Taking the Guesswork Out of Parcel Shipping Costs
Logistics can account for as much as 25% of a business’s overall costs, making it a worthwhile area for every company to focus on. A problem for most, though, is that routing and rating small parcel packages is complex. This makes it hard for companies to know when they are making the best carrier choice on shipments and provides little confidence in their ability to predict the actual costs they’ll be invoiced by the carriers.
There are many reasons why it’s difficult to pinpoint actual small parcel shipping costs, but a small investment in time to understand these differences can result in huge savings. Here are some of the ways rates can be difficult to understand, so you are better prepared.
Arbitrary Standards: With little regulation as compared to the LTL and TL freight industries, parcel carriers have free rein in their rating methodologies and other rating standards. This means carriers can charge what they like for certain shipping fees, like accessorials. And while each carrier — and there are only really two options: UPS and FedEx — provides its own guidelines for shipping, there is still a lot of variation between them.
Accessorials: The additional fees and surcharges parcel carriers frequently charge adds another level of confusion as to the final cost of a shipment. There have been several rate and fee changes already this year. Since many of these charges, such as residential and out-of-area, Saturday delivery, and holiday rush surcharges only appear once the invoice is sent, it is difficult to calculate the total shipping cost beforehand. They are also often misapplied, making post-audit of small parcel invoices a necessity.
Service Levels: Most carriers offer similar service levels for shipping: next-day, 2-day, 3-day, ground, etc. However, the time commitments per carrier differ, making it difficult to make equal comparisons. The best carrier choice for any shipment should consider both cost and transit time.
GRIs: Rates typically go up yearly. Announced annually, carrier General Rate Increases (GRIs) are adjustments of rates across shipping routes and are expected by everyone in the industry. While it is very difficult for a shipper to avoid GRIs without specific contract language to the contrary, there are ways to mitigate the damage by making sure GRIs and their impact on your individual shipping characteristics are clearly understood.
Dimensional Rates (DIM): A few years ago, shipping carriers modified their process for calculating shipping rates to use a package’s size, rather than its weight. The DIM weight applies to large, lightweight packages. Understanding how this new rating method may impact your shipments is hopefully something you have already done. But, as has already happened this year, the rules can be adjusted at any time, so staying on top of the carrier’s changes should be a priority.
Carrier Rating: Even if you think you’ve estimated the correct rate at the time of shipping, there is no guarantee that it will not change at the carrier’s terminal or somewhere along the way to the shipment’s destination. Carriers frequently re-rate orders, which adds costs. This can include additional charges for things like an address or weight correction, or oversize fees that the shipper did not calculate.
Accounting for all of these additional costs can feel like herding cats, and it results in unreliable guesswork when it comes to estimating shipping costs. Having an efficient shipping process and well-negotiated service agreements with carriers is the first step towards keeping these extra costs in check. It then it becomes a matter of staying on top of all the GRI, fee, and surcharge announcements to understand how they will affect your business.