Controlling Shipping Costs Means More Than Just Comparing Base Rates, Part 1

Credit: southfloridareporter.com

With the sole purpose of buying the most expensive Starbucks drink ever served, William E. Lewis Jr. requested the coffee chain add 170 extra shots of espresso to his Venti Flat White order.

As a result, the credit repair and identity theft consultant managed to jack up the price of an espresso-based drink — which for normal coffee drinkers costs an average of $4.35 — to nearly $150.

Though no shipping manager in their right mind would ever purposely seek out the priciest shipping rates in history, they nevertheless can — and should expect to — experience serious sticker shock if they fail to consider all the complex and often conflicting service charges and fees that carriers are increasingly tacking on to their base shipping rates.

While one carrier’s base rate may be significantly lower than those of its competitors, the same carrier’s add-on fees can not only wipe away the initial savings, in extreme cases they can cost companies the shipping industry’s equivalent of the 173-shot Venti Flat White.

In fact, if last year is any indication, companies can expect to incur an increasing array of service charges this year. Consider the following, which occurred last year:

• A major carrier notified shippers in December that in addition to raising its base rates by 4.9 percent, the company would hike its domestic air fuel surcharge by 0.25 percent.
• The same carrier announced a $2.00 per-package processing fee for shippers that fail to provide package-level detail (PLD) before delivery, as well as a 4.5 percent increase to the fee it charges for shipments billed to a third party.
• As they have typically done in the past, all global carriers increased the “usual suspects”: address correction, delivery area and extended delivery area surcharges, and residential area surcharges.
• Meanwhile, the price of shipping lightweight parcels increased by an average of 20 percent among the major carriers.

That’s the bad news. The good news is that no single carrier holds a monopoly on the shipping business, and all carriers are ready, willing and able to negotiate with companies seeking to control their shipping costs.

And even better news: companies don’t have to go it alone. Using sophisticated parcel shipping management processes and technologies as their guide, shippers can navigate through the complex and crowded field of service charges and added fees, and ultimately achieve cost savings.

With the right tools in hand, companies can create blended carrier strategies that ensure each parcel they ship gets automatically matched to the ideal carrier service and sent into motion according to company-defined business rules based on preferences, costs savings, desired service levels, and other factors.

Are Carrier Fees Stacking Up on You? Questions to Ask

You can only manage what you measure, so the most important thing to do if you suspect your accessorial charges are escalating is to measure them. By measuring your costs over time in specific areas and addressing those areas in a timely fashion, you can reduce or even eliminate unnecessary additional costs. For example:

• What's my net landed cost of goods per parcel? What percentage of this cost is comprised of accessorial charges?
• Which accessorial charges occur most often? Residential surcharge? Fuel surcharge? Bad address penalty? Extended area surcharge? Third-party account number penalty? Large package surcharge? Other? Is there a trend?

If you’re shipping internationally, you should also be on the lookout for surcharges and fees that occur with cross-border shipping, such as cross-border processing fees, brokerage fees and additional insurance fees. If these are on the uptick, consider cross-border shipment consolidation (e.g., consolidate 50 orders going from the U.S. to England by placing all packages on one pallet) to eliminate multiple instances of the same fees and save money on shipping costs.

Way More Than Base Rates

Negotiating with carriers and challenging and navigating their many service fees can be equally tough. Just when you think you’re comparing apples to apples, you find out you’re not.

To effectively control shipping costs, companies must look beyond comparing shipping rates and consider the many other variables in the equation. To successfully do that, advanced parcel shipping management can be an invaluable ally.

In part two of this series, I’ll look specifically at the need to compare carrier rates on an ongoing  basis to ensure the best choice gets made for each and every parcel shipment.

Ken Fleming is president and chief sales officer at Logistyx Technologies, the leader in transportation management for parcels.