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Cost Reduction Techniques in Logistics

By Shipware | eCommerce, Shipping Knowledge | No Comments

Whether companies ship items in high volumes or just occasionally, logistics can contribute a large percentage of costs. One consideration when looking at the annual budget is ensuring the company has a cost-effective logistics operation. Management and logistics are a big part of the supply chain, and fortunately, many areas can be trimmed and tweaked to work more efficiently. But it does take thought and understanding, which can be achieved through logistics consulting and an audit on your shipping invoice. A company must be willing to seriously dive into various cost centers and departments, while keeping an open mind to upgrading systems and processes. The top reason that businesses reexamine their supply chains is to lower the overall operating costs, according to the 2019 Third-Party Logistics Study

Here are several methods and tips for cost-effective logistics.

1. Understanding Your Costs

Logistics management covers many areas, including warehouse space and inventory-carrying costs, picking and packing, and transportation. The total logistics expenditure as a percentage of sales revenues was 11% in 2019, per the study, a percentage that remained stable over the past few years. The first step to reducing logistics costs is looking at your current costs. Understanding the landed costs of goods is important to understanding the big picture, as it can influence the various components and choices involved. A shipper might choose to source or manufacture goods from a different location if tariffs become unreasonable and don’t balance out the lower production costs, for example. 

2. Business Processes Automation and Planning Software

One way to better understand costs is by using business processes software. In this connected era, it seems surprising that not all shippers rely on modern software. Some companies continue to do what has worked for them for decades: using paper and pencil or an Excel sheet. About 72% of shippers surveyed use enterprise resource planning software (ERP), 56% use warehouse management systems (WMS), and 38% use transportation management systems (TMS). About 38% of shippers use supply chain visibility software, and others are also using analytics systems. Integrating planning software systems can make a world of difference when implementing cost-effective logistics management plans.

While understanding costs helps, lowering distribution costs is the main focus. These software systems offer different ways to help operate a business while assisting with cost-effective logistics.

Warehouse or Inventory Management Software

Warehouse management software has several components that help with logistics, including real-time inventory tracking, reordering, warehouse organization, and forecasting tools. 

  • Inventory tracking: By tracking inventory accuracy in real-time, the company can alter its eCommerce fulfillment strategy or better control it. The eCommerce fulfillment strategy might be first in, first out, or first expired, first out. Using tracking software for this, warehouse staff can better identify the correct items to pick so that the products are freshest (e.g. food), or are the oldest products, to ensure these don’t become obsolete before they can be sold. This reduces inventory loss, increases inventory accuracy, and tracks specific items so the best ones are sent to meet your company’s goals. 
  • Reordering products: The WMS software can help determine reorder timing so the right amount of product is in the warehouse at any given time. By setting parameters and automating this process, your company minimizes warehouse storage costs. 
  • Forecasting: Demand forecasting is an art and a science. However, getting it wrong means overstocking or understocking. That results in less cost-effective logistics because of lost sales or excess inventory that is tough to sell. Using forecasting software, the algorithms and data from previous sales are used to deliver more accurate forecasts. Forecasting can be done on a location level as well as a global level for your business.
  • Warehouse organization: WMS systems offer warehouse space organization tools to help maximize the storage space, while helping employees find items more easily when picking. It also tracks individual items in the system. This helps with accuracy in fulfillment and distribution, and decreases rates of return due to error.

Transportation Management Systems

TMS software allows companies to increase efficiency and reliability for the use of transportation companies. The software focuses on planning, optimization, and execution of the modes of transportation, with greater visibility and information. The more helpful the TMS is, the less time you need to spend managing your air freight, ocean freight, or land transportation needs. That means your time can be better spent on other activities, whether getting new customers, optimizing the warehouse space, or working on other company initiatives. Some components of TMS are:

  • Route planning and optimization: Using these features for both inbound and outbound shipping, along with load building, can help reduce shipping costs and increase efficiency.
  • Carrier selection: The software helps companies track their carriers and modes of transportation, along with affiliated information, like fees, transactions, savings opportunities with higher booking levels, carrier availability, and sometimes carrier ratings.
  • Customer service: Whether selecting a carrier or planning a route, your customer will be affected. Understanding how the customer is affected influences choices made around transportation companies. Carriers with high excellent delivery time and ratings, and low damage or loss rates is important to customer service. So is a transportation company’s reporting capabilities. These features may be more important than price, to retain customers and give them the service they deserve. 

Alternative Software

Companies are using other software systems to increase operational efficiency and improve the cost-effectiveness of their logistics.

  • Analytics: Big data is a big concept these days, for good reason. Companies are often swimming in data but unsure how to use what they generate to their advantage. Big data analytics programs can sift through the data to provide actionable ideas that can save the company money and provide insights into the operations. That includes process quality, resource utilization, worker performance, manufacturing performance, financial insights, and other areas of interest. Especially when using predictive analytics, these programs can include assistance with decision making in all areas of business, including logistics.
  • Visibility: Control tower type visibility programs provide eyes into various data streams and operations. Using transportation data, companies can integrate weather, traffic, and shipment information to better optimize load and labor scheduling.

3. Logistics Automation

Warehouses have increased their use of logistics automation, with good results. Business process software applications not only help warehouses efficiently place items in particular places, but help the picker find them easily and quickly. They track what products are entering and leaving the warehouse, to plan for new stock. Fulfillment operations using logistics automation can determine the appropriate packaging, the right shipping service, apply the proper postage, and route the packages to the warehouse pick-up spot so it can get to the recipient in the shortest time possible.

Robot usage has increased in warehouses, in multiple ways. Robots can palletize cargo without causing injuries or worker’s compensation claims. Robots can work independently or with warehouse staff to shift items in the warehouse for storage or fulfillment. Automated conveyors swiftly carry parcels through the warehouse to other locations, using sensors and the internet of technology, or RFID tags. 

The result is a more efficient operation with cost-effective logistics. Warehouse space can be maximized, with fewer mistakes and more insights into the operations. It can help with key performance indicators.

4. Supply Chain Planning and Collaboration

Collaborations help with cost-effective logistics. Shippers don’t have to do it alone. Shippers commonly collaborate or outsource to 3PLs, and collaborate with competitors and their network to lower prices for everyone, while increasing the service quality. 

One way to do this is by mitigating supply chain disruption. When shippers don’t have a plan in place for dealing with possible disruptions, that leaves them scrambling when the unthinkable happens. With any disruption, distribution costs can increase for the shipper. By anticipating and mitigating those disruptions, it’s easier to plan for them financially. Disruptions come in all forms:

  • Increased logistics and transportation expenses: Rising real estate prices can increase warehouse costs. Rising gas prices or constrained trucker availability can increase transportation prices. A tight labor market can mean higher fulfillment costs. Increased carrier rates can also increase logistics costs. 
  • Increase in supplier expenses: Suppliers of all stripes impact costs paid by shippers. That includes product or raw ingredient costs, as well as increased energy prices. A shortage or competition for specific items means higher rates for you.
  • Transportation and logistics network disruptions: Natural disasters can flood roads or delay air freight. Pandemics can halt the supply of needed ocean freight or shut down manufacturing. 

Instead of planning for these alone, shippers should be working with partners to share ideas and resources. The idea that two heads can be better than one is true – it benefits both parties. Using each other’s expertise and contacts, mitigating potential disruptions can be easier.

5. Reducing Transportation Costs

One of the most common concerns for shippers in 2019, according to the survey, was transportation and logistics network disruption, at 73%. But the top concern for 75% of shippers, was the increase in transportation and logistics cost. 

One way to collaborate and reduce logistics costs is to share transportation costs with other companies – even a competitor. Shippers who have multiple suppliers in one area, even one country, can do load consolidation. This may allow them to use a full container or full truckload, rather than a partial one, saving in the process. 

Another way to reduce transportation costs is by focusing on last-mile delivery. Having a cost-effective logistics strategy for last-mile delivery is paramount, and only 53% of shippers surveyed felt they effectively managed those needs. Outsource to a 3PL, or use newer alternatives, like delivering to storage lockers. There’s no right answer, and much of it depends on your customers and what makes sense for your business.

6. Audit Service and Contract Negotiation

Managing the actual costs of shipping is another way to improve what you’re spending on logistics. There are two ways to do this: contract optimization and negotiation and invoice auditing. You probably know that carriers are constantly adjusting prices to remain competitive, especially for fuel fees. Contracts can be regularly renegotiated as well. 

Shipping Contract Negotiation

Going into a parcel contract negotiation without a good plan is just planning to fail. Experts, like those at Shipware, can offer more insights than typical shipping departments of companies. Shipware’s experts have decades of experience working at the shipping companies themselves. Shipware has benchmarking data and the expertise to know what terms can be negotiated, and by how much. Shipware experts can do the negotiating for you, or provide the information for you to conduct negotiations yourself. Either way, you’ll gain more benefits than by doing it without this help, thus saving more money.

Shipping Invoice Audit and Recovery

Conducting a parcel audit is another way to save. Parcel carriers like FedEx and UPS offer guarantees to customers, and if those guarantees aren’t met, they give money back. Manually tracking each parcel or shipment to determine if all elements of the carrier agreement were met is impossible, and not worth the time. Here’s where logistics automation comes in. Using a cloud-based solution, Shipware’s auditing software gives line-by-line visibility into the tracking information and carrier agreement, identifying logistics savings opportunities and sending claims to the carriers on a daily basis. The fees come from cost savings, with no out-of-pocket costs for the service. 

Call us to see how we can help you save money on your logistics.

How Logistics Automation Cuts Costs

By Shipware | eCommerce, Shipping Knowledge | No Comments

Robots. Software applications. Smart machines. Internet of technology. All these modes of logistics automation can make a major difference in a logistics company’s efficiency and operations, resulting in lower costs. Companies don’t have to use every method of logistics consulting available to take advantage of the benefits of logistics automation. But they should know what’s available and formulate a plan to find the methods that make the most sense for their situation.

Logistics automation uses automated machinery or business process automation to improve logistics operations’ efficiency. That can be in a warehouse, a distribution center, or other areas of the supply chain including transportation, procurement, forecasting, and enterprise resource planning software (ERP). Systems working together to coordinate inputs and outputs are the best suited to make the biggest impact on cost-cutting. 

Of course, there are other benefits of logistics automation that can’t be overlooked. It can also impact labor, improve quality and accuracy. Ultimately, that means improving customer service.

