How to Get Discounted Shipping Rates

By Shipware March 27, 2020 Shipping Knowledge
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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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