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Taking the guesswork out of small parcel shipping costs
written by John Howard
Logistics can account for as much as 25% of a business’s overall costs, making it a worthwhile area for every company to focus on. A problem for most, though, is that routing and rating small parcel packages is complex. This makes it hard for companies to know when they are making the best carrier choice on shipments and provides little confidence in their ability to predict the actual costs they’ll be invoiced by the carriers.
There are many reasons why it’s difficult to pinpoint actual small parcel shipping rates, but a small investment in time to understand these differences can result in huge savings. Here are some of the ways rates can be difficult to understand, so you are better prepared.
With little regulation as compared to the LTL and TL freight industries, parcel carriers have free reign in their rating methodologies and other rating standards. This means carriers can charge what they like for certain shipping fees, like accessorial. And while each carrier—and there are really only two options, UPS and FedEx— provides its own guidelines for shipping, there are still a lot of variations between.
The additional fees and surcharges parcel carriers frequently charge adds another level of confusion as to the final cost of the shipment. There have been several rate and fee changes already this year. Since many of these charges such as residential and out of area, Saturday delivery, and holiday rush surcharges only appear once the invoice is sent. It is difficult to calculate the total shipping cost beforehand. They also are often misapplied, making post audit of small parcel invoices a necessity.
Most carriers, offer similar services levels for shipping, next day, two day, three day, ground, etc. However the time commitments per carrier differ, making it difficult to make equal comparisons. The best carrier choice for an shipment should consider both cost and transit time.
Rates typically go up yearly. Announced annually, carrier general rate increases (GRIs) are adjustments of rates across shipping routes and are expected by everyone in the industry. While it is very difficult for shippers to avoid GRIs without specific language to the contrary, there are ways to mitigate the damage by making sure GRIs and their impact on your individual shipping characteristics are clearly understood.
Dimension rates (DIM)
A few years ago, shipping carriers modified their process for calculating shipping rates to use package’s size rather than its weight. The DIM weight applies to large light weight packages. Understanding how this new rating method may impact your shipments is hopefully something you have already done, but as has already happened this year, the rules can be adjusted at any time so staying on top of carriers changes should be a priority.
Even if you think you’ve estimated the correct rate at the time of shipping, there is no guarantee that it will not change at the carrier’s terminal or somewhere along the way to the shipments destination. Carriers frequently rewrite orders, which adds cost. This can include additional charges for things like and address or weight correction, or oversize fees that the shipper did not calculate.
Accounting for all these additional costs can feel like herding cats, and it results in unreliable guesswork when it comes to estimating shipping costs. Having an efficient shipping process and well negotiated service agreements with carriers is the first step towards keeping the extra costs in check. It then becomes a matter of staying on top of all the GRI, fee, and surcharge announcements to understand how they will affect your business.
Thank you for listening. For a free, no obligation, analysis of your logistics spend visit TransportationImpact.com. Have a great day!