What Are Hard Shipping Cost Savings?
Reduce Shipping Costs with Carrier Service and Routing Optimization
Imagine you could review any of your contracts or terms of service with existing vendors — and in each case you’d find within those documents opportunities to immediately save your company up to 50% of what you’re currently paying those providers.
Think about it: Your $45,000 annual expense for cloud data storage suddenly falls to $30,000. Your benefits administrator is able make a few minor adjustments and lower your workers’ compensation MOD rate from the industry average of 1.0 down to a .8 — resulting in a 20% reduction in your insurance costs. Even your PR firm agrees to lower its monthly retainer by 20%.
Sound too good to be true? When it comes to most services, it usually is.
But there is one service your company uses frequently — in fact, it’s a component of virtually every sale your business makes — where you can save significant amounts of money by using any or all of the following methods:
1) better utilizing the services already available to you from your existing vendors
2) applying the right technology to uncover cost-saving opportunities on every order
3) further diversifying your provider network with additional vendors whose offers might be more cost-effective.
That service is shipping — for many businesses, it’s the low-hanging fruit in hard-cost savings opportunities.
Let’s examine a few of the ways that your business is almost certainly spending more than it should for your shipping processes — and how in many cases the solution is simply taking advantage of the carrier services and options already available to you.
You’re Not Alone: Most Businesses Spend More Than Necessary On Their Shipping Processes
Before we jump into an explanation of the various ways businesses are missing readily available opportunities for hard savings on shipping, consider this statistic about the pervasiveness of the problem.
We work closely with hundreds of shipping-dependent organizations every year. These include large retailers, eCommerce storefronts, marketplace platforms, manufacturers, distributors — B2B and B2C businesses of every size and across just about every industry.
Our analyses of the shipping processes of this large sample of businesses show that 95% are not optimized.
Our analyses show that 95% of all businesses are missing opportunities for hard savings due to suboptimal shipping processes
A Quick Illustration of How Your Existing Carrier’s Shipping Services Could Save You Money
So, what do we mean exactly by better utilizing the carrier services and options already available to you? We’ll describe several such services below, but here’s a quick example to give you a more concrete understanding of the types of money-saving opportunities we’re talking about.
Consider two of the most common types of delivery surcharges from the major carriers like UPS and FedEx — residential delivery surcharges and delivery area surcharges. Many shippers pay these surcharges every time they use one of these major carriers and the delivery qualifies for one — or both — of these added fees.
(The “residential delivery surcharge,” in case you’re unfamiliar with the term, applies to any delivery to a home, or business operating in a home, that does not have an entrance accessible to the public. A “delivery area surcharge” applies to deliveries to areas that the carrier deems rural. And note: Shippers can and often do pay both of these surcharges on the same delivery.)
Few businesses realize that these surcharges add considerably to their shipping charges. And fewer still know this interesting fact:
USPS Priority Mail offers a flat-rate service — often up to 20% lower than the comparable ground services of FedEx and UPS — that does not include surcharges for either residential delivery or delivery to rural areas.
In other words, using USPS Priority Mail instead of UPS or FedEx Ground for deliveries to these surcharge-triggering addresses can save your company significantly on shipping costs.
As this example illustrates, for many shippers, the ability to immediately realize costs savings on shipping doesn’t even require that they leave their existing carriers. Many shippers can uncover these cost-saving opportunities simply by finding more intelligent ways of using their current carriers and selecting the most cost-effective carrier and service for each order.
The Most Common Reasons Businesses Miss Opportunities to Save On Shipping Costs
Why do so many business fail to take advantage of cost-saving opportunities in their shipping processes? Typically, we find, it is simply a lack of true understanding of their shipping infrastructure, which leads to several missteps:
1. Working with too few carriers
There are many hundreds of shipping companies out there, yet many shipping-dependent businesses work only with a handful of big-name carriers — often paying far more for less service because they simply haven’t expanded their carrier network to include the best shipping partners for each order.
2. Working with the wrong carriers
A related mistake many businesses make is settling for the first shipping partners they find, and sticking with these carriers despite high costs, service problems or lack of options that could improve the shipper’s margins and customer experience.
In the worst of these cases, a company will sign an exclusive agreement with a single carrier for all of its shipping business — a contract that, over time, erodes the carrier’s incentive to work as hard or deliver as much value as it could for that business.
3. Failing to select the most cost-effective carrier for a given order
As pointed out above, many shippers default to FedEx or UPS for deliveries to customers whose addresses include both the “residential delivery” and “delivery area” surcharges. This is even the case when identical delivery service from USPS will often be upwards of 20% less expensive than UPS or FedEx regardless of whether the delivery falls into one of the surcharge categories.
Companies repeatedly make these same mistakes because they do not have strong visibility into their own shipping infrastructure — more specifically, because they don’t have an automated system that would allow them to select the right carrier for each job. Which leads us to another common mistake.