Warehousing/transportation is in the top four market segments using logistics management that are ripe for automation, according to McKinsey Global Institute. That’s because of the labor shortage in recent years, as well as growth in e-commerce. Warehousing/management is behind accommodation/food services, manufacturing industries, and agriculture. Technological advancements make automation possible now more than any time before.  

Types of Automation

In warehouses, logistics automation comes in many forms. 

Machinery

Warehouse operations (as well as manufacturing industries) use many types of automated or smart machinery. For example, automated storage and retrieval systems employ robots, which allows for denser storage and better use of existing space. Some warehouses find success with automated guided vehicles to move cargo and items to the human workers for picking and packing or storage. Machines can weigh packages, determining if items are the right weight. Or that automated weight machine helps with packaging determinations, some even applying postage, after the software determines the appropriate amount.

Industrial Robots

Larger robots are used to load, unload, and move pallets and cargo. These may do so using RFID tags or bar codes. Arm sensors can determine the size and shape of a package to best grasp it, without dropping or damaging it.

Conveyor and Sortation Systems 

Conveyor and sortation systems in some warehouse operations are automated to route bins and other items into specific parts of the warehouse, using scanners.  

Software

Business process automation is a big part of what the software can do. Amazon warehouses, for example, use software applications to determine the best storage spot for e-commerce items, to place in a moveable bin. Items are tracking with a barcode. The software monitors not only the product placement, but chooses which products should be moved to a different warehouse for fulfillment if needed. The fulfillment operations software determines a pick list, sending the robots to retrieve items from the closest bins to go to the fulfillment operations picker. Software applications serve many purposes in the automated logistics setting, whether it’s the ERP, TMS, or another type. The business process automation software can be used for analytics, route or shipment optimization, energy savings, or other uses.

3D printing

3D printers can print needed parts or goods, saving time, labor, and expenses.

Drones

Drones are increasingly used for logistics management in warehouses and yards for inventory management, whether reading RFID tags or delivering items in a small area. 

Assisted Fulfillment Operations Picking

Even when human workers are doing the warehouse picking, they still may be assisted with automated logistics technologies. One example is smart glasses, where images of the items appear in the glasses, and a robot directs them to the next item. 

The Challenges of Automating

Not all logistics companies are automating. They might resist because they don’t yet know which technologies will be most helpful. Automation can be expensive to implement and the planning process can be long, depending on the plan. Some companies have a hard time proving value to the decision-makers in the C-suite. Or logistics companies don’t want to invest without knowing they have contracts to pay for it.

In the various market segments, warehouse automation is projected to have the slowest growth, according to McKinsey research. They estimate warehouse automation to grow at 3% to 5% annually until 2025. Yet in response to warehouse automation, costs could fall 40% owing to the cross-functional alignment between operations and cost-effective logistics. In comparison, McKinsey estimates that the pharmaceutical industry’s logistics automation will grow at 8% to 10% annually, and retail and automotive sectors will grow their automation at 6% to 8% annually.  

Market Segments in the Supply Chain Management

Other market segments and their supply chain management can also benefit from logistics automation

  • Transportation: This sector offers opportunities in logistics management for air, ocean, rail, long-haul trucking, and last-mile delivery. In rail, some terminals are already using automated machines to move containers on and off trains. Automated safety systems like Positive Train Control (PTC) allow the trains to slow down or stop when a safety issue is detected, especially important for avoiding human operator error.
  • Retail: This sector finds logistics automation and logistics management especially helpful when operating in an omnichannel environment. Shippers can’t always find a logistics company that can meet their automation needs, so they create their own solutions or have a hard time evaluating companies because they don’t know what would help them. 
  • Parcel: Companies in this sector rely on the benefits of logistics automation to remain competitive and carry increasing numbers of packages and cargo. They’re using automation software that provides visibility and tracking for customers and for themselves. This allows customers to schedule services without needing help from the parcel or logistics company. The software provides efficient routing for drivers and delivery proof. Logistics automation is important in the sortation of shipments as well. Given the time expectations and guarantees, the parcels must move efficiently, and automation is key for that. Loading and unloading in the hubs is an important part of this. Parcel services use automation equipment which increased employee productivity, to an estimated 3,000 items per hour in unloaded shipments, up from 700 to 1,000 items per hour.
  • Trucking: This sector introduced the electronic logging device, which is controversial, but stores information about the driver’s hours on the road. Truckers also use logistics automation to schedule pick-ups, accept jobs, and allow customers to see where the trucks are at any given time. Some logistics systems allow refrigerated trucks to track temperature to ensure quality, feeding this information to cloud-based solutions for instant updates. And of course, there’s the move toward automated driving of these long-haul trucks. It’s estimated that if trucks were fully automated, operating costs would decrease by 45%, saving $85 to $125 billion per year.

Areas to Employ Logistics Automation

Labor

The first reason to consider automation is the labor pool. Until the coronavirus hit, the U.S. was experiencing record low unemployment rates. Warehouse operations were paying higher wages and needed to use recruiting companies to fill roles. Finding labor was difficult. It remains to be seen how the pandemic will affect labor availability. But until a successful immunization is widely circulated, with herd immunity, safety might continue dictating that employees need more space between them. Increased worker illness rates can lead to more employee absence. Automation can help the facility run more smoothly.

E-commerce

E-commerce is bringing in more business, and the winners are companies that are stocked and able to ship and deliver quickly. Customers are accustomed to getting their deliveries within a day or two, often with free shipping. If a retailer doesn’t offer that, the customers often take their business elsewhere. Logistics automation can increase the efficiency and visibility of the retailer’s ability to deliver goods at the right price and at the right time. 

Transportation

A transportation management system (TMS) can bring freight savings. The shipper receives live carrier rates, choosing the best options and understanding all the terms. The TMS system might also give statistics and analysis of on-time rates and other quality factors. This can mean actual savings for companies as they reduce transportation costs, or it can mean keeping a customer happy even if costs a little more.

Customer Service

Keeping customers happy is imperative. It’s cheaper to retain current customers than to accrue new ones. The benefits of logistics automation include customer service. Companies can offer customers the right type of insurance, live tracking, customer-specific freight accounting, automated scheduling, and other perks. 

Error Reduction

Does your company have higher error rates than you’d like? Perhaps manual data entry introduced costly errors or the wrong freight classification system was chosen. Errors from human workers can be expensive and difficult to track and fix.

Cost Recovery

Parcel carriers like UPS and FedEx offer service guarantees. It’s hard to manually track each package to see if it was delivered on time, using the correct elements of the carrier agreement. Not only is manual labor expensive to use for this task, but it’s also time-consuming. It’s more efficient and arguably more accurate to use a well automated auditing system.

Shipware uses cloud-based solutions that provide line-by-line visibility into the carrier agreement and tracking information. The system identifies each savings opportunity, automatically sending claims daily. The service takes its fee from those cost savings, so there are no out-of-pocket costs. 

Reaping the Benefits of Logistics Automation

The benefits of logistics automation can be reaped even with baby steps. A seemingly small project can yield quick savings with surprisingly little effort. Shipware’s parcel audit and recovery system is one project that pays off instantly and is a quick fix with big results. It can be set up in five minutes and runs in the background. It requires no installation and provides found money. The shipping optimization tool results in returns of deserved savings from the parcel company, without any hassles or haggling on the customer’s part. Parcel contract negotiation is another one-and-done solution that provides automated cost savings going forward. Call us to see how it works and we can set you up with a trial and see how much we can save you.

Ecommerce Shipping: Costs and Solutions

By Shipware | eCommerce, Parcel Market Trends, Shipping Knowledge | No Comments

Today, eCommerce is not a side gig for your business. In some cases, it is a driver of growth and, for many businesses, it is the only area of revenue. Many business owners, large and small, have to convert from retail and warehouse operations to consider the unique challenges of eCommerce. Ecommerce is distinctly different from brick and mortar or store distribution operations. Besides the small number of units per order, the additional customer service, and other challenges, the other major difference is the need for parcel shipping. 

With the help of our shipping consulting experts, we’ve put together a guide on how to save on your eCommerce shipping costs.

The Current State of Ecommerce Parcel Shipping

Ecommerce generates more packages, smaller in size, and higher in cost per unit than other forms of sales. Instead of pallets, you produce cartons, pouches, or envelopes. Instead of lump-sum charges covering more than one sale, you end up with one or multiple shipping charges per sale. And, instead of mutually interpreted terms, your charges often depend on the judgment of personnel multiple times in the life of the shipment.  

Parcel shipping has a few major players and new, more regional providers emerging every month. Depending on how many services you use, you may have different terms and conditions, possibly even multiple sets per shipping provider. It is important to follow those regulations to avoid any surprise shipping fee, but that is not enough.

Estimated Shipping Costs

Some shipping platforms can estimate shipping on the order based on product weights and other stored information (like oversize product dimensions). This takes a great deal of daily management as new products are introduced to your eCommerce store and updating existing products with new packaging information. The resulting shipping estimate can help you decide what to pass on to your customers and a rough budget for your shipping costs.

Discretionary Charges

Note that is a rough estimate. Why? Because some charges are dependent on the final package dimensions, terms in your contract, and even the discretion of a handler at the parcel shipping company who handles the package. Some of those charges can show up after the billing period, even months later. So, the control of your shipping costs is sloppy at best. It can be an expensive and futile exercise to improve that estimate, almost like balancing a teeter-totter on a ship underway.

How to Save On Ecommerce Shipping Costs

With the shipping industry being tricky and costs adding up due to estimated shipping and discretionary charges, what can you do to save costs? Follow these steps.

1. Estimate the Impact

Well, first, use that estimator. Even if the value is inaccurate, having a shipping cost estimate per order can help you understand trends in weight, cost, and services requested by your customers. This can help you plan how to apply free shipping, the budgets for shipping in general, and even the impact of your packaging on your costs.

But that is not enough. You need more advanced options and cost-reduction strategies. Ones that help you ensure you pay what you should, not just what you are billed. Let’s start with auditing your invoices.

2. Audit Your Invoice

First, why? Well, all of the surcharges are discretionary, depending on the supervisor or delivery driver. Even things like discounted shipping rates for bundled packages or signature options can be misapplied at either end of the shipping process. You need to check your invoices to find out if all of the charges make sense. And, depending on the shipping service each package used, you should verify if your parcel shipping carrier met their service guarantee. This is a big one if you are a smaller shipper and paying extra for overnight or even a 2-day shipping service. You have to deal with the customer service implications but you should not have to pay for the extra cost with no benefit.

