With the world becoming smaller, shipping internationally should be easy… right? Conceptually, yes, but to do so profitably, effectively, and continuously can be challenging. Between a variety of service options at multiple and changing price-points, due to annual rate increases and the ongoing introduction of new fees and surcharges, developing a sustainable international shipping process can be demanding and overwhelming.
Service Variances
Negotiating and analyzing international pricing between the three global carriers (UPS, FedEx, and DHL) is quite different than the domestic aspects of the carrier agreement. For one, services are not the same between carriers. Contrary to the traditional Zone 2-8 structure for domestic, which is consistently mileage-based, international lanes don’t fully align between carriers, so paying attention to which countries fit within the relevant lanes is a necessity. For example, FedEx typically offers two or four express options based on destination country for export shipments from the US, while offering three or four options for most import lanes to the US. Services include International First, International Priority Express, International Priority, and International Economy. UPS will offer up to four express parcel services, depending on the destination country. Those options include Worldwide Express Plus, Worldwide Express, Worldwide Saver, and Worldwide Expedited. DHL limits their options to three export services with a single import service. DHL Express Worldwide service is offered to and from the US for 220 countries, DHL Express 12:00pm is delivered from the US to 155 countries, and DHL Express 9:00am is to 85 countries.
Each carrier’s services come with different committed transit times, as well as available options, based on origin and destination country. Including pricing with consistent discounts for all service options is recommended to avoid inadvertently using a service without discounts or with higher rates for an inferior service. To complicate matters further, while export and import shipments are billed in pounds (LBS) with FedEx and UPS, import is billed in KGS (1/2 KG increments) with DHL Express (export is billed in LBS). All services should also be addressed, including letter, pak, packages, and air freight. Eliminating any gaps limits one’s exposure and should require little effort on your carrier’s part to address those gaps. For international ground services, the base rate will be substantially lower, as will the negotiable discount levels. Note that letter/documents can benefit from lower pricing than non-document, so utilize the appropriate service based on commodity shipped and packaging. More than ever, shippers are being punished for taking up unnecessary space. Pricing concessions can also be made for non-door to door shipments, so assessing these needs can be beneficial.
Contract Details
It’s important to ensure that the details within the carrier agreement are buttoned up. Minimum charges are often overlooked with discounts that are far less than the stated overall discounts. A 40% discount vs 70% could lead to a cost that’s twice the amount (40% off $100 = $60 vs. 70% off $100 = $30). Accessorial charges for international shipments are often substantially higher than for domestic shipments. For example, charges for remote deliveries (Extended Area Surcharges) can cost $45 and up for international shipments versus domestic Delivery Area Surcharges, which range from $3.40 to $6.50. More recently, peak/demand surcharges have had a significant impact on the total costs. These will apply to packages shipped during the specified peak/demand periods for many origins, destinations, and service levels in an amount set forth based on date of shipping. These fees will apply in addition to most other applicable charges. Shippers should consider these charges prior to tendering shipments to either Fed Ex, UPS, or DHL. Combined with higher fuel surcharge percentages for international shipments, often ranging from five to 10% percent higher than domestic services, margins can quickly dissipate. Most fees are applicable to specific domestic and international services, so negotiating these exact terms is a necessity. This should be continuously evaluated and reviewed, since any new fees that are introduced are applicable, unless specifically addressed in the carrier agreement.
Operational Influences
There are other aspects to international shipping that should be considered and may influence what should be negotiated in one’s agreement. First, customs clearance options should be considered upfront. For e-commerce shipments, consider DDP (Delivered Duty Paid), where duties and taxes are paid in advance. The seller is then responsible for paying duties and taxes upfront, which minimizes rejected packages upon receipt due to unforeseen duties and taxes. These costs should be made transparent at checkout, so the customer decides proactively to complete the transaction.
Meanwhile, DDU (Delivered Duty Unpaid) is often sufficient for B2B transactions. If shipping e-commerce, consider services that transition to a local carrier for final delivery vs. choosing door-to-door services. Most agreements contain pricing for express services where the carrier manages the entirety of the shipping process. Each global carrier also offers more cost-effective international services where the local post office or courier manages the delivery aspect of the process. These options should be evaluated based on expectations of the recipient, time-in-transit requirements, value of the commodity, tracking requirements, and other factors. The carriers have all developed (in some cases, purchased) technology that integrates with various platforms to improve the international shipping process. This includes the ability to shop your website using local currency and calculating accurate shipping costs, as well as duties and taxes on the front end, thus minimizing and even eliminating rejected packages upon receipt. An abandoned cart is much more cost-efficient than an abandoned delivery. For non-US involved shipments, consider having the origin or destination country’s carrier pricing group provide an agreement and pricing. This eliminates currency fluctuation (risk) and the need for multiple countries to make a profit (eliminate the middleman). If priced in the US, the US finance team would like their share of profit, as one may imagine. If specific countries are the most common origin or destination, focus on separating out those specific markets from lanes that may include other countries.
It is pertinent to review each carrier’s service guide prior to negotiating your contract. International shipping continues to evolve, with new service offerings and new charges being introduced. Explore the economic conditions and consider capacity constraints or opportunities between certain lanes prior to engaging in these negotiations. It’s often encouraged to have a non-incumbent carrier provide an offer before engaging with your current carrier(s), as this may provide leverage with the pricing, as well as gaining a better understanding of the shipping environment.
Thomas Andersen is Partner/EVP of Supply Chain Services for LJM Group.
This article originally appeared in the 2022 Cross-Border and Global issue of PARCEL.
