6 Ways to Reduce Retail Shipping Costs
Shipping is more important than ever to your customers and your business. In the past decade, the shipping wars between major carriers UPS and FedEx have resulted in substantial price hikes. Tariffs for ground and air shipments will keep increasing. These and other factors, such as package volume, handling, tracking, weight and dimension, will affect your store’s shipping operations and impact your costs. Here are six best practices to consider for improving your shipping process:
1. Know your shipping data. Even though this may seem obvious, it’s often overlooked or dismissed. Understanding your data is critical for making solid logistics and shipping decisions. Reliable, accurate data can come from a variety of sources—the most obvious being your carriers. Think of UPS and FedEx as the Google of your shipping data. When you use them, they collect and store detailed information, such as average weight and zone, cost per shipment and per pound, service level usage, zone density, actual versus billable weight, package density and effective incentives. This information can give you valuable insight into your shipping operations and help drive decisions regarding your shipping process.
There are limitations to carrier-provided reporting, so you may consider investing in a transportation management system or outsourcing this function to a third-party data analytics logistics vendor. Remember that good data equals better decisions.
2. Focus on delivery guarantees. Most people assume that air shipment is the best option for the quickest delivery. What you might not know is that, in certain cases, the same shipment could ship ground much cheaper—with the same time-in-transit guarantee. Practice shopping dates instead of service levels. This will help guide you toward smarter purchasing decisions and service-level optimization. Consider using technology to help ensure the most economical purchasing for every shipment.
3. Consider alternatives to traditional UPS and FedEx services. There are a slew of alternatives to UPS and FedEx that might make sense to use in certain situations, typically resulting in big savings. Hybrid or final-mile services, such as SurePost or SmartPost, rely on UPS and FedEx for the first leg of the shipment journey, with the USPS stepping in to complete delivery. Hybrid services are less expensive than UPS or FedEx ground but come at the cost of forgoing a guaranteed delivery date. Another option is the U.S. Postal Service, which is a great alternative for low-weight, low-value residential shipments. There are also a handful of reliable regional carriers across the United States that typically offer a larger next-day delivery footprint with fewer surcharges. Continue to evaluate your carrier options and mix.
4. Understand dimensional weight and package density. The Dimensional Weight (DIM) changes that UPS and FedEx rolled out in 2011 and 2015 are two of the most impactful price increases these carriers have made in recent decades. DIM weight (a package’s density, or how much space a package will occupy on a carrier’s freight truck or airplane) is now factored into the price of every package. Understanding the current DIM rules and package density can have a tremendous effect on your operations. By evaluating your business’ DIM characteristics in relation to how and what you ship, you’ll gain a better understanding of how to mitigate some of these changes. Best practices to help minimize the effects of DIM weight include optimizing and standardizing packaging, auditing your shipping billing for non-standard DIM charges, and negotiating a custom DIM divisor or cubic threshold.
5. Negotiate your UPS and FedEx rates like a pro. UPS and FedEx sell parcel shipping contracts that maximize carrier profits. One of the most effective ways to reduce shipping costs is to ensure your carrier agreement is specific to your store’s needs and characteristics. Negotiating your parcel carrier contracts can turn into a modern-day David and Goliath story—and often not with a happy ending for David. When it comes to renegotiating your carrier contracts, a well-thought-out and properly executed plan is key to achieving savings. A few tips:
• Know your shipping data because your carrier may use this information against you.
• Leverage competition, and your carrier may be more likely to reach deeper into its pockets.
• Don’t focus solely on service-level improvements. Everything is negotiable, including accessorial fees, minimum charges and more.
• Be aware of the common contract “gotchas,” including service guarantee waivers, early termination clauses and minimum charge increases.
6. Catch carrier invoice errors. Virtually every carrier-shipping invoice contains errors and refund-eligible shipments. This means that we unknowingly overpay our carriers to the tune of 1–3 percent. Although identifying carrier errors without the help of technology is a laborious, next-to-impossible task, familiarizing yourself with the most common credit-recapture opportunities can help put some of that money back in your pocket. For example, late shipments account for approximately 80 percent of any recovery potential. A common myth is that UPS and FedEx automatically credit shippers for late shipments—not true. At a minimum, you’ll want to be auditing for late shipments. You can do this by using a carrier-provided tool, an internally developed tool or a free parcel audit tool.
Jared Fisher is the co-founder and executive vice president of Lojistic.