Posted On January 17, 2022
If you’re an ecommerce business (or really any business that ships out more than a few parcels a day) you’re probably interested in learning how to reduce shipping costs.
You’re not alone. More than 131 billion parcels were sent around the world last year, according to global shipping company Pitney Bowes. Lower shipping costs on just 1 percent of those parcels would save companies millions, if not billions, of dollars every year.
But a handful of major carriers control the parcel shipping market, driving up shipping costs for small business shippers. Reducing those shipping costs requires some industry expertise and the right tools. Flat World’s Parcel Optimization team shared their tips for lowering your parcel shipping costs.
How to Reduce Parcel Shipping Costs
1. Do some comparison rate shopping.
If you ask a shipping carrier, the best strategy for reducing parcel freight rates is through volume discounts—also called a “bundle” strategy—which used to be the industry norm but don’t work well in today’s shipping world.
Parcel carriers will provide discounts to shippers in exchange for shipping a minimum number of packages each week or month, and that discount can definitely cut costs. However, this agreement typically influences companies to partner exclusively with one carrier. This prevents them from being able to reduce shipping costs through comparison pricing.
A shipping cost for a parcel might cost $9.00 when sent via carrier A (after the discount) or $8.50 when sent via carrier B. As long the company maintains its minimum required shipping volume with carrier A, it can take advantage of carrier B’s lower pricing to save money.
A third-party logistics partner with parcel optimization technology can guide companies in knowing how to strike the right balance, ensuring they can keep their volume discount while also taking advantage of other parcel carriers’ lower shipping costs.
Carriers and programs that utilize the United States Postal Service (USPS) almost always help reduce parcel costs. Flat World’s Parcel Select program moves packages through the extensive USPS network, taking advantage of the fastest and best paths to the end destination.
Another thing to consider: an alternate shipping method. If volume requirements prevent your company from using multiple shipping companies, it can at least investigate the price difference for shipping parcels via ground, for example, instead of overnight air with the same transit time.
2. Consider various pricing models.
Just as offering free shipping is a boon to sales, the opposite is also true. A survey by Digital Commerce 360 showed that 68% of U.S. shoppers don’t make a purchase at least half of the time if a retailer doesn’t offer free delivery. How a company manages to offer free shipping, however, isn’t quite so cut-and-dried.
The most common strategy is to provide shipping options. If a customer is willing to wait five to seven days for their order, companies can choose the lowest-price shipping option and offer free shipping. If the customer needs next-day or second-day shipping, for example, then they can forego free shipping and cover the cost themselves.
Another shipping strategy involves offering free shipping or flat-rate shipping across the board (or for orders above a certain dollar amount) and factoring that cost into the cost of the product. There’s no consensus among shipping managers and CFOs as to whether this is the right move—you’ll need to take into consideration your shipping costs, profit margins, promotions and business model to determine whether it’s appropriate for your company—but it can help increase sales.
3. Update your packaging to reduce shipping costs fast.
Of all the ways to reduce shipping costs, this one might be the most overlooked. A package’s shipping cost incorporates both the actual weight and the dimensional weight, so the right packaging is vital. Packaging that’s too large and has empty space inside can elevate parcel shipping costs.
The packaging supplies used are also important. Lighter packages (typically) equal lower rates, so where possible, swap cardboard boxes with a bubble mailer or envelope.
4. Don’t forget auditing and data management.
Sometimes, the best way to save money is to look at what you’ve already spent. Hello, audits.
A freight audit of recent invoices can find incorrect charges and opportunities for carrier reimbursement. Looking at last month’s audit might help you discover that you were charged for priority mail express instead of ground, or incorrectly charged for missing shipping labels.
A claims audit, on the other hand, can help you spot and correct issues, from repeated dimensional weight surcharges to the wrong packing supplies causing damage. For example, a claims audit might find that one of the SKUs a company sells is consistently damaged in transit, and needs to be shipped with bubble wrap or air pillows to prevent future claims.
It’s essential to understand your shipping profile. This can be achieved by analyzing and understanding the information from your shipping history. Some key data points include weight distribution, zone mix, dimensions, accessorial fees, residential vs. commercial deliveries, and analysis cost per pound of shipment. Strategic initiatives can be developed from this data.
5. If you’re a high-volume shipper, consider zone skipping.
Shipping 500+ individual packages to the same region will cost more than bundling those packages together until they’re dispersed and delivered at the final mile.
Zone skipping involves bundling numerous parcels together and shipping them via truckload (TL) or less-than-truckload (LTL) closer to their end destination, in closer shipping zones. As an example, taking a shipment from Zone 6 to Zone 2 can save you 15%.
6. Get closer to your customers with local warehouses and distribution centers.
The closer an item is to its final destination, the less it will cost to ship. That’s why adding distribution and fulfillment locations can lead to heavily reduced shipping costs. Especially for direct selling companies with customers in all corners of the country, a strategically placed shipping location will reduce parcel costs and decrease transit times simultaneously. Companies with several distribution centers can often promise two-day shipping (or even same-day shipping in some cases) to customers at any address in the nation.
7. Get help from a partner.
You don’t have to navigate the parcel shipping world alone. Consider harnessing the expertise of someone who manages parcel transportation and has experience with lowering fulfillment costs. A third-party logistics partner can identify which shipments can be diverted to alternative carriers, as well as the best locations to set up a fulfillment center for shorter transit times.
If you need help to reduce your shipping costs, let us know! Flat World parcel solutions allow you to evaluate multiple shipping options to find the best shipping option for your parcels while maintaining the volume required for your parcel discount. Contact us today.