Learn How to Take Control of Shipping Spending

Stop assuming. Start saving. Learn what you’re overlooking in your shipping and how to take control of your spending. We all make assumptions from time to time. Just don’t let them cost you. Things are changing every day in the shipping industry, and if you’re holding tight to any outdated ways, you’re probably paying too much.

Learn How to Take Control of Shipping Spend
Learn How to Take Control of Shipping Spend

Read this article to find out the most common oversights shippers make so you can ship smarter.

Table of contents

“I have the best deal on shipping.”
“My contract isn’t up for renewal for another year.”
“I can offer free shipping.”
“I know my rate increase for 2021 — it’s 4.9%.”
“I don’t need to change anything internally.”
Start with a good look at your data

Large or small, every shipper is in the dark about some aspect of their shipping.

Maybe it’s because you’re crunched for time or resources and just can’t worry about the details. Maybe you’re doing things the way you’ve always done them because, hey, it’s worked out OK so far. Or maybe you’re really on top of things and think there’s no way something’s going to slide past you.

We can tell you one thing for sure — there’s always room to improve. And not taking action means you’re spending a lot more on shipping than you have to be.

Inside, we’ve detailed the most common shipper oversights we’ve seen. If you recognize your business in any of them, don’t worry. You can get on the right track with key insights into your own data.

“I have the best deal on shipping.”

Let’s get right to it: How do you know?

Most shippers will cite their positive relationships with their carrier rep as evidence of their deal-making skills. While a solid working relationship with your rep is a must, don’t forget that they don’t work for your company and don’t understand your goals and challenges as well as you do.

Tracking your carrier agreement value
Tracking your carrier agreement value

For instance, do you clearly understand the effect of minimums on your shipping spend? It’s common for a shipper to negotiate hard for a bigger tier discount and lose sight of their minimum charges (the absolute lowest your pricing can go for that weight band and zone). A 60% discount won’t create the savings you’re looking for if your minimums are too high.

One of the biggest surprises to many shippers is how much the value of their negotiated pricing has changed since their last negotiation after a year or two.

The pandemic caused rapid changes in the industry that carriers have done their best to keep up with, but capacity is strained across the board. You might be shocked at the impact these changes have had on what you pay. This year, the biggest culprit might be volume changes — whether you’ve seen lower volumes or an explosion in sales, your existing agreement probably isn’t aligned with how you’re shipping right now.

WHAT TO DO: You’re going to read this many times in this guide, but here it is: Get to know your data. And then keep up with it. What was true last week won’t necessarily be true this week, and not understanding what your spend is and why means wasted money.

“My contract isn’t up for renewal for another year.”

Did you know your deal with your carrier is not a contract at all — it’s an agreement?

What’s the difference? An agreement is less formal and binding — both of you can make changes at any time. A contract has locked-in terms, start and end dates, and other commitments. An agreement is a formal understanding that you’ll work together, barring certain issues and events.

Carriers don’t write long-term contracts because they require flexibility to respond to market conditions with rate and service changes to address their ever-changing capacity concerns. Instead, agreements are used to decide on pricing, discounts, and minimums, making you free to leave your carrier at any time — or to renegotiate.

WHAT TO DO: You should be tweaking your agreement in response to industry trends, as well as your business’s trends, four to six times per year and doing a full negotiation once per year. Once again, a strong command of your shipping data will let you make targeted changes that protect your bottom line.

“I can offer free shipping.”

Everyone likes free shipping — it’s practically mandatory these days. Case in point: In 2019, the National Retail Federation found that 75% of consumers surveyed expect delivery to be free even on orders under $50, up from 68% the year before.

But understanding the right price point at which to offer it is vital. Too many shippers use their product cost — before factoring in shipping and other internal costs — to determine their free shipping offer. Still, others use only their base shipping rate without considering the additional charges that add to the total shipping cost.

We worked with a client that was using their average base shipping cost to calculate their cost of goods sold for their free shipping offer because it was so difficult to calculate their total cost from their disorganized shipping data.

But after a closer look at their data, they weren’t accounting for surcharges and fuel costs. They were actually paying an average cost per package that was 44% higher than they thought, wrecking their profit margin on their free shipping offer.