The problem with auditing, though, is that you have a learning curve. Which services to which shipping zones have the most problems? Should you be looking at actual vs. dimensional cubic weights for discrepancies? Or, is the occasional address correction or handling charge something to watch instead? It can become an activity that may or may not save you money, or at least enough money to justify the effort.  

In that case, consider a professional firm like Shipware to take care of a parcel audit. Our experience helps reduce that learning curve to almost nothing.  And, as our exposure to your shipping efforts increases, we’ll help you find new ideas and strategies to help you control your existing costs

How much can this shipping solution help? Over time, you might save between 1 and 5% of your total shipping parcel cost depending on what you ship, the type of service you use, and even where your shipments are headed.  

At this point, you have tools to budget both your spending and your customer service options for shipping and a way to catch mistakes on your invoices. You have more control and maybe some appreciable savings. With that said, even more can be done to help you save costs.

3. Negotiate Your Shipping Contract Terms

Negotiating your shipping contract will give you the most desirable outcome and the best shipping options for eCommerce operations. However, this is best done with help. There are several concepts to consider when you look at a new parcel contract.  

  1. The salesman you work with is not your ally. They are a resource to work with, helping you to use their company’s services to do business. But they are paid by the parcel shipping carrier to make as much money as possible from you. Therefore, that contract? It probably benefits them more than you.  
  2. Averages are bad. Not because the math is incorrect, but because an “average increase” or “net change” often does not impact your total costs the same as the individual charges or costs in that “average”.
  3. This is a contract, not a bill. All of it can be negotiated. The nuance is knowing which areas of the contract are better to pursue than others.
  4. Given your business changes, this contract may not fit your evolving needs. International shipments, new product lines, and even new shipping locations may radically affect the contract and its impact on your expenses.

Like auditing your own invoice, you can negotiate your own contract but you have a learning curve. For every term or clause you bend to your benefit, you also have to look for other areas your shipping provider is holding onto. Which are valuable to you? Which are worth pursuing, given how you ship? And do you know how your parcel shipping company will adjust with annual GRI announcements, zone changes, or even service alterations during the contract to negate your savings?

Get A Partner to Audit and Negotiate

This is why you need an expert in your corner.  Not because you can’t do the job of negotiation, but you can’t learn fast enough to overcome the years of experience your eCommerce parcel shipping company has.  

Finding the Loopholes

So where do they focus on? What would a parcel contract negotiation company zero in on first?

They look for shipping surcharges that you shouldn’t need to pay. Additional handling, address corrections, even oversize package charges may be due to how the shipping company interprets their own terms. You might be able to avoid them with internal efforts like packaging changes or correcting your customer address database.

They look for surcharges that everyone pays, but may be possible to reduce. Fuel surcharges and the dimensional weight calculation get applied to every shipment, to every carton you ship. Knowing what other companies have negotiated for their sliding scale fuel surcharges or even the calculation of dimensional weight helps you to know where there is “fluff” to negotiate with.

They look for minimum charges that can negate savings. The trend of shipments to go into smaller packages, envelopes or pouches mean that the minimum charge applies to more shipments than you expect. Add in a new drop shipping location, shipping site, or partner company and you may be losing savings due to that minimum.

They even look for service level versus cost mismatches. Are you using a service that costs more but goes to addresses that can be served just as fast as a cheaper service? They know how to identify options for this, as well as where alternate services like hundredweight or cross-border consolidation might be beneficial to add to a contract.  

Impacting Your Bottom Line

So how does this help you? Depending on how much you ship and how much you spend to do that, you could save between 10 and 30% of your bill. While you might be able to reach those levels in a few years of experience with negotiating these contracts, a partner can help you get there much faster, saving you much more money more quickly and helping you increase profit margin at the end of the day.

Control Your Costs Now

To control your eCommerce shipping costs, get ahead of those cases. Estimate your shipping cost for each order to have a forecast for future billing. Audit your current invoices to make sure you only pay what you should. And to get real control, negotiate your contract to avoid fees, cap your maximum charges, or reduce their impact whenever you can. With these eCommerce shipping solutions, you’ll be able to cut costs significantly and improve your eCommerce shipping strategy.

The best way to do all of these is to consult experts who not only know nuances of the industry, they know how to find the savings in your data to benefit you quickly.  Shipware supplies not only the knowledge but deep industry negotiating experience to both audit and aid your negotiations. Wondering how you can improve other aspects of your eCommerce business’ supply chain? Check out our tips for cost-effective supply chain management!

How to Save on Your 3PL Fulfillment Costs

By Shipware | eCommerce, Shipping Knowledge

If you find yourself in need of the services of a 3PL (3rd party logistics) company, you will find yourself in a confusing land of charges, fees, and cost calculations. It can become even worse when special fulfillment services and large inventories are involved. Understanding your options and your exact needs is key to making better choices, and a knowledgeable shipping consulting company can help you sort through these options. Making the best choices as early as you can in the outsourcing of your order fulfillment is the key to saving on your total costs.

The costs will generally fall into 2 categories, activity costs, and monthly costs. The activity costs will cover the acts of receiving, pick/pack, shipping and special projects. The monthly costs will cover the cost of storage and normal inventory control. Each category requires different approaches to control costs. Read on for our top tips on how to save on your fulfillment costs.

Activity Fees

Step 1: Receiving

Begin with the act of receiving your goods at the 3PL fulfillment center or warehouse. All 3PL or order fulfillment companies charge for the initial inbound processing of your goods. Why? Because they need your products labeled, verified, and stored appropriately. A mistake here will cause inventory, handling and picking issues. As you get more experience with your provider, they can prepare inventory for quality checks, later picking, and less handling. A more expensive receiving cost may be offset with fewer issues and costs later in the fulfillment process.

Some fulfillment solutions providers will charge you for the entire shipment as one cost. Some may charge you a cost per line (SKU). Some even charge per unit (either case, inner pack or each). Some charge a combination of these. Smaller receipts, more frequent receipts or badly packed receipts can increase your cost to receive per unit, even while the total size does not change.

Step 2: Pick and Pack

Next, consider the pick and pack activities. If you are receiving pallets from your vendors, and shipping the same out to customers, you have limited pick and pack needs. On the other hand, if you are packing and shipping e-commerce orders, you have the need to pick and pack each item, many of them a single-line single-unit order. Again, your order fulfillment provider makes this a little confusing. You can receive a charge per order, per line, and per unit. In addition, you may receive a packaging charge or packing charge, especially if your items are delicate, easily tangled, or not individually packed in their own bag, box or cover. The strategy here is to prepare your items from your vendor in the form you want to ship to your customers. It is much less expensive to have them prepared there than in the hands of your third-party logistics provider.

Step 3: Shipping Costs

Third, consider your shipping costs. Shipping is a hidden cost for order fulfillment, often because the 3PL provider does not pay this directly. Some providers merely pass through the costs, others insist clients have their own accounts with carriers, and even others (Fulfilled by Amazon (FBA) in particular) will have routing guides for their own services. Your costs are only estimates at the time of shipping, finally being seen days or weeks later in the bill for an individual order. If you ship internationally, the lag could be months. To control this, ask for a clear understanding of what your provider can do (or has done before) to control your shipping costs. A company that provides logistics consulting, like Shipware, can help you get visibility into your 3PL costs and the best pricing.

Step 4: Special Projects/Services

Finally, we reach the area of special projects. This covers fulfillment operations such as kitting, quality inspections, repacking, even seasonal gift wrapping. The issue with this cost area is that unless your third-party logistics provider (and you) knows an activity is upcoming, you end up paying the default 3PL fees. While the actual work is usually per hour, the uncontrolled portion of the work is the coordination, instructions, and reporting. Getting set up, efficient and productive will take time. And that is going to be charged as well.

Monthly Fees

The other category of cost for order fulfillment is the monthly charges, which are linked to inventory. But even here, the cost you pay has nuances. 

By Unit Storage Fees

The most common breakdown for storage is by cubic foot or by “unit”. A unit can be a pallet, a case, a bin, or shelf depending on the type of packaging. The confusion of pallets, cases, and the areas they are stored in created the desire for the cubic foot storage fee. But that has its own issues as well. For instance, bins stored on shelving may take much more space in a warehouse than pallets, due to the amount of air space needed for access. While easier to charge, it becomes much harder to understand why inventory charges increased in a period when receipts were low. The breaking of full pallets and the movement to shelving or bins can explain the increase, but it can be hard to analyze and track. 

Archival Inventory Storage Fees

Even more confusing, some 3PL providers charge an archival inventory storage fee when your activity drops below thresholds. For them, this is the “mothballing” and packing of inventory to pallets to stack away from production areas. More high-tech fulfillment operations will also be looking at removing items from high-speed picking areas and condensing the items into more dense forms of storage. When activity picks up, they return the goods to circulation or picking areas. This additional labor to pack and unpack inventory is factored into the deep storage fees they charge.

Administrative Fees

The other monthly charge is often an administrative fee to cover the work required to maintain records, paperwork like bills of lading, billing, and reporting. In many 3PLs, this is referred to as a customer service fixed fee, an inventory management fee, or some form of inventory control fee. Make sure you know what you get for that fee.

How to Save on The Fees

Now that you have a better handle on the normal pricing structure elements of 3PL and order fulfillment services, let’s dig into how to better control them so your business can minimize costs and increase profit margins.

1. Know your business 

This seems like a simple concept. But knowing how your inventory is packed, what the stock on hand per SKU in pallets, cases, or eaches will be, and how your customer orders is key to knowing which fulfillment charges will be seen most often. Focus your attention on the most frequent charges to have the most control.

2. Know how your fulfillment provider would bill each portion of your business with them. 

Making sure you know how your billing works, like knowing how your vendors and customers work. Understanding how the billing works allows you to understand the details when you receive them. Should you change how you restock inventory? Perhaps finding ways to increase the lines per order would be more profitable than total orders? And the knowledge to recognize unusual charges will be crucial at some point.

3. Make sure you eliminate as many labor-intensive operations as possible. 

The items that really pressure your profit margins on order fulfillment costs are usually labor-related. Whether it’s pick/pack, rework, or quality inspections, labor at your order fulfillment provider is expensive. Anything that can be done upstream in your supply chain will reduce your fulfillment costs and help you achieve cost-effective supply chain management. Customer-facing packaging, removing dunnage (cushioning material) in the cartons, and even ensuring the cartons fully use the area and height of a standard pallet opening all will help control your e-commerce shipping costs.

