Shipping costs are one of the highest expenses in order fulfillment, usually second only to product. As e-commerce sales continue to succeed, brands are feeling the pressure to mobilize their direct-to-consumer (DTC) strategies, and with that shift come questions about crafting the best shipping carrier strategy.
One of the core ways this sector differs from traditional retail is that DTC e-commerce shipments employ small parcel providers rather than freight services. Regardless of a company’s sales model, in order to assemble the ideal carrier mix, it is important to have at least a baseline understanding of how to navigate this area of business.
Consider the specific needs of your business
For a company in early growth stages, volume may simply not be high enough to warrant using more than one service, making a single-carrier arrangement the easiest and most efficient strategy for e-commerce orders.
Likewise, if you don’t need to ship far to reach most or all of your customers, and if service level is your top priority, a regional carrier may be all you need. Because they service a more concentrated geographic region, shipments can typically be sorted and sent more quickly. These organizations are also smaller, so you might find they are more flexible on rates and other fees than the national carriers with whom they compete for business.
All that said, if a company that only has a contract with a regional carrier has a sudden surge, business begins picking up in other regions, or that carrier goes on strike, that could quickly become an issue. Failing to meet delivery promises will sully your reputation, at best–more likely, it will cost you future orders.
Solve the rate equation
Before comparing rates, it’s helpful to understand how they are determined. Freight shipping rates are based on various factors such as weight, freight classification, and distance traveled. What’s important to know about the weight factor is that, when it comes to pricing, major carriers now place more emphasis on volume (dimensional weight). So, the more compact a package is, the better it generally is for your bottom line.
Some carriers use a flat rate for shipping anywhere in the U.S, regardless of weight or size. Otherwise, whether using freight or small parcel carrier, the main variable is zones–the geographical areas carriers ship to, measured by the distance from address of origin to destination.
Zones span from one through eight; the farther the distance, the higher the zone. For example, using USPS’s Domestic Zone Chart, if the origin is in New York City, Topeka, Kansas is Zone 6, Cleveland, Ohio is Zone 4, and Los Angeles is Zone 8.
For packages being shipped to lower zones, you can use slower (a.k.a. lower cost) service levels, which can subsidize the higher cost of packages shipped to higher zones and using higher service levels. If your customers comprise a geographically diverse group, having a multi-carrier shipping strategy is certainly worth exploring. Understanding the lay of the land–literally–can help you realize savings both with shipping decisions and in contract negotiations.
Negotiate ideal terms and ensure compliance
Carriers roll out new features, services, and other changes constantly; sellers’ products and packaging are also updated, and new markets are opened. All of that impacts shipping, so the carriers, delivery times and other services a business utilizes should be reconsidered annually, at minimum.
Determining which shipping carriers, methods, and services to use is done on a per-package basis. You can negotiate your own rates, use your fulfillment provider’s rates, or a mix of both. Companies with fulfillment partners often take advantage of their ability to negotiate more favorable terms based on maintaining high volume of business with multiple carriers.
Whatever your agreed upon terms are, tracking and analyzing performance will give you all the data you need for future negotiations. There are apps and other software available to help companies manage this part of the business; fulfillment companies use transportation management systems designed for full transparency to optimize efficiencies.
One of the areas these tools monitor is whether a carrier is meeting service levels. For example, did a parcel marked for next-day delivery arrive two days late? And are mistakes like this habitual? By collecting this data, you can hold carriers accountable for falling short of meeting expectations, which offers an advantage during rate negotiations.
Shipping is an area that affords brands the opportunity to influence costs and provide a consistent customer experience based on the promise of reliable package transit times. The process of selecting carriers can be daunting. Done properly, it requires allocating a budget, compiling all your product information, identifying your customers’ needs, and negotiating. But for all the cost savings, customer satisfaction and loyalty the right strategy can garner, it’s a worthwhile endeavor.