It’s never been more important, nor more challenging, for less-than-truckload (LTL) and parcel shippers to reduce their transportation costs. Demand for carrier services is high, especially in parcel as the COVID-19 pandemic drives e-commerce volumes to unprecedented levels. LTL and parcel carriers operate in high barrier-to-entry businesses. The relative lack of competition has allowed them to consistently raise their prices faster than inflation. How can businesses better understand the shipping industry and reduce their transportation costs? At Shipware, we offer shipping consulting to get businesses the best out of their shipping contracts and help you save money. Our experts have put together a guide that will help you understand your business’ transportation costs and learn how to optimize them.
An Inside Look Inside the Shipping Industry
The parcel segment, in particular, has become a tough nut for many shippers. Besides levying higher rates, FedEx, UPS, and to a lesser degree, the U.S. Postal Service, impose what are known as “accessorial fees” to cover the cost of services beyond the basic pick-up and delivery. Accessorial charges continue to increase in number and in price, dinging shipper budgets as a result.
Even more concerning in the era of e-commerce, carriers are leaning more on dimensional weight, rather than a shipment’s actual weight, to build and bill their rates. This penalizes shippers who tender lightweight consignments that are bulked up with dunnage, the inexpensive waste material used to load and secure cargo during shipping but which add heft, and cost, to a package.
Meanwhile, Amazon.com. continues to apply the pressure by offering next-day shipping at no cost for Amazon “Prime” members. In the age of Amazon, shippers face the prospect of lost sales and lower revenue for charging too much or taking too long to ship parcels.
How to Optimize Transportation Costs
The good news is there are concrete, common-sense steps that shippers can take to mitigate the upward spiral and reduce transportation cost. Some steps are specific to each mode. Others can be used in both. Let’s start with LTL:
LTL carriers offer nothing but time and space. LTL charges are based on weight and space. That’s why it will cost more, on a relative basis, to ship something bulky like pillows than a dense product like bricks. The less room your shipment occupies on a truck, the more space the carrier has available to sell to other people, and the less they need to charge you.
1. Efficient Packing
Because of the above, you may receive immense cost savings from efficient packaging. Use the smallest container that will hold your product safely during shipment, and bundle or stack your cartons together firmly. The smaller the total volume of your load is, the more cost-savings you can receive.
Investing in improved packaging solutions is money well spent, because packaging costs are minimal compared to shipping costs. Your logistics staff should also get involved in the package design and development process, and they should know what makes a product easy to stack and ship for cost-effective logistics. While higher-end packing may seem like a costly endeavor now, it will help you minimize the size of your shipment, thus paying for itself and more when it comes to negotiating with LTL carriers.
2. Group Shipments
If time-in-transit is not important and your products are non-perishable, consider grouping shipments together as opposed to shipping a few smaller shipments at different times. It is more efficient for your LTL carrier to pick up a few, larger shipments versus filling a truck with a ton of smaller shipments. By doing this, you can negotiate better rates with your provider.
Your carrier may also offer tiered pricing based on the different weight thresholds. For example, there may be a base rate for loads up to 499 pounds and different rates for loads that weigh between 500-999 pounds, 1,000-1,999 pounds, 2,000-4,999 pounds, etc. It’s important to know what these thresholds are because you may be able to get your load to qualify for a low-cost weight class if you combine your shipment. One 1,500-pound shipment could cost much less than three 500-pound shipments.
3. Ship on Off-Peak Days
If there is no time-sensitivity or urgency for shipments, consider shipping your business’ products on off-peak days, as this can bring additional savings. Work closely with your carrier to create an LTL shipment schedule that’s designed for efficiency in logistics and shipping costs.
4. Look at ALL Costs
When you negotiate, look at your overall cost, not just the base rate. The carrier will likely add a fuel surcharge and accessorial fees. Accessorial fees include waiting times, storage, packing and extra fuel, all of which can be negotiated.
5. Build Long-term Carrier Relationships
It is very important to develop solid long-term relationships with your carrier. Being a “shipper of choice” carries tangible benefits, especially in a market for tight capacity. When your LTL carrier sees that you are actively trying to reduce costs and delays, they will be more than happy to pass those savings on to keep you as a customer. Being a “shipper of choice” also includes providing carriers with correct shipment weights and dimensions at the front end to avoid the cost and hassles of an audit.
6. Collaborate With Shippers
When possible, collaborate with other shippers to build enough freight to justify the use of a more efficient full truckload operation. Shippers use LTL because they lack the volume to afford the cost of full truckload service, which is cheaper than LTL on a per kilogram basis. You may not have enough freight to fill a full truckload. However, if you and other vendors regularly ship to the same retailers, restaurants, grocers, or other businesses, think about combining your shipments to generate a full truckload. You and other shippers can then split the transport costs accordingly. In addition, consider working with a third-party logistics provider that specializes in freight shipment consolidation to get the job done.
The surge in e-commerce demand will continue to drive increases in parcel spend and rates. At the same time, shippers will be pressured to offer free or low-cost shipping. According to some estimates, more than 60% of consumers will abandon their online shopping carts if they see higher-than-expected shipping charges.