4. Actively manage your inventory

Product that does not sell has a double penalty to you. One, the capital is tied up in the inventory. But, worse, you are going to see inventory charges month after month. Purge that inventory and you might be able to recover some of the capital outlay. But, if you do, you will definitely reduce your future inventory costs. So, don’t let inventory sit. Getting rid of old inventory before it consumes the margin of your profitable inventory is one of the simplest cost reduction strategies a business can employ.

5. Keep track of inventory

One of the worst periods a customer of a 3PL can have is when the “books” become unsynced. While the finger-pointing and confusion is not fun, the true cost of reconciling your inventory records and your provider’s is not just the labor hours. It is also the lost e-commerce sales for inventory that was missing, and the need to adjust your records both in quantities and in dollars. To avoid this, keep track of what you think should be inbound and outbound. Verify those items and quantities, calling out discrepancies as soon as you feel something is wrong. Ignorance will never make this a reconciliation less painful.

6. If you know certain activities will be needed, negotiate them into your contract at rates you can handle. 

Just knowing you will need seasonal wrapping or kitting for a big customer order is useful. Push for better rates for those needs and you have more control over your costs. Remember, any charge or 3PL fee you did not negotiate upfront will be charged at their book rates. So, should you negotiate every rate, just in case? Yes- it might be a waste of time for all of them, but the return on your efforts for services you need is high.

Conclusion

When you outgrow your garage for your fledgling e-commerce business or need someone knowledgeable about the demands of a major retailer, few options beat a 3PL or order fulfillment provider. Just remember to do your homework before you sign that contract with a fulfillment partner. The way to avoid paying too much is to know your business and negotiate ahead of time, not when the bill arrives. If you need help with navigating 3PL providers, reach out to Shipware today!

How to Increase Profit Margin for E-Commerce

By Shipware | eCommerce, Shipping Knowledge

While pure e-commerce companies don’t have to factor stores into the profit margin equation, there are many other costs involved. Managing those costs to increase gross profit margins and net profit margins is a tricky dance that all retailers must do. Companies offering e-commerce as part of their business strategy, along with brick and mortar stores, have other factors to consider. For any e-commerce business, investing in shipping consulting is one of the best ways to increase profits with ease. 

Generally speaking, there are two ways to increase a company’s gross profit margins. That is by either decreasing operating expenses (cutting costs) or increasing sales. We’ve put together our top ideas on how to increase profit margin below.

1. Fulfill Elsewhere

Wondering how to improve operating profit margins? Check out fulfillment. Fulfillment strategies change depending on the business type. Some companies with brick and mortar stores find it better to fulfill out of the actual stores, whether from the floor or the storage area. Others prefer to use distribution centers. Pure e-commerce retailers may perform fulfillment with their own staff, or they may outsource it to a warehouse and 3PL. There are cost factors in each approach. Self-fulfillment includes labor costs, insurance for the labor pool, and fixed real estate payments. Depending on company size and location, there are potentially longer shipping distances and higher prices if customers are scattered throughout the country. 

Some e-commerce companies find it more economical to use third party fulfillment. One warehouse location can be the hub, or the goods can be strategically placed at various warehouses for shorter shipping times and even with different mixes of goods. Outsourcing fulfillment can decrease overhead expenses, however, you’ll want to seek out logistics consulting to ensure you are getting the best price for your 3PL. For more information on 3PL, check out our guides on minimizing fulfillment costs and saving on e-commerce shipping costs.

2. Streamline Operations

Dive into your operating expenses to see where you might have waste. It could be excess paid overtime, which means you don’t have enough staff members or they’re not working efficiently. Your management may not be adequately planning the workload, so there’s a rush at certain times of the month or year.

Look at your packing materials to see if there are better ways to make a good impression on customers while spending less. Perhaps you’re using more expensive filling material or customizing the packages. Customization can be a great thing if you’re charging enough for it, and the effect isn’t wasted on the consumer. Sometimes the packaging makes a difference in branding and sets up your company as a luxury retailer. But if it doesn’t, then you should source packing materials that are sturdy and attractive, but less costly. Cost-effective supply chain management is imperative for e-commerce businesses. 

3. Shipping Solutions

Shipping is a huge part of e-commerce, so it pays to get this one right. Whether offering free shipping or the customer pays the shipping, maximizing shipping costs means the difference between the ability to improve profit margins, and well, losses. 

  • Audit your shipping: Before making any changes to improve profitability, get a better understanding of your shipping situation. That can include numbers of packages shipped each week, shipping destination, distance shipped, carriers used (if you send packages via multiple carriers), package sizes and weights, timeliness of shipping, percentage of orders shipped on time in full, and other key metrics. If your company doesn’t have the time and know-how to conduct a complete audit, use an outside vendor like Shipware.  
  • Audit recovery: E-commerce businesses should audit shipping records automatically, as carriers often miss their guaranteed delivery time or make errors on invoices. Just as automating other parts of your business can increase your operating profit margin, doing so with shipping will pay huge dividends. Shipware’s parcel audit technology pays itself through your savings, so there is no out-of-pocket cost. The service automatically scans all your FedEx and UPS invoices to identify unclaimed refunds and incorrect surcharges, requesting those invoice credits directly. The credits appear on your future invoices. That is not only found money but an increase in operating profit margins.
  • Negotiating shipping contracts: Each year or when contracts renew, take a good look at to see what can be renegotiated, with contract optimization. Some companies have the knowledge to do this in-house, but many will save money and increase net profit margins by getting expert help. Shipware’s experts, for example, used to negotiate from the carrier side, and better understand negotiable terms and pricing, as well as pricing paid by other e-commerce companies. Businesses taking advantage of negotiating help, whether they conduct the actual negotiations or Shipware does, save on shipping. It’s a service that pays for itself. 

4. Automation

Automation is a broad cost reduction strategy that can lower labor costs and increase your operating profit margin. Not sure how to improve profit margins with automation? Ask employees about their daily tasks and how long they take each day, week or month. Can any of them be automated? This can include accounts payable, accounts receivable, scanning documents, printing shipping labels, determining package sizing, scheduling employees, linking sales data with accounting software, timesheets, and more. By streamlining operations and automating specific tasks, you can reduce the time spent on them, and either work with fewer employees or deploy employees to other complex tasks.

5. Know Your Data

Inventory management is a huge priority in e-commerce. This is another area that should be automated in order to see a gross profit margin increase. Understanding what products you have on hand, what’s ordered, what is selling and not selling, can help with forecasting and analyzing. You can renegotiate with vendors to ask for discounts if you can order increased quantities going forward. Data helps you project these numbers and model your sales. 

Knowing your data helps you manage inventory. Businesses want to weigh running out of stock versus having excess stock. Customers interested in a specific product may leave your site to find it elsewhere, but if you have too much you can’t sell, that eats into your net profit margins. Having an excess of products is a big issue with trendy or seasonal items. It’s also important in certain e-commerce businesses like subscription boxes, where excess inventory may not be usable because it doesn’t go with the next month’s theme. 

6. Increase Average Order 

In order to improve the average profit margin for orders, you’ll need to increase the average order size. There are several ways to do this. 

  • Recommendations: Develop an algorithm or key in links for adjacent products when adding new merchandise to the website. Good automation is better for efficiency, with someone spot-checking how appropriate the recommendations are, for fine-tuning. An algorithm might suggest that other customers viewed or purchased a specific list of products when they viewed or purchased the current one. You’ve seen this done on Amazon and other sites, and it works. Good items to consider are refill items for products, or different sizes, along with comparison charts. In the same way that a restaurant’s special typically provides a high-profit margin, a smart algorithm will always suggest more profitable products over less profitable ones. After a consumer commits to purchasing a product, encourage increased spending by recommending additional relevant items or impulse buys, at sales checkout. This can improve total revenue.
  • Free shipping: If you’re not already offering free shipping, consider doing so for certain thresholds. Many consumers are willing to add items to the cart to qualify, and the gross profit margin can increase as a result, with increased sales.

7. Change Your Pricing Strategy

There are many external factors that retailers must be able to react to, such as competitor pricing strategy, site traffic, conversions, seasonality, cost of goods sold and more. Try different pricing strategy models to see what increases your gross profit margins. Here are some different techniques to try.

  • Discounts: The key to providing great discounts is making sure shoppers feels they’re getting a deal and that there’s time pressure to make the purchase at the discounted price. Volume orders are one way to do this – order two or more of the same item, and the price for each goes down. Even using a buy-one-get-one-half-off can work, in some circumstances, depending on the cost of goods sold. It doesn’t take a warehouse worker much additional time to add another product to the order, and shipping costs will increase incrementally.
  • Dynamic pricing: When retailers include dynamic pricing in their pricing strategy, they are able to better keep up with market fluctuations. Dynamic pricing is when pricing changes depending on demand. This can happen in seconds – a good example is airline tickets. Doing this manually is difficult, and this is another area where automation can save you time and money. A dynamic pricing strategy helps e-commerce retailers stay nimble and react quickly to market forces.
  • Tiered pricing: Offering consumers a choice in price brackets can result in more sales, and potentially sales with a higher average profit margin depending on the cost of goods sold. Some e-commerce retailers find success with deluxe and standard pricing. Offering different quality items at different prices, and pricing the deluxe items considerably higher, can lead to consumers willing to pay more for higher quality and perceived higher value. If offering three tiers of products, the low-priced alternatives make the mid-range and high-range items look upscale, while much higher pricing on the high-end products makes mid-range and-low range items appear to be the best value.
  • Raise sales prices: If your products don’t have a lot of competition, consider raising prices. For e-commerce retailers with regular customers, you can note the reason for increased prices, such as higher supplier charges, the cost of goods, increased tariffs, or decreased supply. That type of transparency helps pave the way for consumer understanding. If your products are similar to the competition, you may need to market them differently to raise prices, like sales on white label versions and better marketing copy to show value.

No matter what versions of pricing changes you try, perform A/B testing to see what works, so you’ll have solid data to rely on. Changing pricing models can improve the total revenue.

8. Customer Service and Retention

There’s a saying that any money you must spend after making sales, lowers your profits. And in some cases that’s true. Customer service is one area that e-commerce retailers ignore, figuring there are so many customers, it’s okay to lose a few disgruntled ones. We urge you to think about it in a different way. Excellent customer service can help your company stand out. If customers know you will back up your products, your shipping, and the entire experience, they’re more likely to become loyal customers, even if that means they sometimes pay more than they’d pay with a competitor. Set up a call center and email support with expectations for how long follow up should take, what the proper procedures are, and then monitor what happens. Auditing the work of the customer service agents is imperative to maintain that good reputation. 

