It comes as no surprise that shipping costs are increasing. What is a surprise is the extent to which costs have climbed. The increases are forcing companies large and small to seek new ways to pare expenses.
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When it comes to shipping, most people equate cost savings with carrier pricing. That’s a valid assumption — but you need to take the equation a few steps further. Benchmark yourself against similar companies to determine if you are receiving the carrier’s best price for the characteristics of your volume. Determine ways that you can help the carrier cut costs and have some of the savings passed on to you. Even if you’re in the middle of a contract with a carrier, it will usually renegotiate rather than allow business to go to a competitor.
Most carrier representatives have taken negotiation training. If you haven’t mastered the training and benchmarked with shippers with similar volumes, make sure someone trained in negotiations stands by your side.
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Most companies use shipping systems provided by carriers because they’re free. The most astute companies, however, buy systems that are carrier neutral and carrier independent. These systems allow you to design your own shipping parameters that cut across carrier lines to choose the best service and the lowest price. They also have the added benefits of a single system linking to IT and generating reports not available with your current system. You can expect these systems to pay for themselves quickly, depending on the volume, with the full benefit available for years afterward.
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Don’t assume that carrier invoices are correct simply because they’re computer generated. Carriers usually have a 1%-2% error rate on their invoices. Add to that another 1.5%-3% service failure rate for guaranteed deliveries and you’re looking at additional 5%.
You can buy programs to audit your transportation bills or hire an outside company to do it for you. Using a third party is the most popular way. You pay third-party auditors either by a percent of the savings (generally 50%) or a flat fee per transaction. Outsourcing to a third party also negates having to change shipping prices monthly as carriers change their fuel surcharges.
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Rather than paying a carrier’s declared value charges, use shipment insurance. Carriers charge minimums; an insurance provider does not. Savings of 50% are possible, but make sure a brand-name insurer writes the insurance.
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Evaluate using a provider that participates in the U.S. Postal Service’s workshare program. The carrier picks up your packages and transports them to customers nearest post offices; the USPS then completes the delivery. The costs of such workshare is generally far less than relying solely on the USPS.
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Similar to USPS worksharing, zone skipping uses a trucking company to move your preaddressed products closer to customers in a specific area before transferring them to a parcel carrier for delivery. This reduces your parcel fee to zones 2, 3, and 4.
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Regional parcel carriers can significantly reduce costs for zones 2, 3, and 4. They don’t have the cost of jet aircraft, major hubs, or large marketing budgets and can pass the savings on to their customers. A regional carrier may also be ideal for the final delivery in a zone-skipping program.
Small and midsize shippers (those who send fewer than 250 shipments a day) should evaluate each of these options and incorporate those that have the greatest return on profitability. Large shippers should strive for an integrated profitability network by consciously using the list as a foundation for greater enhancement. All shippers should strive for a layered network that is flexible and the highest quality but at the same time has components that are measurable and extremely cost-effective.
Rob Shirley is president/CEO of ExpresShip, a logistics consulting and business development firm.