these parcel strategies a priority. Each small step forward promises additional cost savings for your business.
Nicole Lee is director of fulfillment for Saddle Creek Logistics Services