It’s no secret that consumers are turning to eCommerce in record numbers. In turn, sellers have had to reconfigure their sales models, focus more attention and resources on logistics. Large companies like Amazon and big box retailers like WalMart are best situated to reduce shipping costs by owning their own fleets of trucks, planes and warehouses. Everybody else is left scrambling to figure out how to compete and stay competitive without reducing profits. Below are 5 tips to help you stay on top of your shipping costs.
1 - Does a Parcel’s Weight and Dimensions Affect Cost?
The answer to that is obvious, of course it does. The heavier the package the higher the delivery cost. There is little that can be done to reduce the weight of a package; 2 lbs of coffee is still 2 lbs of coffee. But carriers also price shipping costs based on the dimensions of the parcel. We’ve all gotten those deliveries from an online store of 2 tubes of toothpaste packed in a case the size of a shoebox stuffed mostly with bubble wrap. That too large a box for that delivery just took away a few inches of space on a truck or plane that the carrier could use for more packages. Multiply that inefficiency by a whole truckload and we’re talking about a lot of money.
In an effort to be more efficient and reduce costs, carriers came up with something called Dimensional Weight or Dim Weight which we explain in detail in another post. Basically, Dim Weight is the actual amount of space a package occupies in relation to its weight. The smaller you make the package the lower the cost.
2 - How Does the Distance a Parcel Travels Affect Price?
Again, the answer is obvious, the farther a package has to travel the more it costs to ship it. Carriers set prices according to zones. Zones are not always just geographical areas like it sounds; zones are often set up as units of miles. So if a carrier has 8 zones and your parcel needs to travel 5 zones to be delivered, it is costlier than if it had to travel 3 zones. The concept of zones and how they are set up are different for each carrier and a bit more nuanced but our conclusion for how to best save money on shipping based on distance still applies.
Let’s say you had to ship a package from Baltimore to San Francisco. The package has to travel 8 zones to reach its destination. What if the same package is shipped from Minneapolis? It now only has to travel 2 zones. The package leaving from Minneapolis costs considerably less than the package from Baltimore.
The easiest way to reduce the cost of shipping based on distance is to shorten the distance you ship from 1 zone to another. For the big players that’s easy; they set up warehouses all over the world and get the product from point A to point B with the shortest possible distance.
Companies that don’t have the wherewithal to set up multiple warehouses are now using a service called 3PL or Third Party Logistics. 3PL is a service that warehouses your inventory closer to where you need to ship to and fulfills your orders on your behalf. The cost of having 3PL is less than setting up your own warehouse or shipping all those packages from farther away.
3 - How Do I Save on Taxes and Custom Duties?
Delivery taxes and customs duties apply in every point around the world, so being aware of local rates will prepare you for extra fees prior to shipment. You cannot get a price break on taxes or customs fees but you can be meticulous in your preparation. So for example, let’s say you are shipping wigs. Wigs made from human hair are priced higher than wigs made from synthetic materials. If you fill out your international shipping invoice and don’t specify what type of wig you are shipping you can be overcharged. If you fail to plan, you plan to fail.
The simplest way to keep costs down on international shipping is to fill out the commercial invoice correctly. Read our instructions on filling out a commercial invoice also known as an airway bill.
4 - How Does Insurance Affect the Cost of Shipping?
You are responsible for providing your carrier a declared value for your shipment. This needs to be as accurate as possible. On the one hand, you want to be compensated in full if the package is lost or damaged. On the other hand you want to be sure you are not overcharged on any customs or duties which are based on the declared value of the shipment.
It’s also important to keep in mind that customs officials are informed and savvy. They have a very accurate idea of what things cost. Another thing to keep in mind, things sometimes go wrong, shipments are lost or get damaged. If you undervalue your product on your shipping invoice, the insurance company will only compensate you on the declared amount. To avoid costly delays or compensation disparity see #3.
5 - What’s With All of Those Surcharges?
Carriers incur additional costs that they pass on to their customers. Some of these costs are predictable and some are based on changing factors. For example, shipping’s busiest season is between Thanksgiving and Christmas, so the Peak Season Surcharge is predictable. However, a redelivery surcharge is not. A Redelivery Surcharge might be incurred when the delivery is rejected by the receiver, no one being present to accept the delivery, wrong address, or the lack of necessary equipment to handle the package.
Surcharges also known as accessorials are the single biggest factor in shipping costs going up or being unpredictable. There are multiple variables that go into accessorials and sellers cannot possibly be expected to know all of them. The SPL Group has a team of experts whose only job is to be on top of accessorials and surcharges.
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