Retaining customers is another way to increase profitability. It’s much cheaper to sell to existing customers than to get new customers. Marketing efforts focused on current customers are likely to get higher purchase rates than for potential customers, with less marketing dollars behind them. 

Small Changes, Big Rewards

Increasing profit margins and increasing sales requires some forethought and work, but it’s doable even in a difficult economy. Making small tweaks to the supply chain can have big impacts on your business’ profitability, and is one of the easiest ways to improve your company’s performance. Contact Shipware for a 30 day free trial, to reduce your shipping costs now and become more profitable.

Cost Reduction Strategies for Businesses

By Shipware | eCommerce, News, Shipping Knowledge

With the recent COVID-19 pandemic, many businesses are suffering due to the dwindling economy and are looking for ways to cut costs anywhere. Cost reduction strategies have suddenly become the number one priority for every business. However, no matter the state of the economy, businesses and management should be watching the bottom line at all times. Money flowing out the door without a good return is a drag on the business. It shouldn’t take the threat of a pandemic, recession or an economic slowdown of any type for a business to implement cost reduction strategies. Time should be set aside each fiscal year, at a minimum, to delve into ways to reduce costs without jeopardizing operations. One of the main areas that businesses can turn to in order to reduce costs is shipping, and seeking out the help of shipping consulting is one of the easiest ways to reduce such costs. Here are some categories and ways a business can reduce costs, some very simple, and others requiring more effort. Read below for the top cost reduction methods you need to implement immediately.

1. Automate Accounts Payable

If your vendors are receiving checks, it’s time to look into automated accounts payable (AP). Do you know your total cost per invoice, the amount to process and pay one invoice? That total cost ranges from $7.50 to upwards of $30, depending on the business. The calculation includes AP labor, technology and overhead costs. Plus it can include labor time for those in other business units and management manually approving invoices, interruption time from vendors seeking information about payment status, and invoice preparation time for audits. With automated AP services, the total cost per invoice can drop to $1.25, and some AP staff can be redeployed to do different work, like implementing other cost-saving strategies. 

A cost reduction strategy is decreasing the need to pay late fees. Renegotiating terms to receive discounts for paying earlier is another. Automated AP services increase the transparency for your entire supply chain, giving your business a better understanding of when bills are paid and under what payment terms. By negotiating small discounts for earlier payment, these small discounts add up. Ask for a 2% decrease to pay in 10 days, if you’re able. And change to vendors offering better terms.

2. Energy Reduction

Has your business undergone an energy audit? Whether you’re a small office or a larger enterprise occupying multiple buildings and warehouses, saving energy adds to the bottom line and lowers operating costs. Simple fixes include programmable thermostats set to reduce heating or cooling at night when no one is working in the building. Larger fixes for warehouses might mean adding insulation, light sensors, LED lighting, high volume low-speed fans, and painting the rooftop white to reduce heat. Adding renewable energy sources like solar panels can save money. Proper maintenance of HVAC equipment can also lower the operating costs. Energy reduction strategies can lower costs in the total supply chain and decrease both your operating costs and manufacturing costs, and increase profit margin.

3. Space and resource management

If your business has extra space in the building, consider renting it out or reconfiguring it for efficient use. With more employees working from home, dedicated desk and office space can be reconfigured for hoteling options. This provides temporary desk space when employees come in, and doesn’t leave desks or offices sitting empty for long periods of time, which increases overhead costs. If reconfiguring the physical infrastructure, the office can add small rooms for phone calls, additional meeting rooms, and storage or locker space for those who aren’t in the office full time. 

Research your waste disposal options. Some waste can be diverted for recycling, saving money or even bring in money to pay for the program. Metal recycling is the best from a financial perspective, but cardboard also has value. Food waste can be diverted for animal feed, to reduce costs for disposal and decrease what’s sent to landfill. Programs like these have another benefit: increasing a business’s sustainability efforts and ratings. With investors and customers paying attention to sustainability scores, changes like these can increase visibility and funding. Businesses can hire services to coordinate the waste program, which helps lower operating costs.

4. Office Expenses

The fiscal year budget review is a good time to make changes in a cost reduction program. Each business unit and its management should review programs and overhead costs. That means revisiting recurring expenses like phone bills, memberships, subscriptions, energy providers, and service providers (copy machines, cleaning and legal). Are the terms of service appropriate for the business size and needs? Would your business be better off leasing or trying to increase purchasing of new equipment? Are the legal retainer hours and amounts appropriate? Work with an insurance broker to ensure that all policies are providing adequate coverage at the right price. That might mean consolidating policies with one business or changing carriers. Bank accounts may offer a better deal and more personalized service by switching all accounts over to them. Office supply purchasing might be more economical through procurement services through a group purchasing organization, for additional cost savings and efficiency in purchasing operations.

5. Shipping Solutions

Whether companies ship a lot of packages or a few, eCommerce shipping costs or general transportation costs matter a lot in your total supply chain. A business should audit their parcel and LTL shipping usage each fiscal year to understand current usage— doing so is a great approach to reducing unnecessary spending, and thus operating expenses. What size packages are shipped? Where do they go? What carriers are used? What packages have exceptions and additional costs? How often are they on time? Are you paying for rush delivery more than needed? What rates and terms are given? This type of audit is a painstaking process, and can easily be handled by an experienced outside firm that deals with it full time. 

Some easy fixes for strategic cost savings might be adjusting the packaging type and size, to better fit the contents and reduce the shipping rates. Using carrier packaging is sometimes cost savings as well, especially for shipping heavier items in flat rate boxes. Outsourcing to certain third-party logistics can also minimize fulfillment costs. Renegotiating shipping contracts can save a bundle, whether the business does it themselves, or uses a service like Shipware offers. However, Shipware’s experts used to negotiate from the carrier side, so we know what terms can be tweaked and what pricing others are getting. This gives businesses an inside advantage. We can walk you through a negotiating strategy so you can conduct it yourself, or we can do it for you. 

Lastly, your business should be auditing your shipping records daily, to ensure the carriers are meeting their obligations. For example, they should be refunding you if your packages show up outside of the guaranteed time. It’s time-consuming to check that yourself, but Shipware’s parcel audit technology can automatically scan all your UPS and FedEx invoices, identifying incorrect surcharges and unclaimed refunds. The Shipware fees come directly out of the cost savings. That means businesses not only save money on shipping, but they don’t have to pay extra to do so.

6. Travel

Cutting back on travel expenses is a big category to consider as a cost reduction method. More meetings are done by video calls these days, and giving everyone access can be much less expensive (and more efficient) than sending an employee across the country for a business meeting. Of course, some travel is essential. If your business units and management haven’t created policies for what is considered appropriate expenses, those should be developed. That can include traveling only in coach airline seats, or booking with a specific hotel group for preferred rates.

7. Staffing

Retaining quality staff members is less expensive than finding new ones, even if you pay the current ones more than new hires. The search process, whether done in house or using a recruiter’s services, is labor-intensive and that costs money. With low rates of unemployment, it’s hard to find highly qualified employees for many positions. Provide employees with cross-training, so they have a good understanding of other roles. That way, if an employee leaves there is someone who knows enough about their job to fill in, and less institutional knowledge is lost. That additional training may also be an incentive for people to stay on board, so they don’t get bored and look for outside opportunities.

When using contractors for specific projects, total cost is always a consideration. But quality is as well. Hiring a business or independent contractor with low rates but less experience or less cultural understanding of your business can come back and bite you. Think twice before using this as a cost-cutting strategy. Work that must be redone because it doesn’t hit the mark means your employees now increase their time spent to correct it, and that defeats the purpose of using lower-cost vendors. It also lowers your employee efficiency.

8. Benefits

Valuing staff means providing good benefits to increase morale and length of service. Revisit your benefits policies each fiscal year, and find out what options are new, how costs differ between insurance plans and benefits and give employees a say in what’s offered. Some benefits don’t have to cost an employer extra money, as the employee pays for them but may not have access on their own. Tax-advantaged savings accounts, for example, allow employees to take a stake in their healthcare choices, to reduce costs and risk for the employer. Services provided by a benefits company or insurance provider can give additional cost-saving benefit ideas.

9. Cloud Storage

A big expense for many companies is information technology. Hardware gets outdated quickly and more and more is needed to store a business’s data on-premises. Outsourcing to cloud storage can be a good cost-cutting method, eliminating not only storage hardware but the real estate for that hardware. Paying for cloud storage is generally by usage. Companies should have someone in charge of monitoring the usage and ensuring that what’s used is vital, and setting limits for what reports are run, what data is added, and who has access. 

Cut Costs Now

Whether your company implements just one or all 9 of these types of cost reduction, you’ll be able to reduce costs without a lot of effort. To learn more about how your business can cut costs, check out our blog on tips for cost-effective supply chain management. Contact Shipware for a 30 day free trial, and reduce your shipping costs now.

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How to Get Discounted Shipping Rates

By Shipware | Shipping Knowledge

There is a simple truth to shipping for any business, regardless of size, volume, or demand.  One goal that every shipping manager, every logistics analyst, and every operations director pursues daily and asks themselves: How do I get discounted shipping rates? How do I pay the least amount for the best service for my shippingIf you seek shipping consulting with Shipware, we can help you get the lowest discounted shipping rates, but we are also here to help you understand these rates. In this guide, we’ll explain the variables of LTL and parcel discounted shipping rates and how to get these discounted rates.

When looking at discounted shipping rates, the two biggest variable areas in domestic shipping in the US are parcel and LTL. While similar, each area requires different approaches to get the cheap shipping rates you want. However, there are a few shared concepts to remember for both.

Common Ground between LTL and Parcel 

First, focus on the total net spend for each provider, LTL and parcel. Whether you have the lowest discount by percentage, the accessorials and surcharges can make your discounts disappear quickly.

Second, know your data. Knowing what you ship, where you ship to, the specifications of your actual loads, and the true demands for the shipments (i.e. delivery due dates, unloading equipment, etc.) can help you. It will help you focus on the most active areas of value over the most complicated or worst pricing. 

And third, know your contract with that shipper. What discounts do you have already? Under what conditions would they not apply? Are there surcharges that do not appear in your terms, but do appear on your bill of lading?  Having a complete understanding of the agreement, both in what it does or does not cover, is vital when understanding your shipping costs. But what about the specific advice for each area? Let’s start with parcel carriers.