1. Implement a Parcel Management Program
To tamp down carrier rate increases without compromising service or turning away business, shippers of all sizes should consider implementing parcel management programs from an expert like Shipware.
The top consultants employ sophisticated parcel shipping platforms, data warehousing, and business analytics technology that make it easier and more affordable than ever to get full, real-time visibility into your parcel spend. Enterprise parcel shipping platforms capture and store shipping data from across the enterprise and compare the data against the carrier invoices. Business intelligence tools can analyze and identify transport cost reduction opportunities. With clear data, shippers can implement improved parcel shipping processes across the enterprise.
You cannot manage what you can’t measure. With actionable, measurable data at your disposal, you hold a strong hand with your carriers, and you can do a better job of pricing your services to your customers. For more tips on implementing technology in your shipping processes, check out our blog on logistics automation.
3. Conduct a Parcel Audit
In addition, don’t underestimate the power of a parcel audit. Shipware estimates that up to 10% of all carrier invoices contain errors. For a company with $1 million in annual parcel spend, this is serious money. Parcel audits represent a source of recaptured revenue and help hold carriers accountable for their service commitments and performance. The consultants at Shipware are masters at identifying carrier overcharges. In more than 25 years, we have saved clients, in aggregate, hundreds of thousands of dollars in carrier overcharges.
A robust audit platform will do an excellent job of identifying and analyzing accessorial charges. Some accessorials are legitimate. However, many are questionable. All of them are negotiable. However, you first have to find them before they can be bargained away.
2. Diversify Your Carriers
Consider expanding your universe of carriers. For example, USPS delivers to every U.S. address, its rates are affordable, and its service is “surprisingly good,” said Chuck Clowdis, a long-time logistics executive who runs his own consultancy. Also, send out feelers to the network of strong regional carriers. They may not have national footprints, but they do a terrific job in the regions that they serve. What’s more, their accessorial charges are minimal compared to the national carriers.
The parcel delivery market has become more regionalized than ever as businesses look to shorten their transit times, which, in turn, drives down their freight costs. However, it can be very expensive to build and manage an in-house network of physical distribution locations. Building relationships with a network of regional carriers could be a much more cost-effective option.
3. Put Your Shipping Contract Out For Bid
If you’ve been working with the top two parcel carriers for years, don’t be afraid to put your contract out for bid. Not only might you find a better deal from other providers, but you could strike a better deal with your incumbent if it feels you are about to shift some or all of your business to a competitor. (One caveat: Keep in mind that your incumbent’s rep may warn you that less business will mean that you will drop into a lower, less attractive price band.)
Clowdis recommends an annual “shop-around” process by opening up dialogues with a shipper’s non-regular carrier. “You don’t have to do a full RFP, but you could see what’s offered,” he said. “This way, you get to gauge a willingness and interest in your business.”
4. Last-Mile Delivery
Positioning your package for last-mile logistics can work wonders for your costs. For example, USPS offers an extremely inexpensive service called “Parcel Select.” Here, consolidators induct large package volumes deep into the USPS infrastructure for final delivery. This avoids the first and middle miles of the USPS network, which can be inefficient, and capitalizes on the “final mile” from local post office to the residence, which is the strength of the network.
5. Zone Skipping
“Zone skipping” is another important strategy to reduce costs. Parcel carriers carve up the U.S. in eight zones, with rates being set based on distance and the number of zones a package travels through. With zone skipping, shippers combine parcels into a full truckload shipment bound for the same destination zone, typically the final delivery zone. This saves shippers significant money by avoiding multi-zone moves. Zone skipping can also speed up delivery times and reduce the chances of delays and potential shipment damage.
Earlier on, we talked about the push by carriers towards dimensional weight pricing, where bills are generated based on the dimensions of a parcel rather than the actual weight. It is easy to make the carriers out to be the villain here. In fairness, they simply want to recover the cost of filling a trailer with bulky items that often carry unnecessary weight. Like with LTL, the less space your shipments occupy, the less you will be charged.
Shippers play an important role in changing the game. Many don’t pay enough attention to the weight and size of their parcels. The excess dunnage leads to a shipping a bigger box which then incurs higher freight costs. Wouldn’t lighter, or even no dunnage suffice?
6. Invest in Efficient Packaging
Shippers also need to explore advances in packaging technology. Can you use more polybags and fewer boxes and still accommodate the items? For example, going from a box to a bubble mailer can reduce a parcel’s weight by four to six ounces. It may seem trivial, but multiply that reduction by millions of packages a year, and the freight cost savings can be dramatic.
Small Changes, Big Cost Savings
LTL and parcel carriers have one feature in common: They live and die by density, which is the amount of space a package occupies relative to its actual weight. Much of the power to improve density, drive down shipping costs, and achieve efficiency, rests in the shipper’s hands.
For more tips on how you can optimize your transportation cost, reach out to Shipware. We’re dedicated to helping shippers ship more and pay less. Contact us today to learn how we can help your business receive up to 30% in potential savings.