Three Pronged Attack Against Shipping Expenses
Shipping expenses are common heartburn for every direct-to-consumer operation. It is a challenge to improve service without increasing cost, but it’s not impossible. It takes a holistic approach that addresses opportunities on the operation’s floor as well as the conference room.
Here are three areas that can help reduce your shipping expenses.
1.) Rate Negotiations:
Some believe rate negotiations consist of meeting with each carrier and demanding lower rates while threatening to move your business to the competitor. Does this sound familiar?
If so, you may want to change your strategy as this is a terrible idea.
You’re both in the business of making a profit. Taking that profit from your vendor is a short-term solution to a long-term problem. Unless you’re using drones to deliver your product, you’ll need an outbound carrier for years to come. Starting off on the right foot will pay huge dividends down the road (Afterall, they’ll probably own the drones)
When choosing a carrier, only begin with the customer in mind (like you do with everything else).
Define your customer requirements (speed of shipping, tracking, returns, price) and select a carrier that best meets that criteria. The selection usually ends with the big three; UPS, FedEx, and USPS.
Unfortunately, comparing rates isn’t as easy as it sounds. The number of accessorial fees and rate variables makes it almost impossible to apply a carrier’s rates to your shipping profile accurately
That leaves you with one of two options. You hire a back room full of logistics analyst or ask for help from services such as Shipware or StategIQ. These services can quickly take your proposed carrier agreement, bounce it up against your shipping profile, and then provide estimates of the cost associated with each service.
Once you have an assessment of your current carrier’s performance, you’ll be positioned to find the right combination of services to meet your desired service level (without breaking the bank).
It also gives you the opportunity to discuss hidden fees that are in most carrier proposals.
If you’re using a combination of services to meet your customer’s delivery time requirement (GRD in Zone 1, 3Day in Zone 6, etc.), you should consider using analytic tools provided by vendors such as StrategIQ.
These tools can be used to identify why your shipping expenses are moving up or down in a given period. This information is what you’ll need to make adjustments and then eventually find the “sweet spot” of excellent service and cost control.
Carriers calculate your rates by weight, size, and destination. Your shipment’s packaging is a driver of two of the three and may be the only attribute you have control over.
First, understand that most carriers will round “up” the weight of the shipment. If a shipment is 2.1lbs, you will be charged for 3lbs. That makes it critical to do the following:
1.) Use the correct size shipping container – Using a box/bag that is larger than what’s needed is not only a waste of material (that you paid for), but it also increases the weight of the package and the overall shipping cost.
Take the time to understand the size/dimensions of your product without packaging to determine the appropriate size of packaging for efficient order processing and shipping.
2.) Dunnage/void fill – The best case scenario is to have a box that fits your product correctly. If that’s not possible, you’ll need some void fill to ensure the package maintains its integrity throughout the shipping process.
Air pillows, paper, and Styrofoam peanuts are all traditional forms of void fill (I can’t stand the peanuts, but people still use them), but in the end, there’s nothing lighter than air. Making air pillows the obvious choice (on weight alone).
However, in a high volume operation, you will need to consider the labor associated with using void fill in the packing process before determining if the overall cost (shipping + labor) will result in net savings.
Taking advantage of flat rate shipping programs can be beneficial, but you may miss out on savings contributed to smaller shipments. It’s important to investigate packaging alternatives and how they may increase or decrease your overall operations expense when making your selection.
3.) Remove Marketing Material – Placing catalogs and sales brochures in your customer’s order is a popular way of distributing marketing material. Depending on your carrier and service, it may cost three times more than mailing it directly.
Every piece of marketing material will increase the weight of your shipment while pushing it over the next pound threshold (3.9lbs vs. 4.1 = charged for 5lbs).
Without understanding the complexities within your shipping profile, you may easily add $10-$50 to the cost of your shipment. You should investigate the cost of other forms of distribution before inserting any marketing material.
An easy and cost-effective way to add additional messaging is to print on the minor flaps of the carton (if you’re shipping in a box and not a bag of course). If you’re already writing your brand on corrugated boxes, this can be done without incurring any additional expense.
Picking out a place for a retail store? It’s all about “location, location, location!”
It’s also the starting point for direct-to-consumer operations who want to provide world-class service to their customers. Locating your product closer to your clients intuitively makes sense, but it also opens up many opportunities if you to do it efficiently.
If you were shipping from California and trying to provide two to three-day service, you would be forced to ship roughly 70% of your orders using a priority service (priority mail, UPS 3day, etc.). Someone shipping from the Louisville, KY or Memphis, TN areas would only need to ship roughly 30% of their orders to achieve the same level of service.
Looking at the charts below, you can see that UPS Ground reaches approximately 70% of the population in three days or less from Louisville, KY. You eliminate shipping to zones seven and eight by being in this region of the country. When shipping from the Los Angeles, CA. Hub, 70% of the population, is in a four/five-day service area.
Any carrier with hubs in a location similar to Louisville should be able to perform comparably.
Being closer to your customer also allows you to have later pick-up times and overall faster order delivery. If your carrier’s pick-up time is too early, you’re probably leaving a high percentage of shipments to be picked up following day.
The chart below compares east and west coast operations in the following areas:
- What % of orders would be available for processing before the carriers pick up time?
- What % of orders should be available for same day shipping?
- What % of orders should be available for same day shipping, while also providing a buffer/setup for the next shift?
Evaluating your outbound shipping profile and organization’s needs is a project that requires ongoing analysis and adjustments. It’s a continuous dance of compromises, but the customer must always win in the end.
Please share your shipping cost saving initiatives in the comments below.