4 Ways to Reduce Small Parcel Shipping Costs
For many retailers and manufacturers, logistics costs are the difference between turning a profit or losing money. But with changes occurring ever more rapidly, technologically savvy and demanding customers are forcing companies to rethink their shipping processes.
Shipping often represents a large expense. For retailers, as one example, shipping makes up an average of 15% of an order’s value — with small parcel shipping being a large part of that.
Despite shipping’s proportionately large impact on the profit margin, however, many companies do not pay close attention to their carrier rate agreements and invoices. This could be because they are unaware of how much a small amount of attention on these areas can reduce their small parcel shipping costs.
Here are four areas where a relatively small amount of attention can pay off in large dividends.
The negotiation process is the first step in getting competitive small parcel rates. Carriers understand the financial impact of a well-negotiated contract, so they are trained as negotiators, with a team of analysts and marketing people behind them.
You can renegotiate your shipping agreement at any time — and it’s a good idea to do so whenever your shipping or business characteristics significantly change — but it pays to be very well prepared before you start the process. It can also help to have in your corner an expert negotiator who understands the industry.
As shippers have learned in recent years, pricing for shipping can be volatile. Carriers raise their rates to align with increases in their fuel and labor costs. FedEx and UPS raise their rates annually, and the late-year Peak Season Surcharge has become standard as well.
Companies can buffer themselves against this volatility with a carefully negotiated rate agreement that takes into account the specifics of their shipping characteristics and business needs.
The auditing of small package invoices is more intensive than auditing of other modes of shipping. Small parcel invoices are complex, with many line items that need to be checked for accuracy against the manifest and also against the rate agreement. Adding to the complexity is that each carrier has a different format for their invoices.
The thought of dealing with auditing small parcel invoices is so off-putting that many shippers pay the invoices without really checking them for accuracy. Unfortunately, forgoing the audit means they are also forgoing the potential for significant savings.
As much as 5% of all the small parcels shipped are eligible for refunds from the carrier (for reasons we outline below). This can add up to tens of thousands of dollars annually. It’s also time-sensitive: carriers are only required to provide a refund within 180 days of invoicing.
Invoice auditing is really a pain — tedious and hugely time-consuming — when done manually, but specialized shipping technology can remove a lot or all of the pain. The auditing can also easily be outsourced to a third party.
As noted above, as much as 5% of all shipped packages are eligible for refunds due to incorrect shipping charges. These can occur for several reasons; these are some of the most common:
- Duplicate invoices – one of the most common errors and reasons for overpayment.
- Late delivery – if your shipment was guaranteed and arrives late, you shouldn’t pay.
- Accessorials – these are difficult to calculate since they are charged after the fact.
- Taxes – vary by state and can get complicated for international shipments.
- Invoicing of wrong service – a ground shipment was billed at the overnight rate, for example.
- Incorrect surcharges applied – like accessorials or additional charges applied after the fact.
The best medicine is always prevention, and a TMS can help you prevent certain errors, such as address corrections and unnecessary accessorials. But in most cases the only remedy is an audit of the invoice.
The carriers do not make the process easy, so shippers need to be proactive in finding the errors and filing for refunds.
That said, most companies don’t have the time or resources to closely monitor their shipments, rates, and invoices. This is where outsourcing the audit process both frees up time and resources and also ensures you get all refunds that you’re eligible for.
First Flight Solutions can help — click here to learn more. There is no up-front cost and you pay only a portion of the actual savings realized, so there is no downside to having your small parcel invoices audited and refunds automatically sent to you.