What Are Hard Shipping Costs?
The term hard shipping cost typically refers to the carrier’s tariff — the shipping rate that the company hired to transport the package will charge the shipper for delivering that package to its recipient.
Some shippers have good visibility into their hard shipping costs and can quantify how these costs will affect a given order’s profit margin — unlike their soft shipping costs, which few businesses fully grasp and even fewer take steps to optimize.
But carriers are getting more creative with their pricing tactics and are perfectly willing to offer seemingly deep discounts off published rates, only to make it up on complex pricing rules, package and zone minimums, and accessorial and package surcharges. Most companies believe they have a good understanding of these charges, but carrier tariffs have become so complex that it is virtually impossible to manually navigate and ensure the discounts are realized.
The result? Based on a ShipHawk analysis of several hundred carrier billing files, less than 5% of the shippers analyzed were properly routing packages to take advantage of the lowest available shipping price.
Even though they can cite the actual tariff discount percentages, many businesses fundamentally misinterpret the concept of hard shipping costs: They incorrectly assume that because these are hard costs, they are also fixed. The truth, however, is that shippers have many options available to them to better manage and significantly reduce their hard shipping costs.
Less than 5% of the shippers analyzed were properly routing packages to take advantage of the lowest available shipping price.
As we’ve discussed in detail, 20% of shipping costs are actually soft costs, and most of those costs can be reduced through systemization and improved visibility into the company’s overall shipping infrastructure.
Of course, this also means that a business’s hard shipping costs account for the other 80% of its total shipping costs, or true shipping costs, as we like to affectionately call them. Clearly, then, finding ways to lower hard shipping costs should be a top priority for any shipper.
The good news: Shippers can employ a number of strategies to lower their hard shipping costs, and none of these strategies need to be difficult, time-consuming or expensive. Let’s examine three strategies a business can use to reduce hard shipping costs. (The even better news: A business can use all three.)
1. Uncover money-saving options already available from a shipper’s existing carriers
Better utilizing the carriers a shipper is already using is the number one way to reduce shipping costs.
One of the most common mistakes we find businesses making when it comes to their shipping decisions is selecting the wrong carrier for a given shipment, or the right carrier but the wrong service.
Many shippers simply establish an account with a carrier and then select the same standard service from its menu of options for every shipment — without ever examining:
- Alternative services with the same carrier
- The impact of tariff minimums on rate shopping
- The impact of residential and/or delivery area surcharges on rate shopping
- The impact of carrier delivery performance and/or damage rates on rate shopping
- Alternative carrier services
Every order is not created equal. And every carrier is not equally competitive on every lane. Only considering a few rating criteria in a search query can be the same as comparing none since each component of the carrier tariff can have a radical impact on the final shipping price.
Consider the “delivery area surcharge” that the major carriers (FedEx, UPS) apply to deliveries in areas that they deem rural.
Many businesses willingly pay this surcharge without ever realizing they don’t have to, because a carrier that virtually every business already uses — the United States Postal Service — offers a flat-rate delivery service with no delivery area surcharge. In fact, this flat-rate service can be as much as 20% lower than the costs of the other carriers for similar service, even before factoring in the surcharge.
The cost drivers in today’s carrier tariffs are too complicated and multitudinous to be managed manually or with basic rate comparison software.
The cost drivers in today's carrier tariffs are too complicated and multitudinous to be managed manually or with basic rate comparison software.
2. Deploy automated multi-carrier rating
What is the right way to route orders and optimize carriers?
Automate carrier and service selection based on unique order and buyer criteria. Whether the business is using two carriers or two dozen, this method supports real-time, apples-to-apples (to-apples-to-apples-to-apples) comparisons of the available carriers, services and costs on a case-by-case basis.
In addition, data-driven solutions will present shippers with new carriers that may not be represented in the shipper’s current network, but that may result in additional cost savings given the seller’s distinctive origin and destination points.
3. Expand the carrier network
One common reason shippers pay higher-than-necessary hard shipping rates is that they work with too few carriers or because they work with the wrong carriers.
Because they haven’t developed relationships with more carriers, these shippers often miss opportunities to identify the optimal carrier partners for their customer base — based on the location of the DC's, shipping cost, time-in-transit options, and any additional services (such as white-glove delivery or installation and haul-away) that may factor into the carrier selection decision.
In fact, when a shipper works with the wrong carriers, they could be missing opportunities to improve their service and reduce their hard costs on every shipment they pay for.
This is why it's one of the best — and easiest — ways for a business to lower its hard shipping costs. There are literally thousands of parcel, freight and white glove carriers in operation, ready to compete to earn a new shipper’s business. The key is in learning how to leverage their various strengths and weaknesses.
Bonus tip: Optimizing soft shipping costs lowers hard shipping costs
As we detail in our article on reducing soft shipping costs, the way a business handles many of a shipment’s soft costs — packaging the order, printing pick slips and shipping labels, calculating (or estimating) its dimensional weight, staging the package for carrier pickup — can actually affect the hard costs as well.
When a shipper is slow to process shipments, relies on manual fulfillment practices, incorrectly estimates an item’s dimensional weight, or selects a box that’s larger or heavier than necessary for the order’s contents, or fails to adhere to the carrier’s pickup rules — all of these can result in a higher final shipping charge from the carrier.
In other words, yet another way a business can lower its hard shipping costs is by optimizing its soft shipping costs — developing processes and systems to make the many steps in the shipping process go as smoothly and as predictably as possible for both the shipper and its carriers.