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HOW TO REDUCE TRANSPORTATION COST

eCommerce, News, Shipping Knowledge
Published June 6, 2020


It’s never been more important, nor more challenging, for less-than-truckload
(LTL) and parcel shippers to reduce their transportation costs. Demand for
carrier services is high, especially in parcel as the COVID-19 pandemic drives
e-commerce volumes to unprecedented levels. LTL and parcel carriers operate in
high barrier-to-entry businesses. The relative lack of competition has allowed
them to consistently raise their prices faster than inflation. How can
businesses better understand the shipping industry and reduce their
transportation costs? At Shipware, we offer shipping consulting to get
businesses the best out of their shipping contracts and help you save money. Our
experts have put together a guide that will help you understand your business’
transportation costs and learn how to optimize them.


AN INSIDE LOOK INSIDE THE SHIPPING INDUSTRY

The parcel segment, in particular, has become a tough nut for many shippers.
Besides levying higher rates, FedEx, UPS, and to a lesser degree, the U.S.
Postal Service, impose what are known as “accessorial fees” to cover the cost of
services beyond the basic pick-up and delivery. Accessorial charges continue to
increase in number and in price, dinging shipper budgets as a result.

Even more concerning in the era of e-commerce, carriers are leaning more on
dimensional weight, rather than a shipment’s actual weight, to build and bill
their rates. This penalizes shippers who tender lightweight consignments that
are bulked up with dunnage, the inexpensive waste material used to load and
secure cargo during shipping but which add heft, and cost, to a package.

Meanwhile, Amazon.com. continues to apply the pressure by offering next-day
shipping at no cost for Amazon “Prime” members. In the age of Amazon, shippers
face the prospect of lost sales and lower revenue for charging too much or
taking too long to ship parcels.


HOW TO OPTIMIZE TRANSPORTATION COSTS

The good news is there are concrete, common-sense steps that shippers can take
to mitigate the upward spiral and reduce transportation cost. Some steps are
specific to each mode. Others can be used in both. Let’s start with LTL:


LTL SOLUTIONS

LTL carriers offer nothing but time and space. LTL charges are based on weight
and space. That’s why it will cost more, on a relative basis, to ship something
bulky like pillows than a dense product like bricks. The less room your shipment
occupies on a truck, the more space the carrier has available to sell to other
people, and the less they need to charge you. 

1. EFFICIENT PACKING

Because of the above, you may receive immense cost savings from efficient
packaging. Use the smallest container that will hold your product safely during
shipment, and bundle or stack your cartons together firmly. The smaller the
total volume of your load is, the more cost-savings you can receive.

Investing in improved packaging solutions is money well spent, because packaging
costs are minimal compared to shipping costs. Your logistics staff should also
get involved in the package design and development process, and they should know
what makes a product easy to stack and ship for cost-effective logistics. While
higher-end packing may seem like a costly endeavor now, it will help you
minimize the size of your shipment, thus paying for itself and more when it
comes to negotiating with LTL carriers. 

2. GROUP SHIPMENTS

If time-in-transit is not important and your products are non-perishable,
consider grouping shipments together as opposed to shipping a few smaller
shipments at different times. It is more efficient for your LTL carrier to pick
up a few, larger shipments versus filling a truck with a ton of smaller
shipments. By doing this, you can negotiate better rates with your provider.

Your carrier may also offer tiered pricing based on the different weight
thresholds. For example, there may be a base rate for loads up to 499 pounds and
different rates for loads that weigh between 500-999 pounds, 1,000-1,999 pounds,
2,000-4,999 pounds, etc. It’s important to know what these thresholds are
because you may be able to get your load to qualify for a low-cost weight class
if you combine your shipment. One 1,500-pound shipment could cost much less than
three 500-pound shipments.

3. SHIP ON OFF-PEAK DAYS

If there is no time-sensitivity or urgency for shipments, consider shipping your
business’ products on off-peak days, as this can bring additional savings. Work
closely with your carrier to create an LTL shipment schedule that’s designed for
efficiency in logistics and shipping costs.

4. LOOK AT ALL COSTS

When you negotiate, look at your overall cost, not just the base rate. The
carrier will likely add a fuel surcharge and accessorial fees. Accessorial fees
include waiting times, storage, packing and extra fuel, all of which can be
negotiated.

5. BUILD LONG-TERM CARRIER RELATIONSHIPS 

It is very important to develop solid long-term relationships with your carrier.
Being a “shipper of choice” carries tangible benefits, especially in a market
for tight capacity. When your LTL carrier sees that you are actively trying to
reduce costs and delays, they will be more than happy to pass those savings on
to keep you as a customer. Being a “shipper of choice” also includes providing
carriers with correct shipment weights and dimensions at the front end to avoid
the cost and hassles of an audit.

6. COLLABORATE WITH SHIPPERS

When possible, collaborate with other shippers to build enough freight to
justify the use of a more efficient full truckload operation. Shippers use LTL
because they lack the volume to afford the cost of full truckload service, which
is cheaper than LTL on a per kilogram basis. You may not have enough freight to
fill a full truckload. However, if you and other vendors regularly ship to the
same retailers, restaurants, grocers, or other businesses, think about combining
your shipments to generate a full truckload. You and other shippers can then
split the transport costs accordingly. In addition, consider working with a
third-party logistics provider that specializes in freight shipment
consolidation to get the job done.




PARCEL SOLUTIONS

The surge in e-commerce demand will continue to drive increases in parcel spend
and rates. At the same time, shippers will be pressured to offer free or
low-cost shipping. According to some estimates, more than 60% of consumers will
abandon their online shopping carts if they see higher-than-expected shipping
charges.

