Let’s face it; most e-tailers’ shipping profiles looks much different than non-e-tailers’. Shipping costs are usually distributed much differently. E-tailers typically ship a large percentage of packages to customers at residential addresses. Sometimes those customers live in densely populated cities or suburbs and sometimes they live in sparsely populated rural areas. The fact of the matter is e-tailers don’t have a lot of control over who buys their product, where they are located, or what shipping services they choose. Since most e-tailers pass their shipping costs through to the customer and rely on the customer’s information to ship a package, when the information is inaccurate, the shipper ends up eating the additional costs due to inaccuracies. However, shippers are not totally without recourse. There are some actions they can take to eliminate, or at least mitigate some of these costs.

A sizable portion of parcel cost for any e-tailer is the residential surcharge. FedEx and UPS apply a residential surcharge to packages destined for residential addresses. Per the 2011 service guides, the surcharge amount is $2.45 for ground packages or $2.75 for air packages. It is important for shippers to identify their residential packages before pickup for three reasons. First, post-manifest adjustment packages are not eligible for refunds under the carriers’ guaranteed service / money back programs for late packages. For shippers who audit their parcel invoices, this can mean losing out on thousands of dollars worth of refunds simply because they didn’t properly identify a residential package. Second, for e-tailers that utilize FedEx, FedEx Ground and FedEx Home Delivery operate as separate ground networks. A residential adjustment for a package marked commercial ground by the shipper will not receive the $2.45 residential surcharge as with Home Delivery packages, but will instead incur the $2.75 surcharge. And lastly, since the package has to transfer from the FedEx Ground to the FedEx Home Delivery network, there is a chance for delivery delay. One way to avoid these additional costs is by implementing address verification software within your TMS. Not only will this check for residential deliveries, but it will also reduce costs by reducing the number of address correction surcharges.

Besides residential surcharge, e-tailers utilizing FedEx and UPS also have to face the Delivery Area Surcharge (DAS) and Extended Area Surcharge (EAS). These are costs shippers incur due to the geographic location of their customers. About half of all U.S. zip codes are classified by FedEx and UPS as DAS and EAS destinations. A list of all zip codes that incur the DAS/EAS can be found on the carriers’ websites. While commercial packages only receive a $1.85 DAS and EAS, residential packages receive a $2.75 DAS and $3.00 EAS. Unfortunately, there is nothing short of negotiating a discount with the parcel carriers that can minimize the pain of these shipping costs.

In an effort to minimize these surcharges, and to some degree customer mistakes, many e-tailers have begun to utilize services with their parcel carrier(s) that incorporate cooperation with the United States Postal Service. FedEx, UPS and DHL offer cooperative services (SmartPost, Basic/Surepost , GlobalMail) with the USPS. Cooperative services are popular with e-tailers that are not shipping time-sensitive packages. One reason for the increasing popularity of these services is that the rates for smaller, lighter weight packages are lower than the rates for commercial or residential ground. The second reason is that accessorrials charges, such as the residential surcharge or delivery area surcharge, are not applied. For shippers sending large package volumes to residential addresses, using a cooperative service instead of residential ground service can drastically reduce costs. As good as this may sound, not all packages are eligible for these services. Carriers have specified weight and size restrictions to make large, heavy packages ineligible. In addition to these restrictions, other drawbacks to these service levels include an increased transit time (typically 1-2 days longer than ground), and the loss of a service guarantee.

E-tailers aren’t always at the mercy of a customers’ locations or their mistakes. As mentioned, there are actions e-tailers can take, such as properly identifying residential packages and utilizing the cooperative services that more aptly control the expected and unexpected costs of shipping packages to customers.

Mike Bentley is a Transportation Analyst at enVista. He helps build and run data models to help identify cost and operational improvements for parcel and LTL shippers. He can be reached atmbentley@envistacorp.com