Shipping continues to balloon into one of the largest cost centers of any organization. Too many companies and transportation leaders are treating it as business as usual when they should be on the attack to help lower their rates. Even recently with COVID-19 we have seen newly added surcharges by the carriers. As companies feel the pressure to keep up with Amazon’s 2-Day Guarantee (or WalMart’s just announced Same Day Prime alternative) paired with the additional expectation of offering customers free shipping it is more important than ever to ensure your parcel shipping is as cost-efficient as possible. A common thing we hear is not knowing where to start or how to lower overall costs. This article will give you a good starting point on some potential strategies to consider.
1) Ensure Your Packaging is Right Sized
Frequently, when reviewing customer’s billing details we find a mismatch between product size to box size ratio. The carriers have continued to lower the dimensional factor the past several years where dimensional weight is now being charged a lot more vs. actual weight of a package. It is imperative that you are using the smallest size box possible when shipping your goods. This will save you on multiple levels: less corrugate cost, less storage space needed, less dunnage (filler), less potential damage from your item moving in a box, and less shipping costs due to smaller dimensions.
Also, depending on your product consider using a bubble mailer vs. corrugate. Bubble mailers or polybags are lighter than corrugate and obviously the dimensions are much less due to depth. These are commonly used by apparel and jewelry brands. Doing a post-shipment audit on your shipping dimensions vs. your product dimensions can certainly lead to cheaper shipping.
2) Mode Validation
This one should be a no-brainer, but we still see clients that are shipping Express service levels when they can get there in the same time as a Ground shipment. UPS and FedEx Ground (and Home Delivery) are guaranteed services so the transit times stated by them are nearly as reliable as Express service commitments. If you are communicating delivery to your customers in two days, then there is no obligation to use a premium, more expensive air service level. Ground service levels (pre-COVID) usually average 96-99% on time delivery. Let’s look at the Ground maps of UPS and FedEx to see just how efficient their ground networks have become and how expansive their two day transit footprints are. For illustrative purposes this is out of our home shipping state of Indiana (zip code 46202).
As you can see the 2- and 3-day delivery footprints for both UPS and FedEx are expansive. Mode validation is one of the best and easiest ways to accomplish cheaper shipping costs.
3) Ensure You are Shipping Out of the Most Optimal Locations
This one is a little trickier and obviously has grand implications if a relocation needs to be made. Data is key with this initiative. You need to look at all your customer addresses and understand which zones you are shipping to the most. On average, most shippers average between a Zone 4 and 5. The lower your average zone per shipment the cheaper your transportation, without exception. As customers scale a lot of them add additional warehouses to help lower the cost of transportation. It is very common to have a distribution center in the Midwest (think Indianapolis, Columbus, Louisville) and one on the West Coast (think Phoenix, Reno, Los Angeles). Doing a location study can dramatically reduce your transportation spend.
4) Leveraging a 3PL
One of the best ways to save parcel shipping is aligning yourself with a 3PL which has much more buying power and leverage in negotiations with carriers. These 3PLs usually have significantly cheaper rates vs small- and medium-size shippers due to having a larger aggregate transportation spend. Typically, these 3PLs have positioned their warehouse footprints in optimal areas to cover more of your customer base cheaper.
Almost all scaling brands reach an apex where they need to decide whether to continue doing in-house fulfillment or farm out to a service provider like Lessgistics. Shipping 50 packages a day is one thing. Scaling to shipping 500 packages a day is a new chapter. While shipping 5,000 packages a day is an entire new book. A lot of consumer brands decide to outsource fulfillment and reverse logistics to the experts like Lessgistics. They only have so much time and would rather spend that on continuing to market and build out their brand. In addition to saving with labor and rent, partnering with a 3PL can lead to a large parcel shipping savings.
5) Ensure You are Only Using Value-Add Services You Truly Need
Do you truly need to declare a value and/or buy additional insurance for your packages? If your claim rate of lost and damaged packages is low the answer is usually ‘no.’ If you have a higher value product that can be another story, but if you have a relatively low price point the insurance (declared value) is hardly ever worth it. Plus you already get $100 claim protection with FedEx and UPS for each shipment. Are you paying for signature required? If so, really question the need. Again, this is a value accessorial charge. If you are Tiffany and Co, and are sending expensive jewelry, then yes pay for insurance and require a signature. Most companies however are shipping commodity products that don’t require a signature. There are now over 100 accessorial charges that UPS and FedEx can charge and they make up between 20-30% of overall transportation spend. Auditing your bills and doing a sanity check of the value-add services is an easy way to save some money.
6) Leverage Carriers Against Each Other
First, leverage is everything. Repeat everything! Whether you are getting ready to start your annual Request for Proposal (RFP) or you just want to open your current contract to get better rates, it is important to leverage the carriers against each other. If you want to stay with one carrier but can get verified cheaper rates with another use that to your advantage. Understand there are more shipping options than ever: UPS, FedEx, DHL, Regional Carriers, Transportation by Amazon, etc. You don’t have to tie yourself to one shipping service. You have options which creates leverage. Internally as a company you need to decide if you are comfortable having a single-source carrier approach to shipping or if you prefer to have a multi-source carrier approach. Regardless, there are ways to creat leverage in both situations. Lessgistics has negotiated and delivered over $40M in savings throughout our careers in transportation. Let us help today with a free audit!
7) Utilize a Transportation Management System (TMS)
This one isn’t for every business, but for those that are scaling and have thousands of shipments daily it makes sense. A good TMS can optimize your needed shipping services efficiently in a matter of minutes. Essentially, you load all your services and transit times by zip code. Then, as you wave plan your TMS quickly analyzes which carrier and service would be most optimal and cost-efficient. There is upfront work and programming needed plus the added monthly cost of the software, but it can pay for itself ten-fold if you are manually deciding which ways to ship your orders daily. There are plenty of quality TMS systems out there. To help save costs some Warehouse Management Systems (WMS) are now offering the TMS capability within their software, too. ShipHero is a company that does this. We enjoy the benefit of using just one system. This provides cost savings monthly as you are only paying for an utilizing one system.
8) Customer Order Consolidation
Did you know there is a pocket of customers that will purchase from companies multiple times in the same day or over a 2-3 day period. Depending on how your operation fulfills orders there could be an opportunity to combine items into one shipment instead of sending our multiple packages. At a previous client, we implemented a successful system of merging backorders that had arrived in the same window a new customer order to the same address had been placed. Synching these two saved the companies thousands of dollars a year in transportation spend.
Hopefully, this article was helpful in pointing you in the direction of achieving cheaper shipping costs. There are both things that you can do internally (ensure mode validation and the right size packaging is utilized) and externally (run a 3PL RFQ, demo TMS software) to ensure you are constantly lowering your shipping costs. Outside of wages and overhead, shipping likely will be one of your biggest cost centers for your business. If left unattended carriers will take advantage and you will see increasing costs (above your GRIs) that will outpace other cost centers in your organization. Most of these activities can be done internally, but to achieve full maximization of cheaper shipping costs it is usually best to partner with a 3PL or Supply Chain Consulting company.