April 12, 2021
The parcel market is dynamic and changing. Reviewing this checklist will help you optimize your parcel costs.
When you lower your fulfillment costs you can increase your bottom line profits. One area that many companies overlook is parcel shipping costs, which can account for as much as three-quarters of total fulfillment costs. This cost area is often overlooked but can be classified as "low hanging fruit" to enhance your business.
Parcel surcharges are the same as extra toppings costs that you add when you buy a burger. A study by Reveel Group noted that surcharges can be as much as 35% of a company's total shipping expense. Final mile delivery charges often represent most of this extra expense. By choosing alternative methods such as "hold at location", or "pickup at store" you reduce your shipping cost.
Parcel carrier's costs are lower when they do not need to send a truck and employee to deliver the item to your customer's address. They in turn pass these savings to your business. Also, these delivery methods are considered safer and experience lower loss levels because the package is picked up by the recipient — so the likelihood of theft or a lost package is lower.
If you ship to a residential address with a large parcel carrier then you are most likely paying residential delivery surcharges on top of your baseline shipping costs. You can use cheaper alternatives such as the USPS ground option when the item is under 15 pounds.
Large companies such as UPS SurePost, FedEx SmartPost and DHL eCommerce utilize USPS for final mile delivery.
If your end customer is close to the shipping point you can use home delivery options rather than premium express. Often the delivery times are exactly the same, but the costs are much different. This can enable you to save up to 30-60% for packages when you shift your spend to nearby zones.
You should analyze your shipping zones and locations every few years and understand if your footprint is optimized. Shipping everything from one location or your headquarters often is not optimal. Analyze your shipping patterns using historical data and see if your operations can be improved by adding, changing or removing locations.
Right-sizing and updating your packaging type can save you money in terms of size, material cost, weight, as well as labor costs associated with packing. Parcel carriers often charge based on dimensional weight rather than parcel weight. If you leave too much extra space in your packages you could be overpaying for your delivery costs. As technology improves we are seeing better and more efficient packaging options. Check to see if you are able to use lighter materials.
Make sure your company has a system to verify addresses before sending a package. Undelivered packages are a real cost in terms of the direct postage, labor and materials. Keep clean database records, and have a verification system in place when you add or change an address. Suite numbers, PO boxes and apartment numbers are small items that can add a lot of unneeded costs if they are wrong.
Partnering with a 3PL provider can help you reduce your expenses. These companies often have special volume deals with carriers and they can pass some of those savings to you. Some 3PL providers can offer discounts of 10-40% for heavier packages.
You should review and renegotiate your carrier agreements on a regular basis. Get quotes from other carriers and let the best contender win. Remember that a better deal might not only be in the form of a discount or better rate — some carriers might be willing to add extra services or conditions that will save your business money.
Your customer needs will vary, as will their budgets. Offer them multiple shipping options and speeds so you can closely align to their best interests.
If you carry and ship multiple products that vary, it's possible that you might need to use more than one carrier based on the item. All carriers have different rates and services depending on the item you are shipping.
Talk with your carrier and see if they will offer you better terms and rates if you change your invoicing terms. You might be able to save considerable money by paying ahead of time or upfront.
As you optimize your business make you spend some time looking at your shipping costs. The parcel market is dynamic and always changing — reviewing this checklist on a regular basis will help you manage your business costs.