Parcel Discounted Shipping Rates: They Hold the Cards

To start, know which shipping services, zones, and weights you actually get charged for. Don’t refer to what you think the service was, or the physical weight of the box, or even the initial estimated cost but what your carrier actually invoiced you. You’ll want to consider the following variables when determining how to get discounted shipping rates for parcel shipments:

Service

Do you pay for expedited shipping service (i.e. next day air early morning delivery), when you could save costs using a less expensive service (i.e. next day PM delivery) option to get the same actual speed? This comes into play even more for 2 and 3 day express shipping services that may be reached by ground service, a much cheaper option. Be aware of what shipping options are necessary so you can cut costs where specific services, like expedited shipping,  aren’t needed.

Charged Weight

Another variable is how the service determines the weight you will be charged. Known as the dimensional weight (DIM weight), it is a conversion of cubic volume to a “weight” using a divisor. That divisor is negotiable which means that the cost of dimensional weight can vary. So, a package that weighs 2 lbs in actual calculated shipping weight, could be seen as 12 lbs for shipping charges under one divisor and 4 lbs for another.

Fuel Surcharge

Every package will receive a fuel surcharge. Based on a floating national standard price for fuel, it is a changing, weekly value on your invoices. How much of the fuel charge (or even if it is applied) can be negotiated, but you have to do that at the contract level, not the invoice level.

Minimum Charges

A variable that’s often missed in negotiations, is to make sure that your minimum charges are as low as possible. Negotiating for a large discount on the normal shipping rate tables gains no benefit if the resulting charge is below your contract minimum. 

Accessorial Fees

Charges like carton sizing, redelivery charges, address correction, and many more, fall in this area. Some, like the address correction charges, are avoidable by just good data processing before shipping. Others, like additional handling charges, can be controlled by effective internal policies or a parcel audit that can identify possible errors or unnecessary charges. However, others can be negotiated. Delivery area surcharges and congestion fees should be a point to review aggressively with your parcel carrier. If this additional pricing appears on your invoices regularly, consider negotiating it into a contract for a discount.

Finally, negotiate that discount against the standard shipping rate tables for each service. If you have controlled the other factors listed above, the discount will be more reliable in the final invoice costs. But what about LTL?  Don’t these guidelines also apply to LTL carriers as well?

LTL Discounted Shipping Rates: Rules to Follow

In some ways, many of the same tips apply to LTL carriers. At the same time, you’ll want to consider the following nuances:

Pallet Specifications

When an LTL carrier picks up a load of pallets from a shipper, they are basing their rates on the pallets meeting 3 specific characteristics:

  1. The top of the pallet will be flat.
  2. The pallet will bear the weight of another loaded pallet on top.
  3. The load on the pallet fits onto the pallet with no overhang on any side.

If you meet these guidelines, the LTL carrier cost is for the single pallet, given they can use the space above that pallet for another load without causing damage, fitting 2 pallets across in the trailer. 

If any of these points are not met, you can be charged for transporting 2 pallets. To complicate this, there are minimum and maximum pallet charges for carriers depending on the route. It may cost the same to ship 2 pallets as it does for 4 pallets. Or you may not be able to ship 9 pallets with a specific carrier and these extra pallet charges, due to the nature of the shipment, may or may not apply to these limits.

Shipment Density

In general, carriers will try to average the freight classes a shipper is charged on to make billing easier. However, if you are shipping a well-packed dense product, this average class may actually be for lighter goods than you actually ship. Or vice versa, getting a higher freight class than what you ship may keep your costs down. Knowing how the carrier will classify your FAK(Freight of All Kinds) class and how that affects your tariff rate table is important.

Shipping Rate Table

The next point of difference to parcel shipping is in the rate table that you are charged from. Between “neutral” rate tables to carrier-specific ones to old tables from other carriers used as standards, the table used by your carrier is key to getting discounted shipping rates. In general, the newer the table is, the less a discount will actually reduce your final cost.

Why? Well, the older tariff rate tables were based on zones that have changed in volume and margin. The newer ones will adjust the rates for popular routes, increase the rates for areas with less demand, and even discontinue routes that don’t make profits. The older ones are frozen in time and avoid those adjustments.

So, when you do apply a discount, a 65% discount on an older tariff schedule may result in a bigger discount than the 85% on the most up to date tariff schedule. Obviously, there will be surcharges that get added to LTL shipments as well. However, some can be avoided, like address corrections, just like for parcel carriers. Other LTL carriers will charge extra to deliver to locations without a dock, but some are a little more subtle. 

Certain areas of the country may charge congestion charges for delivering there at all, or just during daylight hours. The fuel surcharge may apply to the base rates or to all other costs on the shipment. It does help to consider not only the type of shipments, but the destinations when negotiating the surcharges.

Coverage

The final big point of difference between the parcel and LTL carriers is coverage.  LTLs carriers do not cover the entire country. Depending on the shipping origin and final destination, most LTL carriers have agreements with other carriers for all or part of the route. 

Why is this important for discounts? Avoiding damage or unexpected handling fees can improve your final cost. Know your carriers and how they will be handling a particular route for your shipments. The more complicated the route is, the higher chance of damage and extra charges. Regarding damage, it’s also important to understand the difference between FOB shipping point vs destination. The difference lies in who’s responsible for damage in route—the buyer or seller. If you aren’t liable, you may find that you aren’t responsible for certain damage costs incurred in route.

How to Lower Immediate Costs with Third Parties

There are some ways to reduce your immediate costs. This is best done through third parties. For instance, you can obtain lower base shipping rates by rate shopping a shipment using another group’s discounts, like trading groups or business associations. You can even consider using 3PLs or consolidation companies to bundle your shipment with others for discounts and handling. Each of these options can help, but there is a concern with using them. The rates they offer are not based on your business, but the average profile and total volume of their collective business. 

So, when does it make sense to tap into these options? When you don’t have enough steady business in a region for parcels or LTL to gain a discount is when this is ideal. Typical examples would be express shipments from the West Coast, cross-border shipments to Canada or Mexico, or shipping into more remote areas like northern Idaho or rural Texas. Do not ignore these options but consider them alongside your own rates to be sure you get the lowest net cost in the end.

Preparation for Negotiating the Rates

The overriding theme for getting discounted shipping rates is preparation. Trying to rate shop for a shipment and getting good results starts from the beginning by setting up the rates you pay, the discounts you get, and the fees you might see to your benefit. If you find that you want assistance in both understanding what you actually ship and then negotiating contracts that assure your discounted shipping rates, contact Shipware today. Our staff of professional analysts and negotiators know what to look for, different ways to reduce your costs before negotiating, and how to negotiate with you to get the lowest discount shipping rates for your shipping. Contact us today to learn how we can help you save money in shipping costs.

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FOB Shipping Point vs. Destination

By Shipware | Shipping Knowledge

If you’re confused by the terms FOB shipping or FOB destination, get in line. While the concepts are not difficult to master, the fine detail may put your head in a spin. What is the difference when comparing FOB shipping point vs FOB destination? The overarching idea is that free on board (FOB) is a shipping term indicating who (buyer or seller) is responsible for goods that are damaged, lost or destroyed during shipping. It indicates who “owns” the goods during transit, when that ownership changes, and who pays for the shipping, associated fees, and other freight charges. In international shipments, FOB refers to non-containerized sea freight or inland waterway transport. The term “free” is defined as the seller’s obligation to deliver the contracted goods to a named place, for transfer to a carrier. 

Knowing the difference between FOB shipping and FOB destination can help you determine whether the shipping charges on your bill of lading are accurate or not. Errors on your bill of lading can lead to shipping costs that you may not be responsible for. With proper knowledge of these terms and shipping consulting, you can protect yourself from overspending.

Defining the Terms

Before delving into more detail, it’s helpful to clarify a few points. The first is that free on board is not the same as freight on board. Some use the terms interchangeably, but they don’t mean the same thing. Freight on board is not a term used or defined in the two sets of recognized domestic and international codes: Incoterms and the Uniform Commercial Code (UCC). These are the codes regulating shipping terms. Assume that FOB refers to free on board. The other clarification is that FOB can be defined in international trade and U.S. domestic shipment terms. We’ll be referring to Incoterms here: 

Incoterms is short for International Commercial Terms, which is published by the International Chamber of Commerce (ICC). Incoterms is updated each decade, with the 2020 Incoterms published in late 2019. Incoterms are agreed-upon terms that define transactions between shippers and buyers, so importers and exporters can speak the same shipping language. While Incoterms can apply to international trade and domestic shipments, UCC is primarily used for domestic shipments.

Image courtesy of Wikipedia

What is FOB Shipping?

FOB shipping is also called FOB shipping point or FOB origin. As soon as the goods arrive at the transportation site, and are placed on a delivery vehicle, or at the shipping dock, the buyer is liable for any losses or damage that occur after. The buyer would then record the sale, and consider their inventory increased.

With FOB shipping point, the buyer pays for shipping costs, in addition to any damage during shipping. The buyer is the one who would file a claim for damages if needed, as the buyer holds the title and ownership of the goods.

As an example, U.S. Company A buys watches from Vietnam and signs a FOB shipping point agreement. The cargo arrives at the receiving dock and the buyer takes ownership and liability. The watch glass breaks during transport overseas. The buyer is responsible, even though the watches were damaged before arriving on U.S. soil.

What is FOB Destination?

FOB destination, sometimes called FOB destination point, means that the buyer takes ownership from the shipper upon delivery of goods, usually at the buyer’s receiving dock. To be crystal clear whether a shipper is referring to UCC or Incoterms, a shipper might include the final destination name and specify Incoterms definitions, by referring to FOB Savannah (Incoterms 2020) in the contract. That means the delivery port is Savannah and Incoterms definitions are referenced. Incoterms 2020 considers delivery as the point when the risk of loss or damage to the goods is transferred from the seller to the buyer. 

This is also the moment that the supplier should record a sale since they’re taking ownership at the receiving dock. It’s common for high-value goods to be sent via FOB destination designation. That allows the buyer to ensure they arrive in good condition and can be inspected upon receipt. The seller retains liability until the buyer accepts the goods, ownership, and liability at the receiving dock, office or agreed-upon place of transfer, after inspecting for damage. 

As an example, U.S. Company A buys watches from Vietnam and signs a FOB Newark agreement. The shipment is sent to Newark, New Jersey, and the watches are damaged in transit. The seller is responsible and either must deliver new watches or reimburse Company A if they’ve already purchased the products.

A related but separate term, “CAP,” (customer-arranged pickup) is used when the contract is for the buyer to arrange transport via a carrier of their choice, to retrieve the goods from the seller’s premises. The liability for any damage or loss then belongs to the buyer.