4. Not deploying software to help them select the optimal carrier for every order
Given that every order will be different — routes, delivery times, carrier availability, optimal packaging all vary and various accessorial might apply — a business will rarely be able to make the most cost-effective decisions for each shipment without slowing down the process and devoting a lot of in-house resources to reviewing every order.
What these businesses need is an automated system — specifically, carrier optimization and routing software that lets them automatically select the carrier and service that meets the transit and delivery requirements of a given order at the lowest possible cost.
5. Defining “shipping” far too narrowly
Consider all of the areas of a business that are affected by shipping. Complaints about damaged or inaccurate shipments consume Customer Support resources. Rebills, accessorial charges, invoice reconciliation and other billing issues require time and resources from the Finance team. Shipping touches virtually every department in a company — Operations, IT, Marketing, you name it. Defining shipping costs too narrowly may cause a businesses to miss chances to significantly reduce their costs,
Discussing all of the way businesses can optimize all of these areas of their shipping infrastructure is beyond the scope of this post. But you can find a deep discussion of this topic — including cost-cutting suggestions — in our post on Shipping Soft Costs.
More Tips for Cutting Shipping Costs by Better Leveraging Your Existing Services and Options
Let’s now dig in and examine some practical measures that are available to your company right now for lowering your shipping costs.
Leverage the “Time in Transit” Model
Many successful retailers (including Amazon) offer their customers multiple shipping options, broken out according to delivery times. Customers who are willing to pay more for faster delivery can select a shorter time in transit.
A customer who has placed several items in their shopping cart and is now selecting a shipping option might see the following services:
- Free Shipping: 5-7 days (the default option)
- Standard shipping: 3-5 days
- Priority shipping: 1-3 days
- 2-day shipping: 2 days
- Next-day shipping: 1 day
When a retailer offers this range of shipping options, they will need to support the service with a back-end shipping process. This process allows the retailer to choose from a wider selection of carriers, to find the best — in aspects such as reliability and lowest price — for each order that are able to meet the customer's requested delivery date.
What’s important here is to display the various shipping options available to the customer — and to de-emphasize the carriers’ names. This will allow you to let your customer choose the level of service they are interested in — and willing to pay for — without committing your company to giving that order to a specific carrier.
Leverage Available Standard Services for Expedited Delivery
Here’s a follow-on to the previous tip.
Let’s say your company decides to offer “time in transit” shipping options to your customers as part of standard order fulfillment. And let’s say a customer opts for second-day delivery.
In many cases — particularly when the customer’s address is within the carrier’s immediate delivery area — you can offer this expedited service without any additional charge to your company beyond the standard Ground or Priority delivery service. This can save your company 40% or even 50% over another carrier’s rushed-delivery charge —while at the same time providing your customer a better overall shopping experience.
Deploy Shipping Optimization Software to Automate Your Processes and Make Better-Informed Decisions
Both of the suggestions above, as well as many of the advice on this page, will be easiest to implement if your company deploys the right shipping optimization platform.
Such a software application will look at all aspects of every order — size, weight, accessorials, distance, delivery deadline—and automatically determine the lowest available cost option that will meet all required shipping criteria. The software will then automate the booking and label creation, generate a record of the transaction’s details that it will build into an ongoing algorithm it can apply to future orders.
The key to making this work, to finding cost-optimization opportunities for every shipment your company sends out, is to leverage intelligent software capable of making dozens of complex calculations in real-time — uncovering cost-cutting insights with rates of efficiency that are simply not practical when performed on a manual basis yet will have a significant fiscal impact on your bottom line over time.
Conclusion: You Can Realize Significant Hard-Cost Savings — Starting Right Now — by Tweaking Your Shipping Infrastructure
If you want a better sense of how much money your company could be saving by better utilizing the carrier services available to you today — and by deploying the right shipping technology to automatically identify those opportunities — you might be able to conduct a little research into your own shipment history to get a ballpark estimate.
Many businesses that analyze a subset of their historical shipping data uncover cost-saving opportunities that they could have achieved had they been leveraging certain carriers and services available to them — along with the right software platform to take advantage of these opportunities. Then, extrapolating out these missed opportunities, the businesses are able to estimate how much an optimized shipping infrastructure could have saved them over a given period of time.
Most businesses that conduct this type of analysis come to a similar conclusion we see when shipping-dependent companies actually implement these processes and deploy the right software to support them — and the cost savings are impressive:
Businesses with shipping costs greater than $500,000 can immediately achieve:
- 10% to 30% savings, on average, over current parcel spend
- 5% to 10% LTL savings
- $1,500 savings, on average, per 100 LTL shipments
- The ability to repurpose 1 to 3 employees or full-time-equivalents
Note: These savings do not negatively affect a company’s existing negotiated carrier rates and services.
Knowing the significant savings available to your company on the other side of some minor adjustments to your shipping processes, it’s time to ask yourself: Is your shipping infrastructure optimized, or could it benefit from a review and some simple adjustments?