Ecommerce Shipping: Costs and Solutions

By Shipware May 12, 2020 eCommerce, Parcel Market Trends, Shipping Knowledge

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!

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