Why is it Important to Understand the Difference?

Shipping terms are important because of the massive worldwide volume shipped, and the need to have a common understanding of these terms for contracts. The terms affect shipping costs, liability, and even financial statements for accounting. With so many languages spoken, it makes sense to have agreed-upon terms to lessen confusion. 

Inventory costs are expensive and include not only the cost of goods, but the fees to prepare inventory for sale. Delays in recognizing costs as expenses affect net income. The amount of inventory and cost of goods on the books changes as well, depending on where the goods are and the FOB status. And of course, accepting liability for goods adds to the profits and losses, if there is damage during transit. Understanding the terminology and understanding when you’re accepting liability and ownership, is imperative.

Understanding the History of Shipping

With shipping, you may hear about the ship’s rail, and how costs or ownership transfer when it’s over the rail. That’s because the rail concept, as well as FOB, goes back to the early days of sailing ships. The earliest ICC guidelines were published in 1936, when the rail was still used – goods were passed over the rail by hand, not with a crane. And liability mattered then too. The liability transferred as the cargo made it safely over the rail. Now with containers, it’s harder to know when items are damaged. But there has to be a point when liability transfers. Incoterms last included the term “passing the ship’s rail” before its 2010 publishing.

Who Assumes the Cost of FOB Shipping Point vs Destination?

Traditionally with FOB shipping point, the seller pays the transportation costs and fees until the cargo is delivered to the port of origin. Once on the ship, the buyer is responsible financially for transportation costs, customs clearance, fees, and taxes. Conversely, with FOB destination, the seller pays costs and fees until the items reach their destination. That destination is the receiving port, not the final stop or warehouse in the journey across the country. The buyer assumes fees like customs clearance fees and taxes at port entry.

The FOB shipping point price does not generally include shipping, as that is typically paid by the seller. With a FOB destination point contract, the contract is a delivered price, with the transportation cost figured into the final contract. There may not be a line item on the bill for shipping and the shipper may require payment ahead of shipping. It’s always good to know whether shipping is already factored into overall costs, or whether it’s a line item when inquiring about discounted shipping rates. That can help when comparing apples to apples in pricing.

The Fine Print of FOB Shipping and Destination

FOB shipping and FOB destination are the main categories to determine when the title of the goods is transferred from the seller to the buyer, who pays the fees and who is liable. But there are some finer points to know, and you may see these terms on your invoice or bill of lading. 

  • FOB shipping point (origin) or FOB shipping point freight collect (FCA shipping point, in Incoterms): The shipper pays for shipping, and the buyer assumes responsibility for the goods at the point of origin.
  • FOB shipping point (origin), freight collect: The buyer pays for shipping and freight costs, assuming all liability for the goods.
  • FOB shipping point (origin), freight prepaid (CPT in Incoterms): The seller adds freight costs to the buyer invoice. The buyer assumes ownership and liability of goods at the point of origin.
  • FOB destination point, or FOB destination freight prepaid (DAP in Incoterms): The shipper pays the freight cost, and maintains ownership while goods are in transit.
  • FOB destination point, freight collect: The buyer pays freight fees upon delivery. The shipper assumes liability and ownership during transit. 
  • FOB destination, freight prepaid & charged back: The shipper pays the shipping fees and is responsible for the freight until delivery. The buyer deducts the shipping fees from the invoice, which lists the freight fees paid by the shipper.
  • FOB destination, freight collect and allowed: The shipper includes freight fees in the invoice and the buyer pays the full invoice. The shipper maintains liability for the goods until delivery.

Buyers may also see CIF on invoices. That stands for Cost, Insurance and Freight. With a CIF agreement, the seller agrees to pay the transportation fees, which include insurance and other accessorial fees, until the cargo is transferred to the buyer.

Keep an Eye Out for the Details

Just as these shipping terms are detailed, so are shipping invoices. Shipware can help you audit your freight invoices to ensure that you’re not overpaying, and you’re getting the service promised to you. Contact Shipware for more details on how we can help save you money with our parcel audit software and other solutions for logistics optimization.

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What is a Bill of Lading?

By Shipware | Invoice Auditing, News, Shipping Knowledge

A bill of lading performs an outsized role when it comes to communications between the shipper, carrier, and receiver. What is a bill of lading and what is its purpose? The bill of lading has many purposes, including as a document conveying shipment details, like proof of shipment and proof of delivery. It also helps the carrier process that freight shipment. The bill of lading is a title document, showing ownership of the goods, and sharing the terms and conditions for transporting the freight.

The term “bill of lading” could really be “bill of loading,” as it’s an old English term that means “list of cargo.” Just as the current English term is understood, lading is the process of loading cargo onto the transport vehicle. Originally it was a term just used for ships transporting goods in the water.

Carriers require the bill of lading, sometimes known as a BOL or B/L, to move freight. As a legally binding document, it gives the driver or shipping staff the necessary details to process the cargo or freight, and for invoicing. The bill of lading is typically given to the carrier or driver when it’s picked up and is also attached to the freight. Shippers should keep a signed copy of the bill of lading after the carriers receive the shipment for transport. It is considered proof of carrier liability, in case of damage or loss of the freight. 

Without clear understanding of the bill of lading and shipping consulting, you’re likely getting mischarged or overcharged in shipping costs. Read on as we break down the bill of lading and what’s included in this shipping document.

Breaking Down the Bill of Lading

A bill of lading should include all the details needed to identify not only the shipped freight, but the parties involved. Tracking information is included along with shipping details. More specifically, here’s what to look for on a bill of lading as the specifics could differ for FOB shipping point vs. destination.

Names and Contact Information 

The shipper and receiver, called the consignee, are both included in the bill of lading, along with their addresses. The shipper may be the freight forwarder, who is sometimes also a customs broker. It could also include contract information for the carrier, and the port of loading and the destination, if traveling by water. The vessel name may be listed as well.

Reference Numbers

What is a bill of lading number? Bills of lading carry reference numbers, like purchase order numbers, so both parties can identify the freight at pickup and delivery.

Dates

The pick-up date is noted. It is often used as a reference not only for identification and tracking (especially for international cargo), but the date is also important for financing purposes. 

Item Descriptions

The items should be described in an obvious way, including how many shipping units, their weight, dimensions and other identifying information. Packaging types might be included here as well, whether pallets, crates, cartons or drums, for example.

Instructions

The bill of lading may carry special instructions, about delivery notification or the need for specific services.

Freight Class

Carriers use freight classes based on factors like dimension, weight, storage capability, handling ease, liability, density, and others. They will be listed on the bill of lading.

Hazardous Material Designation

The Department of Transportation (DOT) requires that hazardous material shipments be identified, and the DOT rules must be followed for these shipments as well.

Charges

The bill of lading may note freight charges and whether shipping was prepaid or to be collected on delivery.

The freight forwarder and customs broker should be able to give you additional information on all sections of a bill of lading. Depending on the cost breakout, there may be an opportunity to negotiate discounted shipping rates.

How a Bill of Lading is Used?

The bill of lading serves as a receipt for the shipment, and can also serve as a commercial invoice. It is signed by the various parties, including representatives from the shipper, the carrier and the receiver, at the appropriate times. It’s a title document for the goods. The bill of lading acts as a commercial invoice, so when freight arrives in good condition, and the receiver signs for it, the seller can then be paid for the goods.

If goods are damaged or stolen during the transport, the bill of lading acts as a receipt of goods to help the shipper or receiver recover the value. It’s required when filing claims for compensation for loss or damage, but also can be used in ownership disputes.  

Carriers may use the bill of lading as a starting point for inspecting and weighing the freight. They want to ensure they have the proper information, including shipping class designation, before it is transported. If the bill of lading contains errors, it can delay the delivery and result in additional fees and accessorials. Inspection can help decrease surprises for the customs broker at the destination, and will make customs clearance easier.

Terminology for issuing the bill of lading can be confusing. The bill of lading is issued by the carrier, when the driver or authorized carrier representative signs it. It’s issued by them because it’s a receipt. However, the shipper prepares the bill of lading. It’s entered into their computer system, and may even contain a corporate logo.

Bill of Lading: Example

Let’s assume a retailer receives weekly shipments of goods to sell. The buyer chooses the goods from a specific supplier and fills out a purchase order. The manager approves the purchase, and the supplier fills the order. The supplier prepares a bill of lading, which they sign when the driver loads it onto the truck. The driver signs the bill of lading as well.

The driver delivers the goods to the retail store, and the receiving department reviews the bill of lading, to ensure that the correct number of boxes and items are there. A visual inspection shows no damage to the order, and the receiving department signs the bill of lading, as proof of delivery for the receipt of goods. The manager later reviews the bill of lading and purchase order, and upon finding a match, approves the invoice for payment.

Types of Bill of Lading 

There are many nuanced versions of the terminology used for a bill of lading. Here are some of them.

Straight Bill of Lading

This is the most common type of bill of lading, used most often to ship prepaid goods to a customer. This shipping document may also specify how the carrier limits its liability. It is also known as a uniform bill of lading.

Clean Bill of Lading

When the goods arrive and are received with no damage, it’s considered a clean bill of lading.

Claused Bill of Lading

When the goods arrive but are defective or damaged, they’re considered claused, fouled or dirty. 

Negotiable Bill of Lading

The negotiable bill of lading allows the title of the goods to transfer to the entity named on the bill, a third party. It transfers the title through a consignment process. The consignee, or expected receiver, can endorse the document so the goods are transferred to the new third party, or the new consignee. To do this, the bill of lading should be clean.

Non-negotiable Bill of Lading

The person or company claiming the goods must be the person on the bill of lading, with proof of identity. They cannot transfer the goods to a third party at the receiving port or destination.

Inland Bill of Lading

This is used when goods are sent via land first (rail or road), and then transferred to an ocean vessel. They would need an ocean bill of lading to be shipped as freight over the water.

Through Bill of Lading

This document is used when goods are transported both domestically and internationally. 

Air Waybill

So far we’ve talked about land and sea transport bills of lading. The air waybill is the air transport version, though it is non-negotiable

Multimodal Transport Bill of Lading

When goods are shipped using multiple transportation modes, you may need a multimodal transport bill of lading. Goods traveling this way may be transported domestically by air, and then internationally via ship, hence multimodal transport. 

On-board Bill of Lading

This description indicates that the merchandise was physically loaded onto the transportation vehicle, whether a ship, plane or truck.

Received for Shipping Bill of Lading

This indicates that the freight was received, but was not necessarily loaded yet onto the transportation vehicle. Often this is issued by a freight forwarder at the port of loading or at a depot.

