Do you put extra stamps on your envelopes with the hope they�ll arrive faster? Would you knowingly spend $25 to send a package that would have arrived a day earlier for only $5? Sometimes, you do get what you pay for, but when it comes to shipping packages, you can often pay more for less! Today, reducing shipping charges is critical to the success of an organization. Many times, the savings goes right to the bottom line. If you�re passing on the charges to your customers, the cost of shipping could be the difference between your company getting the order or your competitor getting it. A recent Forrester survey of 5,831 online shoppers found that 82% of respondents consider shipping costs paramount to their buying decisions. And there are at least a dozen ways that shippers large and small can reduce their freight costs.
1. Consolidate
This may be the single largest opportunity for shippers to reduce their freight costs. Just as larger packages offer a better value in the grocery store, in shipping, the larger the weight of the shipment, the lower the cost per pound. If there is any way to group packages together, there is probably a way to reduce costs. From putting multiple orders in the same box to banding boxes together, palletizing shipments or using a full truck, there are many methods shippers can utilize to consolidate their shipments. Residential shippers can take advantage of parcel consolidators and save 25% to 30% from UPS base rates. Parcel shippers can save up to 40% if they use Hundredweight or Multiweight. Air shippers and international shippers can take advantage of shipment pricing by placing multiple packages on the same waybill or negotiating rates from carriers that price your shipment by total weight instead of box weight.
2. Shop Your Dates
Instead of asking customers if they want it ground, second day or next day, ask them what day they want to receive their order. Then shop for the best service based on the date and time they need to have it. Approximately 80% of shippers overpay for shipping because they do not compare service levels and transit times. For example, I could ship a 50-pound package from my office in Plymouth, Michigan, to my son in Holland, Michigan and pay $40 to get it there in two days, or I could pay $10 and get it there tomorrow, guaranteed. In other words, I could pay four times more to get it there a day later!
3. Compare and Utilize Multiple Carriers
No single carrier is the most cost effective in all categories. Every carrier has its niche. The U.S. Postal Service offers the best rates on light-weight residential shipments. Emery is very competitive with heavy-weight air. DHL may have the best rates on international shipments. Less than truckload (LTL) carriers can be significantly cheaper than small package carriers yet vary by more than 30% between each other. Furthermore, even within the same mode of shipping, carriers charge differently for shipping options. For example, UPS charges a 70-pound rate for oversize packages; FedEx charges a 50-pound rate. Unless you are comparing carrier service options directly, you are paying too much. Multicarrier shipping systems can give you the ability to rate shop automatically for the lowest rate.
4. Negotiate for Better Rates
When it comes to transportation rates, you don�t get what you deserve; you get what you negotiate. Parcel Shipping & Distribution�s Annual Best Practice Survey (October 2002) showed the average discounts that parcel shippers receive from the various carriers: 31% for express and 24% for ground. Are you paying too much? The survey also showed that shippers who changed carriers in the last year negotiated deeper discounts. If you need help, hire a professional.
5. Do Not Over-Service Your Customers� Expectations
Ken Blanchard, author of the book Raving Fans, says that the secret to creating raving fan customers is to provide one percent more service than they are expecting. Find out when your customers really need their packages, and remember ground packages shipped in-state will get delivered the next day to almost all areas.
6. Get Control Over Your Express Costs
The number one runaway cost for most companies� shipping departments is express expenses. A recent survey of 850 shippers by Morgan Stanley Dean Witter found that 31% of transportation budgets were spent on Next Day Air. Are all these emergencies necessary? I can�t tell you how often I receive a package that was sent to me Priority Air when I am not even in the office.
7. Understand the Carrier�s Service Language and Promise
The carriers make it confusing � Priority, Overnight Express, Express Saver, Next Day Air, which one is right for you? Don�t pay for an expectation that won�t get delivered; compare the actual service levels of the specific ZIP Codes to which you ship. When the carrier says it�s absolutely positively going to be there by 10:30 AM, you need to verify that it�s true for your exact ZIP Code. The fine print says, �Not applicable for all areas.�
8. Charge Your Customers for Shipping and Handling
You�ve seen the ads on late night television, �Add $9.95 for shipping and handling.� You know it couldn�t cost more than $4 to ship that package. Most shippers charge their customers for shipping and handling; does your firm? The greatest way to lower the cost of your shipping department is to turn it from a cost center into a profit center. You can do this by simply adding a shipping and handling charge to the freight amount. Some shippers add a flat dollar amount and others a percentage. Still other shippers charge their customers the standard rates and keep the discount to offset the cost of handling. You�ve worked hard to negotiate those discounts; keep them for yourself! Beware: Some shipping systems will export the discounted rates while others export the standard charges. Make sure you are charging consistently and by design, not by default.
9. Never Pay for Shipping and Handling
On the other hand, watch what your vendors are charging you! Your carrier discounts can be applied to inbound shipments as well as drop shipments direct to customers from your vendors. You can specify to vendors that they ship to you freight collect using your account number. The average savings on incoming shipments from companies that use a vendor routing guide are 25%.
10. Watch the Accessorials
In fashion, the wrong accessories can ruin your look. In shipping, accessorials can ruin your budget! You could be paying 10% or more of your freight invoices for accessorial charges that can be prevented. These are the charges you see on your invoices for address corrections ($10 each), commercial shipments considered residential ($1.40), dimensional surcharges, incorrectly manifested weights and so forth. Technology and databases exist today, which will verify whether or not addresses are correct and if they are considered residential or business. You should have one place where you store consignee�s address information (preferably your accounting, ERP or order system) and not maintain multiple address books. When you get a charge for an address correction, fix it or fight it. Weigh your packages with an accurate scale; in fact, there are scales today that can calculate dimensions automatically. Don�t buy a carrier�s insurance; it is overpriced, and there are reliable third-party insurance companies that can save you 50% or more.
11. Audit Your Carrier Invoices
A recent survey found the billing error rate on transportation carriers� invoices averaged seven percent. If you are automatically paying those invoices, you might as well hand the carrier a blank check. In addition, almost every package you ship today is absolutely, positively guaranteed to arrive on time or your money back. Are you getting money back? The carriers do a good job but are late five percent of the time; does your company check for on-time delivery? You can do this either on the Internet or by using a service. Savings can run an additional three to five percent.
12. Measure Twice, Cut Once
I think all of our fathers helped us to learn this lesson. According to studies conducted by the American Management Association and a private study by 3M, the cost of one error is in excess of $200. This figure is determined by considering some of the actions that may be taken as a result of an error:
� All tasks involved in picking, packing and shipping the wrong item
� The complaint phone call
� Return authorization data entry and paperwork
� Return freight costs
� Return receiving
� Return quality check
� Return to stock
The best way to reduce this cost is to utilize technology that verifies the correct item in the correct quantity is in the box. By implementing these 12 ideas, you�ll soon begin realizing significant savings when it comes to freight costs. Every little bit helps. Remember, an ounce of prevention is worth a pound of cure.
These are my top 12 ways to lower shipping costs. Have you got a better idea on how to reduce shipping costs? I�d love to know. Come to the Parcel Shipping & Distribution Forum in Chicago on October 21-22, and share your idea in person or write and let me know directly. I�ll give you a free copy of my book in return for your best idea.
Mark A. Taylor is a leading authority on designing solutions to increase productivity in the mail center, shipping department and warehouse, with 25 years experience consulting more than 10,000 organizations. He is the president and CEO of TAYLOR Systems Engineering Corporation in Plymouth, Michigan, and he is the author of �The New Millennium Edition of Computerized Shipping Systems: Increasing Profit and Productivity Through Technology.�
