Rising shipping costs hurting your bottom line? There’s a better way! This package delivery primer is for small and large shippers alike. Get the best value for your customers’ shipping needs. First, learn how product, packaging, and customer expectations impact your shipping costs. Then, take action to get the lowest cost for your shipping. In this article, I’ll explain how you can optimize your package delivery costs and service in terms of speed, distance, package size, and add-on shipping fees.
First, What Type Of Packages Do You Ship?
Seems like a strange question to ask, but it is important to understand how parcel carriers view a “package”. Definitely, its the parcel carriers’ viewpoint on what is a package that drives their price and services. In particular, parcel carriers like UPS, FedEx, and USPS set their price based on your package’s characteristics. So to best understand how parcel carriers view a “package”, see below for what most carriers would classify as a “normal” package.
- weighs less than 50 pounds
- its longest side does not exceed 48 inches, and its second longest side does not exceed 30 inches
- shipper used their own packaging enclosed in cardboard
If your package’s characteristics differ from above, watch out because it will incur large package or additional handling charges. For a detailed explanation, see my article, Large Package Shipping, on how to ship these packages cheaply.
Parcel Delivery Services In The United States.
Parcel carriers are best at delivering packages that are less than 50 pounds as defined above. Namely, the primary nationwide parcel carriers in the U.S. are USPS, UPS, and FedEx. Also, there are regional carriers and now many large retailers (ex. Amazon, Walmart, Target, etc.) are delivering packages. Lastly, there are also a lot of same-day delivery service providers that provide delivery services for local retailers. See my article, Same Day Delivery Stores, to see if offering same day delivery will work for you.
Free Shipping Is The Norm And Eats Directly Into Your Profits.
As free shipping is the norm today, the total cost of your shipping has a direct relationship to your profits. Again, every penny you save on shipping means more profit. Also, shipping costs are not just the transportation cost, but also your packaging and handling costs. Below is an example of how you should calculate your total price for a product to include the total cost of shipping.
Cost of product – $10.00
Packaging & Handling – $2.50
Parcel Shipment Costs – $7.50
Customs/Duties (if customer pays them) -$0.00
Credit card fee – $2.00
Markup – $18.00
Total price $40.00
In this example, the shipping, packaging, and handling costs are $10 ($2.50 + $7.50). Surprisingly, that is the same cost as the product. Indeed, eCommerce and free shipping are expensive. Thus if this happens a lot with your shipping operation, you should be spending as much time on keeping your shipping costs low as you do with your product costs. Without a doubt, you control a lot of these costs. To explain in detail, see below on what you can do to control costs and provide your customers the best delivery experience.
Parcel Delivery – How to Get the Least Cost And Best Delivery Experience.
All businesses, big or small, want to get the lowest shipping cost. However, there is no “silver bullet” to get the lowest costs. So to get the lowest price for your shipping, first you must know your products’ shipping characteristics. Secondly, know what your customer expects from their delivery experience. To detail, below are the 4 key factors driving a businesses shipping costs and what you can do to help reduce your shipping costs. Namely, these key cost factors include speed of delivery, distance between shipper and customer, the weight / size of packages, and shipping accessorial charges.
1. Speed of Package Delivery.
eCommerce customers more and more want a full range of delivery options and a lot of them want speedy delivery. Normally, the faster you need to get your package to your customer, the more it will cost (and the difference is not just a couple of dollars). Until recently, Amazon has set the standard with a 2-day package delivery service. However, now many retailers are also offering same-day delivery, 1-day delivery, curbside pickup, and even economy 3-7 day shipping.
So how do you optimize your delivery options and still make a profit? See my article, Advice On The Right eCommerce Delivery Speed Options That Will Make Your Customers Rave, for tips on reducing shipping cost while still providing your customers competitive delivery options.
Advice On The Right eCommerce Delivery Speed Options That Will Make Your Customers Rave.
The world of eCommerce deliveries is evolving, as customers increasingly seek a diverse array of delivery speed possibilities. However, many shippers are choosing to keep things straightforward. For example, a study by ShipBob reveals that nearly 50% of brands keep it simple by either not offering free shipping or they provide site-wide free shipping for domestic orders. Is this “one-size-fits-all” approach truly the best route, or is there a more optimal solution?
