With most shippers offering free shipping, parcel shipping costs eat directly into your profits. Sometimes shipping costs cost more than the product itself. This package delivery primer is for both small and large shippers. How do you get the least cost and best delivery experience for your customers? First step is to make sure you understand the cost drivers. How does your product, packaging, and customer needs determine what a parcel carrier will charge you. Then you work through how to get the lowest cost for your shipping.
First, What Type Of Packages Do You Ship?
Seems like a strange question to ask, but it is important to understand how parcel carriers view a “package”. Parcel carriers’ viewpoint on what is a package drives their price and services. Parcel carriers like UPS, FedEx, and USPS set their price based on your package’s characteristics. Below is what most carriers would classify as a “normal” package.
- weighs less than 50 pounds
- its longest side does not exceed 48 inches, and its second longest side does not exceed 30 inches
- shipper used their own packaging enclosed in cardboard
If your package’s characteristics differ from above, watch out because it will incur large package or additional handling charges. See Large Package Shipping for a detailed explanation on how to ship these packages cheaply.
Who Provides Parcel Delivery Services In The United States?
Parcel carriers are best at delivering packages that are less than 50 pounds as defined above. The primary nationwide parcel carriers in the U.S. are USPS, UPS, and FedEx. There are also regional carriers and just recently many large retailers (ex. Amazon, Walmart, Target, etc.) are delivering packages. There are also a lot of small same-day couriers that usually provide speciality services such as prescription delivery,
Free Shipping Is The Norm And Eats Directly Into Your Profits.
As free shipping is the norm today, the total cost of your shipping has a direct relationship to your profits. Again, every penny you save on shipping means more profit. Also, shipping costs are not just the transportation cost, but also your packaging and handling costs. Below is an example of how you should calculate your total price for a product to include the total cost of shipping.
Cost of product – $10.00
Packaging & Handling – $2.50
Parcel Shipment Costs – $7.50
Customs/Duties (if you cover them) -$0.00
Credit card fee – $2.50
Markup 50% – $22.50
Total price $45.00
In this example, the shipping, packaging, and handling costs are $10 ($2.50 + $7.50). That is the same cost as the product. eCommerce and free shipping are expensive. As a shipper, you should be spending as much time on keeping your shipping costs low as you do with keeping your product costs low. You control a lot of these costs. See below on what you can do to control costs and provide your customers the best delivery experience.
Parcel Delivery – How to Get the Least Cost And Best Delivery Experience.
All businesses, big or small, want to get the lowest shipping cost. There is no “silver bullet” to getting the lowest costs. To get the lowest price for your shipping, first you must know your products’ shipping characteristics. Secondly, know what your customer expects from their delivery experience. Below are the 4 key factors driving a businesses shipping costs and what you can do to help reduce your shipping costs. These key cost factors include speed of delivery, distance between shipper and customer, the weight / size of packages, and shipping accessorial charges.
1. Speed of Package Delivery.
The unspoken package delivery requirement is service – how fast do you need to get the package to your customer. Normally, the faster you need to get your package to your customer, the more it will cost (and the difference is not just a couple of dollars). For most customers, especially eCommerce delivery, Amazon has already set the standard with a 2-day package delivery service. This is the norm and the starting point of a business getting the least cost package delivery service. Questions to ask yourself:
- Will you lose sales if you offer a 3-7 day ground economy service? Shipping is usually cheaper for slower shipping such as economy ground that is offered by most carriers.
- If an eCommerce customer needs expedited shipping, can you just offer that as a shopping cart option and pass the shipping costs on to these select customers?
- If a business customer needs an express shipment, would a next day end-of-day or 2-day service work? A morning express shipment is a lot more costly (can be up to $100 or more) than an end-of-day or two-day express shipment.
- Is on-time delivery critical for your business? If yes, parcel carriers like UPS and FedEx offer a money back service guaranteed refund if your package is late due to a carrier delay. In some cases, even if they are only a minute late. This guarantee assures that the carrier is focused on delivering your package on-time.
2. Distance For Package Delivery.
Within the continental United States, there are seven shipping zones for a given parcel service. These zones are based on distance between shipper and the customer. The lower the zone the less distance and less expense for the cost of shipping. Questions to ask yourself about the distance between your shipping location and your customer are as follows:
- For your long-distance customers in higher shipping zones, is flat rate shipping in a standard box an option? Especially for USPS, flat rate shipping in a standard box may be a cost effective option. Check it out.
- Can your business ship out of multiple locations in order to cut shipping distance at the lower price zones? If you are a large company, consider opening more distribution centers. Then you can ship using truckload or Less-Than-Truckload (LTL) at a lesser price to your remote distribution centers. This lowers your parcel shipping costs significantly. If you are a smaller company, consider using a 3rd Party fulfillment company to store and ship your product from various locations within the U.S.
3. Weight and Size Factors for Package Delivery.
The size,the dimensions of a package, is the key determination of how much a package is going to cost you to ship. Parcel carriers use the package’s dimensions to determine billed weight in many cases instead of your actual weight. They do this because their package delivery trucks usually “cube out” before they “weigh out”.
Below are some examples. First is a chart to illustrate different products and how their size affects billed weight. The other examples shows you how different carriers DIM factors change the billed weight for the same package.
Another example where the FedEx DIM factor is 139 and UPS / USPS DIM factor is 166.
UPS / USPS – actual weight 10 lbs – 12 X 12 X 18 / 166 DIM Factor = Billed 16 lbs (rounded up)
FedEx – actual weight 10 lbs – 12 X 12 X 18 / 139 DIM Factor = Billed 19 lbs (rounded up)
Are your packages either very small or very big in size? Then follow these guidelines for selecting parcel carriers:
- Packages are under 1 lb even with the DImensional weight factored in. Then USPS is a good option due to price using First Class Mail.
- Packages are light and bulky where you will be billed by the DIM weight. First do everything you can to reduce the size of your package. Favor carriers with the larger DIM factors like UPS or USPS.
- Packages either weigh over 50 lbs (Billed) or the Longest Side Greater Than 48 Inches? If yes, you will start incurring package handling charges. These charges can cost you more than the base shipping charge. In this case, you will need to do more research to determine how best to reduce costs for these types of shipments.
If you ship large packages, they can be expensive. In some cases, shippers can get surprised on a carrier’s invoice when they are charged over $1,000 for a single unauthorized package. See Large Package Shipping for a detailed explanation of dimensional pricing, mistakes to avoid when shipping large packages and how to take steps to reduce costs.
4. Value Added and Accessorial Charges For Package Delivery
Even experienced shippers are surprised every year by “extra” package surcharges. As every add-on shipping fee directly eats into profit, every shipper needs to proactively work to minimize these fees. For specifics, see Supply Chain Tech Insights’ Shipping Fee Surprise – Here Is How To Overcome Unexpected Package Surcharges for tips on how you can avoid or at least control these fees. You definitely do not want a Steve Harvey “Shock Moment” with surprise shipping fees.
See EasyShip’s Cheapest Way To Ship Packages, Shipstation’s Cheapest Way To Ship, and Shopify’s eCommerce Shipping Solutions for more ideas and solutions to reduce your shipping costs and provide your customers the best shipping experience.
For more information from Unvarnished Facts, see articles on supply chains and ecommerce.
Writer and Supply Chain Tech Expert. Passionate about giving actionable insights on information technology, business, innovation, creativity, and life in general.