We also often hear, “Our marketing team decided we should offer free shipping,” or “Our competitor was doing it, so we HAD to do it.” The problem here is that you don’t know how your competitor arrived at that decision, what their costs are like or if they’re losing money on their deal. Every shipper is different and needs to make decisions based on their own data.

WHAT TO DO: No two shippers are alike in what they ship, where they ship it, the services they use, and much, much more. You must understand your company’s shipping profile, which is a complex data set that combines your:

  • Service types
  • Package weights
  • Package dimensions
  • Pickup and delivery locations
  • Surcharges

By understanding your shipping profile, you can model various free shipping scenarios so you clearly understand the price point at which it makes sense for you to offer this deal to your customers.

“I know my rate increase for 2021 — it’s 4.9%.”

Because every shipper is different, the carriers’ annual General Rate Increase (GRI) will affect them differently as well. Basing your 2021 budget on the GRI without a deeper examination of how it applies to your shipping profile is a mistake.

For 2021, some notable changes will have a greater impact on some shippers.

  • FedEx will implement a 6% late fee with a standard net-15 payment window. If you’ve been relying on having a little cushion in your payment timeframes, it’s time to get your ducks in a row or negotiate a longer window.
  • Shipping to a UPS Access Point, previously a no-cost way for shippers to temper the cost of Residential and Delivery Area surcharges will now cost $2.99 per instance.
  • Certain surcharges have risen much higher than the 4.9% carriers announced, and some shippers could see their 2021 spend increase by 10-20%. Additional Handling – Weight, Additional Handling – Dimension, Residential, and Delivery Area surcharges all rose 6.25% or more for next year.
  • The triggers for some surcharges will change in 2021. For instance, FedEx and UPS both added a new parameter for the Additional Handling Surcharge. In addition to triggering at 48 inches on the longest side or more than 30 inches on the second-longest side, it will now kick in when a package’s length and girth combined exceeds 105 inches.

WHAT TO DO: This is going to require some serious research — or the help of the right software. Combing through your carriers’ 2021 rate updates and then digging into your data to find out the implications is a big job if you choose to do it manually. But you must find out how these changes will affect your business — or you might find yourself with a shipping budget that’s gone by April.

“I don’t need to change anything internally.”

Nobody’s perfect, especially not after the rocky year nearly all shippers have had. All the course-correcting you had to do might have left you without best practices in place. It’s time to take a look at the operational issues that could be affecting your shipping spend.

  • Are your distribution center locations well placed to keep zone costs down? This isn’t an overnight change, but it’s something to consider carefully. Likewise, review your product placement across your distribution centers. Does what you’re shipping from each center make sense?
  • Is your packaging the right fit? Both major carriers raised their Additional Handling – Packaging surcharge for 2021, meaning that using anything other than a squared cardboard box will cost you more next year. On top of that, if your packages are routinely exceeding the limits for the Additional Handling – Dimension surcharge, it’s time to look at the packing guidelines for your warehouse team. They might be overpacking boxes, causing them to bulge and trigger the charge even if the box size is right, or they might be choosing a box that’s too large for the items inside.
  • Should you re-examine your carrier mix? Sometimes shifting volume to another carrier saves you money even if you have a discount with your current carrier. Regional carriers are playing a bigger role in companies’ plans these days, due in part to concerns about service. Because of soaring volumes during the pandemic, carriers suspended their service guarantees. Many shippers shifted volume to regional carriers in response — a 2020 PARCEL Media survey showed that 25% of respondents cited service as their primary reason for using regional carriers, up from 5.41% in the 2019 survey.

WHAT TO DO: Model different scenarios for each of the questions above, using your shipping data — not guesses or your gut. Knowing how industry shifts affect your particular business is a great start toward making internal changes that save you money.

Start with a good look at your data

You’ve probably done a great job managing your shipping over the last year, but the pandemic has brought changes no one anticipated and it’s time to reset. Until you’re honest with yourself about what you might have overlooked and started digging in your data for ways to create savings, you’ll be stuck paying more. Understanding your data and how it’s affected by industry changes is the only way to control your shipping spend.

Source: VeriShip