Click here to dive into determining the optimal delivery option strategy for your company. Also, get the answers on these questions: Is it beneficial to present a complete spectrum of delivery options like same-day shipping or economy shipping? What strategies are competitors employing? How can an eCommerce business maximize their delivery choices while maintaining profitability? And finally, how can tailored delivery options help expand your customer base? Let’s get started by answering these questions. Also, I’ll detail a 5-step approach using market segmentation that you use to optimize your eCommerce delivery options tailored to your customer base.
2. Distance For Package Delivery.
Within the continental United States, there are seven shipping zones for a given parcel service. Specifically, parcel carriers set these zones based on distance between the shipper and the customer. So the lower the zone the less distance and less expense for the cost of shipping. Thus the questions you should ask yourself about the distance between your shipping location and your customer are as follows:
- For your long-distance customers in higher shipping zones, is flat rate shipping in a standard box an option? Especially for USPS, flat rate shipping in a standard box may be a cost effective option. Check it out. Also, major parcel carriers that include USPS, FedEx, UPS, and DHL offer economy 3-5 day shipping.
- Can your business ship out of multiple locations in order to cut shipping distance at the lower price zones? If you are a large company, consider opening more distribution centers. Then you can ship using truckload or Less-Than-Truckload (LTL) at a lesser price to your remote distribution centers. Unquestionally, this lowers your parcel shipping costs significantly. Also, if you are a smaller company, consider using a 3rd Party fulfillment company to store and ship your product from various locations within the U.S.
3. Weight and Size Factors for Package Delivery.
The size,the dimensions of a package, is the key determination of how much a package is going to cost you to ship. Namely, parcel carriers use the package’s dimensions to determine billed weight in many cases instead of your actual weight. They do this because their package delivery trucks usually “cube out” before they “weigh out”.
Below are some examples. First is a chart to illustrate different products and how their size affects billed weight. The other examples shows you how different carriers DIM factors change the billed weight for the same package.
Another example where the FedEx DIM factor is 139 and UPS / USPS DIM factor is 166.
UPS / USPS – actual weight 10 lbs – 12 X 12 X 18 / 166 DIM Factor = Billed 16 lbs (rounded up)
FedEx – actual weight 10 lbs – 12 X 12 X 18 / 139 DIM Factor = Billed 19 lbs (rounded up)
Are Your Packages Either Very Small or Very Big in Size?
Then follow these guidelines for selecting parcel carriers:
- Packages are under 1 lb even with the DImensional weight factored in. Then USPS is a good option due to price using First Class Mail.
- Packages are light and bulky where you will be billed by the DIM weight. First do everything you can to reduce the size of your package. Equally importantly, favor carriers with the larger DIM factors like UPS or USPS.
- Packages either weigh over 50 lbs (Billed) or the Longest Side Greater Than 48 Inches? If yes, you will start incurring package handling charges. Surprisingly, these charges can cost you more than the base shipping charge. In this case, you will need to do more research to determine how best to reduce costs for these types of shipments. See Large Package Shipping for a detailed explanation of dimensional pricing, mistakes to avoid when shipping large packages and how to take steps to reduce costs.
4. Value Added and Accessorial Charges For Package Delivery
Even experienced shippers are surprised every year by “extra” package surcharges. As every add-on shipping fee directly eats into profit, every shipper needs to proactively work to minimize these fees. For specifics, see my article, Shipping Fee Surprise – Here Is How To Overcome Unexpected Package Surcharges, for tips on how you can avoid or at least control these fees, and not get surprised on your next carrier’s invoice.
Also, for more ideas and solutions to reduce your shipping costs and provide your customers the best shipping experience, see EasyShip’s Cheapest Way To Ship Packages, Shipstation’s Cheapest Way To Ship, and Shopify’s eCommerce Shipping Solutions.
See Supply Chain Tech Insights for more articles on transportation.
Greetings! As a supply chain tech advisor with 30+ years of hands-on experience, I take great pleasure in providing actionable insights and solutions to logistics leaders. My focus is to drive transformation within the logistics industry by leveraging emerging LogTech, applying data-centric solutions, and increasing interoperability within supply chains. I have a wide range of experience to include successfully leading the development of 100s of innovative software solutions across supply chains and delivering business intelligence (BI) solutions to 1,000s of shippers. Click here for more info.