1. IMPLEMENT A PARCEL MANAGEMENT PROGRAM

To tamp down carrier rate increases without compromising service or turning away
business, shippers of all sizes should consider implementing parcel management
programs from an expert like Shipware. 

The top consultants employ sophisticated parcel shipping platforms, data
warehousing, and business analytics technology that make it easier and more
affordable than ever to get full, real-time visibility into your parcel spend.
Enterprise parcel shipping platforms capture and store shipping data from across
the enterprise and compare the data against the carrier invoices. Business
intelligence tools can analyze and identify transport cost reduction
opportunities. With clear data, shippers can implement improved parcel shipping
processes across the enterprise. 

You cannot manage what you can’t measure. With actionable, measurable data at
your disposal, you hold a strong hand with your carriers, and you can do a
better job of pricing your services to your customers. For more tips on
implementing technology in your shipping processes, check out our blog on
logistics automation.

3. CONDUCT A PARCEL AUDIT 

In addition, don’t underestimate the power of a parcel audit. Shipware estimates
that up to 10% of all carrier invoices contain errors. For a company with $1
million in annual parcel spend, this is serious money. Parcel audits represent a
source of recaptured revenue and help hold carriers accountable for their
service commitments and performance. The consultants at Shipware are masters at
identifying carrier overcharges. In more than 25 years, we have saved clients,
in aggregate, hundreds of thousands of dollars in carrier overcharges.

A robust audit platform will do an excellent job of identifying and analyzing
accessorial charges. Some accessorials are legitimate. However, many are
questionable. All of them are negotiable. However, you first have to find them
before they can be bargained away.

2. DIVERSIFY YOUR CARRIERS

Consider expanding your universe of carriers. For example, USPS delivers to
every U.S. address, its rates are affordable, and its service is “surprisingly
good,” said Chuck Clowdis, a long-time logistics executive who runs his own
consultancy. Also, send out feelers to the network of strong regional carriers.
They may not have national footprints, but they do a terrific job in the regions
that they serve. What’s more, their accessorial charges are minimal compared to
the national carriers.

The parcel delivery market has become more regionalized than ever as businesses
look to shorten their transit times, which, in turn, drives down their freight
costs. However, it can be very expensive to build and manage an in-house network
of physical distribution locations. Building relationships with a network of
regional carriers could be a much more cost-effective option.

3. PUT YOUR SHIPPING CONTRACT OUT FOR BID

If you’ve been working with the top two parcel carriers for years, don’t be
afraid to put your contract out for bid. Not only might you find a better deal
from other providers, but you could strike a better deal with your incumbent if
it feels you are about to shift some or all of your business to a competitor.
(One caveat: Keep in mind that your incumbent’s rep may warn you that less
business will mean that you will drop into a lower, less attractive price band.)

Clowdis recommends an annual “shop-around” process by opening up dialogues with
a shipper’s non-regular carrier. “You don’t have to do a full RFP, but you could
see what’s offered,” he said. “This way, you get to gauge a willingness and
interest in your business.”

4. LAST-MILE DELIVERY

Positioning your package for last-mile logistics can work wonders for your
costs. For example, USPS offers an extremely inexpensive service called “Parcel
Select.” Here, consolidators induct large package volumes deep into the USPS
infrastructure for final delivery. This avoids the first and middle miles of the
USPS network, which can be inefficient, and capitalizes on the “final mile” from
local post office to the residence, which is the strength of the network. 

5. ZONE SKIPPING

“Zone skipping” is another important strategy to reduce costs. Parcel carriers
carve up the U.S. in eight zones, with rates being set based on distance and the
number of zones a package travels through. With zone skipping, shippers combine
parcels into a full truckload shipment bound for the same destination zone,
typically the final delivery zone. This saves shippers significant money by
avoiding multi-zone moves. Zone skipping can also speed up delivery times and
reduce the chances of delays and potential shipment damage.

Earlier on, we talked about the push by carriers towards dimensional weight
pricing, where bills are generated based on the dimensions of a parcel rather
than the actual weight. It is easy to make the carriers out to be the villain
here. In fairness, they simply want to recover the cost of filling a trailer
with bulky items that often carry unnecessary weight. Like with LTL, the less
space your shipments occupy, the less you will be charged. 

Shippers play an important role in changing the game. Many don’t pay enough
attention to the weight and size of their parcels. The excess dunnage leads to a
shipping a bigger box which then incurs higher freight costs. Wouldn’t lighter,
or even no dunnage suffice? 

6. INVEST IN EFFICIENT PACKAGING

Shippers also need to explore advances in packaging technology. Can you use more
polybags and fewer boxes and still accommodate the items? For example, going
from a box to a bubble mailer can reduce a parcel’s weight by four to six
ounces. It may seem trivial, but multiply that reduction by millions of packages
a year, and the freight cost savings can be dramatic.


SMALL CHANGES, BIG COST SAVINGS

LTL and parcel carriers have one feature in common: They live and die by
density, which is the amount of space a package occupies relative to its actual
weight. Much of the power to improve density, drive down shipping costs, and
achieve efficiency, rests in the shipper’s hands. 

For more tips on how you can optimize your transportation cost, reach out to
Shipware. We’re dedicated to helping shippers ship more and pay less. Contact us
today to learn how we can help your business receive up to 30% in potential
savings.

NO CONTRACT. NO CREDIT CARD. NO SET-UP FEE. NO HASSLE.

Try out Shipware for 30 Days, completely free!

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