UPS is a respected veteran of parcel shipping. Founded in 1907, the brown delivery trucks are well known to anyone shipping or receiving in both the residential and commercial markets. They set standards for the industry, often pushing competitors to match services, network size, and capabilities. Today, there are very few places that UPS or its partners can not deliver a package to. It is for this reason that UPS is one of the most widely used shipping services.
The expansive shipping service requires a vast network of aircraft, trucking, depot, and even courier assets to ensure both speedy and accurate delivery for both domestic and international shipping. This costs money. For most businesses, just starting on parcel shipping, the published rates (“book rates”) are a fact of life. But, as a company grows in activity, UPS negotiates new shipping rates at a steep discount from those published ones. While these discounted shipping rates are a better deal than paying a straight quoted rate, there is more that a company can do to control, manage, and reduce their UPS shipping costs such as with parcel contract negotiation.
If you’re wondering how to lower shipping costs, you’ll need to focus on 3 areas simultaneously. First, reduce the cost of today’s shipping. Second, understand how changes to the business will affect future costs. And third, include UPS shipping services and its cost structure in your plans for the future.
1. Invest heavily in standardization.
Standardization, whether it be in processes, data, equipment, or packaging, is key to controlling your daily shipping costs. Standardized carton sizes produce predictable shipping charges. But the standardization of processes and data is even more impactful. Correcting shipping addresses to avoid the address correction or redelivery charges can remove unpredictable costs. Focusing your attention to product information over time will allow the shipping company to better utilize the cartons’ full size for each order. The key to this is removing variations and ad hoc responses to normal business demands to have high integrity, high efficiency, and high brand recognition.
2. Use the appropriate service
Too often, businesses get into a pattern of habit in their operations. Not from design or data, but purely from ease. UPS provides branded packaging for its Express services at no cost to the shipper when included in their contract. This makes it very easy to pack an order and even label it correctly. But that means the Express service is being used for every order. That includes orders that are going across the state, across town, or even just down the coast. Switching to UPS Ground shipping may get the package there in the same amount of time, with a lower shipping cost. Make sure the level of service matches the company’s customer expectations, but don’t ignore alternative UPS shipping services that meet those expectations at a lower cost.
3. Use the best size packaging
One of the easiest ways to control sources of the shipping cost for UPS is to minimize the impact of dimensional billing. Dimensional billing is the practice of taking the dimensions of the package to determine the volume, dividing the volume by a factor, and creating a dimensional “weight.” The heavier of either the actual or dimensional weight is then used to determine the charge for a package.
Addressing the density of packaging into smaller, heavier shipments can reduce the impact of dimensional weight and the disparity in cost produced on carrier invoices. As customer order attributes change, the size of orders in unit count, value, and physical size will change. And as SKU catalogs grow in size as companies expand offerings, again the carton sizes, weight and even quantities per order will also change. Thus, revisiting the optimal packaging for business is a constant, everpresent investment that can yield results. Ignoring the shifts in this area will only cause more expenses.
Next, factoring in the practices and structure of the pricing contract to future plans is required.
1. Know when and how minimum shipping charges apply
The pricing zone charts of UPS can be misleading. When the shipment is small or going a shorter distance, instead of the listed rate in the zone chart, a minimum shipping charge is used. Couple this with the dimensional weight aspect, and it is easy to expect a shipment to be charged at a much lower rate than the invoice eventually shows.
Often, companies focus on negotiating the rates of the zone charts based on their activity, but do not understand where the minimum charges come into use. If other forces in the customer arena like smaller, more frequent shipments, new product lines, or even subscription service style routine shipping occur, the minimum may impact more than it has in the past. Using a proper shipping calculator to know where and how minimum charges are applied to UPS shipping rates is crucial for near term planning, especially as daily business evolves.
2. Know which surcharges are applied and why
Surcharges are not all occasional fees for unusual service. Yes, surcharges like international redelivery fees are exceptions to normal costs. But others are more present or predictable and, therefore, controllable. For example, fuel surcharges apply to every shipment while others apply depending on the recipient’s address, such as the remote, extended, or delivery area surcharges. But some are more difficult to predict and therefore control. The additional handling surcharge fee is applied for oversize shipments and cartons. Whether a depot charges it for a specific shipment is up to the supervisors and staff of the depot and other surcharges are specific to how UPS classifies an address. If the recipient is in a residential area and therefore is not on the route for commercial deliveries, residential surcharges may be applied.
