Chase Flashman | Co-founder and CEO at ShipSigma
Your company is paying too much for shipping.
Realistically, they have been for a while. But in early 2020, everything changed. Now that Covid-19 is keeping people at home, the demand for ecommerce rose exponentially. And now that consumers have become so accustomed to online shopping and consider Amazon’s 2-day (or same-day) delivery the norm, merchants and carriers alike have had to increase their shipping, their speed and, as a result, their prices.
But before we get into that, let’s talk about the increased demand for e-commerce, the Amazon effect came up with. Investopedia defines the Amazon effect as the “impact created by the online, e-commerce, or digital marketplace on the traditional brick-and-mortar business model that results from the change in shopping patterns, customer expectations, and the industry’s competitive landscape.” While this doesn’t rest solely on Amazon’s shoulders, they have been a key player as the largest e-commerce website in the world. Because of Amazon and the increase in demand for e-commerce as a whole, retail shopping has been redefined forever.
Carriers saw this happening and at the time did their best to adapt. They had increased the package volume, so they increased their rates with a peak surcharge story to support their decision. In turn, customers saw an increase in late deliveries, wrong deliveries and lost packages.
At the height of the pandemic, this was all reasonable. An increase in volume meant an increase in errors. The workers tried their best, but the workers were never the problem. With so many missteps, how can these carriers keep raising prices?
Well, they just followed the basic laws of economics – an increase in demand meant an increase in prices. Carriers raising prices meant merchants had to raise their own prices to cover the higher overheads, and consumers accepted this in unprecedented times. These price increases could be defended in 2020 and even 2021, but now, here in 2022, I see carriers taking advantage of their customers and their customers’ customers. What was once defined as a peak surcharge, meaning that the price increases were temporary, is now just a surcharge. But don’t worry, we’ll see higher peak fees again during the holiday season.
So, how do you combat this? Here are four ways you and your business can work to cut your shipping costs and put that money back in your (or your customer’s) pocket.
1. Check your invoices.
We talked earlier about the increase in misdeliveries and late deliveries. But did you know that for any delivery error, the carrier will likely owe you a refund for that package? For example, if you paid to have your package delivered before 10:00 AM and the package arrives at 10:02 AM, you are entitled to a full refund. While this probably won’t affect your customer, it’s still a mistake that entitles you to a refund.
You have three options when it comes to checking invoices.
Instruction manual: Have someone on your team go through every line of every invoice every week. They need to find the errors, file the claims and contact the carriers to see the refunds.
Audit software: Invest in invoice control software to manage and review internally. This software will find the errors, while your team will still have to submit the claims manually.
Audit service: Hire a third-party audit service to run their auditing software and manage your claims and refunds.
2. Negotiate your contract.
Locked into a three-year contract with a carrier? No you’re not. You can renegotiate your contracts at any time if you have the data to back it up. Negotiate your rates, agreements between brokers and carriers, additional costs, etc. And remember that the party with the most information has the greatest bargaining power.
The carriers’ goal is to maximize their profits, not yours. So if they tell you you have the best rates, they probably tell everyone. And if everyone has the best rates, then no one has.
3. Reduce your package sizes.
Size, weight, DIM, reduce everything. When it comes to shipping costs, size matters. The heavier, bigger or weirder the package is, the more it will cost. And don’t even think about sitting an ounce or an inch above the maxima or your price will skyrocket.
4. Use multiple carriers and service levels.
All competing airlines have different parameters. You will find deviations in the standards of package dimensions, weight, delivery location, special boxes and delivery promises (guaranteed day/time or multi-day window).
Do your research to find out which carrier is suitable for which type of shipment. For example, you will find that FedEx is better for domestic while UPS is better for international or vice versa. Also look at service levels. Do you ship everything by air, when land shipping would deliver everything just as fast at half the cost?
Whichever route you choose – and I recommend taking them all – don’t settle for your current fares. You’ve been paying too much for shipping for a while, but it doesn’t have to be that way forever.
Your committed shipping expert.