Special Report - Operations & Fulfillment : 7 Ways To Cut Parcel Shipping Expenses Right Now

Parcel shipping costs are on the rise, with UPS, FedEx and the USPS all recently increasing general rates. While costs are going up, successful catalog/multichannel companies are finding ways to reduce expenses and improve their bottom lines. What about you? Here are seven keys to getting started.

1. Understand your shipment profile and costs. Know your breakdown by weight, carrier zone and service. The recent FedEx Ground increase was announced as an average of 5.9 percent, but low weights (1 pound to 9 pounds) have increased to 8.9 percent for zones 2 and 3, while heavier weights for zone 8 are as low as 5.3 percent.

The residential and delivery area surcharges (residential) both increased 10 cents per shipment, or about 4.3 percent. Do your homework, and determine how changes in carrier pricing impact your freight costs. Take a sample of six to 12 months of actual shipments, and calculate them at 2008 rate levels vs. 2009.

2. Substitute ground for air. Both FedEx and UPS offer guaranteed delivery for ground service as well as air/express. Save money by using ground instead of air when guaranteed on-time delivery still can be made by ground.

Talk to your parcel carrier, and request ground delivery standards by ZIP code. Update your shipping system to “downgrade” overnight and two-day air services that can be served by ground in one to two days.

While implementation may require a system upgrade, or even a new shipping system, the payback should be worth it. For example, the FedEx published rate for a 5-pound parcel going to zone 3 is $27.55 via standard air, $11.95 via two-day air and $5.44 via ground. Do the math and use ground when possible.

One final caution: Rewrite your shipping and handling policies. Avoid using terms like “Overnight Air” or “2-Day Air.”

3. Negotiate costs, not discounts. During parcel carrier negotiations, many catalog companies focus on maximizing discounts. On paper this approach looks good, but it often fails to minimize costs.

Most carrier agreements are subject to “minimum charges,” which mitigate discounts, particularly on lightweight and nearby zones. Also, it doesn’t help to get huge discounts on heavy shipments if you ship mostly lightweight goods. Analyze the impact of discounts and incentives, and look at all cost components, including access charges.

What’s more, share information to help carriers understand your business goals, and look for ways both companies can gain. Treat carriers like partners, not opponents. Promote your company, and emphasize how carriers can benefit from your parcel business. If carriers better understand your business, they can work with you to find innovative ways to reduce costs.

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