What complicates this is that these surcharges will differ between ground, air, international, and freight services. It is difficult to know which surcharges will be used for new business, new locations, and even seasonal shipping shifts. While the base rates for shipping are more easily negotiated, surcharges often end up being a significant line item in the shipping budget. Controlling the occasional, minimizing the consistent, and avoiding the obvious surcharges are key to handling the ebb and flow of shipping costs in the near term. One way you can control the costs on your invoice is by conducting a parcel audit. This allows you to review each line item and get refunds on shipping costs. Our experts at Shipware also offer a wide range of invoice audit and recovery services to help with this process as well as with any of your other shipping needs.
Finally, the details of the contract and the capabilities of UPS should be considered in strategic plans.
1. Determine the ideal facility locations based on activity
The data collected by UPS during shipping operations is both specific and large. Every shipment, every charge, and every package is tracked and logged. This information can be used to determine many things about future plans of a company. The pattern of carton weights can help determine if UPS shipping costs are too high and an incentive program to increase shipment weight would help margin. The level of shipping correction charges can help determine the quality of data entry and lead sources.
One of the most useful, and often ignored, is the volume activity from each UPS shipping site. Remember that zone maps are specific to the shipping location. What is considered a zone 3 for one site is considered a zone 6 for another. The value is in analyzing where shipments go for each site and the similarities or differences in the shipments. A company expanding into eCommerce will begin to ship smaller shipments to customers. Often this is done from the largest, most experienced, or most flexible existing location. But looking at the data from UPS can suggest a new location to reduce e-commerce shipping costs. And by segmenting the data by weight, it may suggest a location best for e-commerce different from the older style commercial shipments. This is all contained in the data UPS has about each company’s shipping volume. For more information, check out our article on how to boost e-commerce profit margins.
2. Focus on increased volume to earn better discounts
Due to the factors of dimensional weight and minimum charges, there is a tendency to focus on increasing non-parcel shipping, shifting to LTL when possible. To really save more money on UPS shipping charges, however, the key is to increase the amount of parcel shipping across all services and zones. UPS offers tiered discounts based on the total amount a company spends. The more spent, regardless of how, the more the company earns in a flat rate discount. This creates an incentive to both concentrate the shipping of parcels with UPS and to explore more options and services for new business. UPS services like cross-border consolidation, customs clearance, even LTL deconsolidation may allow more shipping expenses to be funneled through UPS, increasing the savings.
3. Consider alternate forms of shipping
Over the years, UPS has added new forms of shipping services to meet both service and cost demands of its customer base. From early A.M. Next Day Air services to Surepost to even hundredweight shipping, there are many options for any company shipping parcel. When planning for new products, locations, customers, or even distribution models, it is best to consider more than just the obvious services from UPS.
An excellent example is the UPS Surepost service. This shipping service uses the United States Postal Service (USPS) for the actual delivery to the destination but the UPS distribution network for the major portions of the transport. It exists as a cost–conscious alternative to pure UPS ground shipping service. When considering future business operations, companies who need a low cost, non-delivery date–specific services should consider Surepost. This is a great shipping option for the sending of spare parts, large scale kit distribution, and high volume seasonal shipments such as subscription services.
Knowing the alternatives that UPS has internally for each shipping need can help make cost–saving easier while not endangering the discounts and negotiated rates already in place.
4. Renegotiate your contract
9 times out of 10, volume shippers are overspending in their UPS contracts. As you can see, there are so many factors that contribute to your overall shipping costs. Parcel contract negotiation allows you to re-evaluate your contract and get the most out of your contract. With experts like Shipware, you have inside knowledge of the carrier industry to help you save on UPS shipping. Shipware works on your side, negotiating for the rates that your carrier isn’t telling you about. For more tips on contract negotiation, check out our guide on how to prepare for parcel rate negotiations.
UPS is not only an experienced handler of parcel shipping, but a large network of services and capabilities. To actively save money using their services, focus needs to be maintained on current operations, planning for the near term, and including UPS and its structure for future operations. For more information, contact a professional from Shipware today.