Order Bill of Lading

If shipping freight without prepayment, a carrier is allowed to deliver the goods to the receiver.

Keeping an Eye Out for Costly Mistakes

Bills of lading are used along with the policy of insurance and a commercial invoice, to ensure the proper exchange of payments and goods. One thing to be aware of is that it can be hard to track bills of lading, along with other commercial invoices. Making mistakes is costly. Fortunately, Shipware offers LTL commercial and parcel audit services as well as parcel contract negotiation to help you avoid those costly mistakes that may be driving up your shipping costs. By auditing invoices, Shipware can easily save you money, while reducing variances in your on-time delivery performance, and retaining functionality to keep you ahead of changes. Shipware can help you negotiate better contracts with the assistance of our shipping insiders, allowing you to reduce your shipping costs going forward with no ongoing effort. 

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LTL & Parcel Accessorials

By Shipware | News, Shipping Knowledge

A rate quoted by a less-than-truckload (LTL) carrier or a third-party logistics (3PL) provider may not be all that it seems. A shipper receives a base rate that covers the cost of shipping, but what they may not see, and not know about until the bill of lading arrives, is the tab of “accessorial” fees that are charged for cargo services that go beyond the shipping. 

According to industry estimates, accessorial charges account for 5% of a typical all-in LTL rate. A shipper’s freight characteristics may make these freight charges unavoidable. Yet, surprise hits to a budget can be mitigated if the shipper knows what it’s being dinged for. No shipper likes to be surprised by being asked to fork over more money after a shipment has already been booked and paid for. Through proper knowledge of accessorials and with the help of shipping consulting, you can help your business save money in shipping costs. Read on to learn more.

Understanding Accessorials

Some common-sense rules apply when managing accessorials

1. Review the carrier’s rules or tariff rate

Each quarter, shippers should review the carrier’s rules or rate tariff because accessorials can change at any time without prior notice. Charges for accessorials and their definitions will typically be in the rules tariff of each LTL carrier and are shown on their website. With the more common shipping and handling companies, for example, the UPS accessorial charges and FedEx accessorial charges are readily available for consumers to view online.

2. Examine the reason for the charge

When accessorials do occur, examine the root cause of the charge to see if patterns exist. Shippers that encounter many of the same types of accessorial charges can shift to other systems that aren’t affected with the same accessorials, such as LTL consolidation. 

3. Double-check the details before comparing rate programs 

By double-checking the details beforehand, you can save money by avoiding additional fees the carrier might make you pay for failing to discuss some details of the shipment in transportation. Hundreds of dollars may be saved by confirming these small, yet essential, details.

4. Use technological advancements to your advantage

Use technological advancements that are becoming more commonplace in supply chain and transportation management. For example, dimensioning equipment, which has been a staple of the parcel industry for decades, is going somewhat mainstream in LTL. Dimensioners represent a giant leap forward from the old tape measure approach in analyzing shipment dimensions and minimize the post-delivery disputes that result in unnecessary costs and aggravation. Old Dominion Freight Line, Inc., the widely regarded as a well-managed LTL carrier and adept at understanding the balance between cost and price, encourages its customers to use its dimensioners.

The Purpose of LTL Accessorials Within the Industry

It may seem counterintuitive, but accessorial charges can be beneficial to shippers. All an LTL freight carrier sells is time and space. If either is compromised, then carrier productivity is lost and everyone suffers. Freight accessorials are necessary for a carrier to keep its costs in line with revenue without degrading service quality and reliability. Accessorials offset the inefficiencies that are created by certain shipments and make it easier for LTL carriers to charge competitive line-haul prices for the companies and their shipments that don’t require accessorials.

An LTL operation is a complex creature. Unlike full truckload (FTL) deliveries which are linear moves involving one shipper and one carrier, an LTL move involves multiple shippers, more than one truck and driver, and more than one hand-off, all within an intricate hub-and-spoke network. With so many moving parts, it’s easy for one problem consignment to upset the delivery applecart. 

LTL operations are likely to get even more complex as carriers venture more robustly into middle and final-mile residential deliveries supporting the e-commerce ordering boom. Parcel carriers, which play in the residential and commercial markets, have 30 pages of accessorials. Many shippers chafe at the ever-increasing abundance of accessorials and often seek out discounted shipping rates to lessen the cost. However, in fairness to the carriers, there are a plethora of scenarios that require them to perform services beyond the basic deliveries. As an extra measure, it is important to understand the difference between FOB shipping vs. destination along with other shipping terms to be most knowledgeable of the reasons behind your quoted rate.

Types of Accessorials

Administrative

Accessorials come in three broad forms. The first is administrative. Accessorials can occur at the carrier’s terminal because of bill of lading (BOL) errors or omissions that slow transit times and add an additional charge to the shipment. The affected shipments must be pulled out of the transit pipeline to be corrected and addressed. 

Delivery

The second is delivery. The most common accessorial fee here occurs when a carrier tries to deliver and the consignee, or receiver, turns them away. Fees are often the result of a consignee requiring a delivery appointment that wasn’t shown on the bill of lading. Redeliveries may also be required if a driver is detained longer than 30 minutes and must proceed with the delivery schedule; the nature of the LTL freight model—multiple stops for different shippers—means drivers can’t afford to wait more than 30 minutes.

Equipment

The third is equipment. This includes special equipment like lift gates, forklifts, or pallet jacks. Carriers must carefully schedule these assets due to their limited supply, and they will charge a separate fee for their use. If a shipper fails to advise the carrier of any equipment requirements on the BOL, the shipment will be returned to the terminal until the equipment becomes available. The shipper will pay accessorial fees for the equipment and may be charged re-delivery fees to boot.

Common LTL Accessorials

Below is a list of accessorial charges, though certainly not all of them:

Inside Pickup and/or Inside Delivery

This applies when all or part of a shipment is not directly accessible or adjacent to a doorway or dock. Drivers will typically only pick up freight from the end of the dock, known in LTL parlance as “bumping docks.” Drivers are not allowed to enter a person’s home unless a special service such as 2-man delivery, “white glove,” or deluxe delivery is arranged. Inside pickup still applies even if the driver has to move a shipment from the back of a garage into the truck, or from a business interior into a truck. To avoid an accessorial charge, freight must be placed at the end of a loading dock if it’s a commercial shipment, placed onto the back of the truck individually (with assistance from family or friends) if a residential shipment, or wherever a truck will back up to if a liftgate service (see below) has been requested.

Residential Pickup, Delivery, and Appointment

This refers to a pickup or delivery at a residential area, such as a home or a residence business. It is important to put this on the BOL because not all carriers will serve certain residential areas due to the narrow fit of their streets. If this happens and you failed to specify a residential area, additional charges will be incurred, like re-delivery, in addition to residential charges.

Liftgate Service

A liftgate is a hydraulic machine at the back of a truck that allows for the unloading and loading of freight from the trailer. Liftgate service is taken care of by the carrier, but can carry an additional cost ranging from $40 to $100 per liftgate.

Limited Access Fee

This is when the freight is picked up or delivered to a location that is difficult to access or has signs that indicate as such. These can include airports, farms, churches, military bases, schools and ranches.

Protect from Freezing Fee

This can apply when the shipper or receiver requests that shipment be protected from freezing. 

Lumping

Because loading and unloading the freight is outside of a carrier’s job requirements, a driver will charge for any time incurred in performing the labor. This is known as a “lumping” fee that is passed on to the shipper.

Weight and Inspection Fee

One of the more contentious fees, this occurs after a carrier inspects and reweighs a shipment and discovers the weight or freight “classification”—each shipment is assigned a freight class based on multiple metrics—differs from what appears on the BOL. Aside from the additional costs, it is an administrative headache and a possible source of tension between the shipper and carrier.

Second, parcel carriers operate in the residential and commercial arenas and confront a wide range of delivery scenarios that often give rise to the need for accessorial fees. Historically, LTL carriers have only bumped docks. But as they cross into the e-commerce realm, they will encounter the same delivery challenges that parcel carriers take for granted. 

Understanding Parcel Accessorials

Similarly to LTL, parcel shippers need to be aware of accessorials. A transaction with a relatively modest base rate can balloon to two or three times that because of “accessorial” charges imposed by your carrier for services it claims to go beyond shipment pick-up and delivery. As the steward of your company’s shipping spend, should you accept without pushback of the increasing burden of accessorial charges? The answer is, for the most part, no, as long as you know what to look for.

Parcel accessorials run the gamut from residential surcharges, delivery area surcharges, extended delivery area surcharges, charges based on a parcel’s dimensions rather than its actual weight, additional handling fees, oversize fees, second delivery fees—the list goes on and on. 

Some accessorials are legitimate. Carriers should be appropriately compensated when they are asked to do more than pick up and deliver. The change in distribution patterns spawned by the e-commerce revolution has added complexity to carrier operations, especially when it involves the handling of non-conveyable, large-format items that are becoming more commonplace. These are costs that typically need to be recouped.

What is the Purpose of Parcel Accessorials?

Why is this happening? Obviously, FedEx and UPS strive for profitable revenue. They also compete vigorously, regardless of the duopoly they’ve long held on business-to-business (B2B) traffic. It is common for the carriers to slash base rates to big shippers if it results in market share gains. However, rate discounting can compromise their ability to generate profitable revenue. So, they increasingly turn to accessorial charges to compensate. 

There’s a good reason why. Accessorials have no price caps, follow no annual timetable, and can be tough to challenge once they’re in place (again, unless you know what to look for).

FedEx and UPS continue to change their rules and thresholds to expose more shipments to these added charges. As a result, it is naive to expect the carriers to take their feet off the accessorial pedals. 

Avoiding the Extra Costs

A good analogy of the concept of accessorials is the construction of a house. The builder utilizes their volumes to lower the costs for items such as fixtures or upgrades. Most likely, they have also chosen items that require easy installation due to added efficiencies and cost savings. However, say the homeowner doesn’t like the faucet or wants to upgrade to granite counters. Every upgrade or change takes resources and time for the builder to hunt down and install the upgrades. These additional requests will cost extra. So it goes with LTL and parcel accessorials. Some companies may not notice these charges entirely without the help of a parcel audit software that can help identify errors and incorrect FedEx or UPS accessorial charges. At Shipware™, our team has expertise in logistics optimization to ensure that you save yourself from unnecessary shipping costs. Reach out today and identify all the incorrect charges that may be contributing to your business’ shipping inefficiencies.