Chase Flashman | Co-Founder & CEO at ShipSigma
Your company is overpaying on shipping.
Realistically, they have been for a while. But early 2020 changed everything. With Covid-19 keeping people in their homes, demand for e-commerce rose exponentially. And now that consumers have gotten so used to shopping online and consider Amazon’s 2-day (or same-day) delivery the norm, sellers 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, coined the Amazon Effect. 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 is the result of the change in shopping patterns, customer expectations, and the industry’s competitive landscape.” While this isn’t exclusively on Amazon’s shoulders, they were a major player as the biggest e-commerce website worldwide. Because of Amazon and the increase in e-commerce demand as a whole, retail shopping has forever been redefined.
Carriers saw this happening and, at the time, did their best to adjust. They had increased package volume, so they increased their fees with a narrative of peak surcharges to back up their decision. In turn, customers saw an increase in late deliveries, misdeliveries and lost packages.
At the peak of the pandemic, all of this was reasonable. An increase in volume meant an increase in mistakes. The workers were doing the best they could, but the workers were never the problem. With so many missteps, how can these carriers continue to raise prices?
Well, they were simply following the basic laws of economics—a rise in demand meant a rise in prices. Carriers raising prices meant sellers needed to raise their own prices to cover the increased overhead and consumers accepted this in unprecedented times. These price increases could be defended in 2020 and even in 2021, but now, here in 2022, I find that carriers are taking advantage of their customers and their customer’s customers. What was once defined as a peak surcharge—implying that the price increases were temporary—is now just a surcharge. But don’t worry, we’ll see increased peak surcharges again during the holiday season.
So, how do you combat this? Here are four ways that you and your company can work to decrease your shipping charges and put that money back in your pocket (or your customer’s pockets).
1. Audit your invoices.
We talked about the increase in misdeliveries and late deliveries earlier. But did you know that for every delivery mistake, the carrier likely owes you a refund on that package? For example, if you paid to have your package delivered by 10:00 am and the package arrives at 10:02 am, you are entitled to a full refund. While this likely doesn’t impact your customer, it’s still a mistake that entitles you to reimbursement.
You have three options when it comes to auditing invoices.
Manual: Have someone on your team run through every line of every invoice each week. They will need to find the mistakes, file the claims and follow up with the carriers to see the refunds.
Auditing Software: Invest in invoice auditing software to manage and review internally. This software will find the errors, while your team will still need to file the claims manually.
Auditing Service: Hire a third-party auditing 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 point if you have the data to back it up. Negotiate your rates, broker-carrier agreements, accessorial charges, etc. And remember, the party with the most information holds the greatest negotiating power.
The carriers’ goal is to maximize their profits, not yours. So, if they are telling you that you have the best rates, they’re probably saying that to everyone. And if everyone has the best rates, then no one does.
3. Reduce your package sizes.
Size, weight, DIM, reduce it all. When it comes to shipping costs, size matters. The heavier, larger or more oddly shaped the package is, the more it’s going to cost. And don’t even consider being an ounce or an inch over the maximums or your price will skyrocket.
4. Use multiple carriers and service levels.
All competing carriers have varying parameters. You’ll find variances in the standards of package dimensions, weight, delivery location, specialty boxes and delivery promises (guaranteed day/time or multi-day window).
Do your research to figure out which carrier is right for which type of shipment. For example, you may find that FedEx is better for domestic while UPS is better for international or vice versa. Look into service levels as well. Are you shipping everything by air, when shipping ground would deliver everything just as fast at half the cost?
Whichever route you decide to take–and I recommend taking all of them–don’t settle for your current rates. You’ve been overpaying for shipping for a while, but it doesn’t have to be that way forever.
Your concerned shipping expert.