Shipping is an excellent strategic capability for companies with inventory: It allows them to reach a far larger customer base, enables an effective e-commerce site, and is simply a way to expand sales.
It can also grow expensive. At Sherpack, we know that juggling shipping costs gets tricky: You have to pick options that will be affordable now as well as successful in the future, all based on what you can afford and what you think customers want. This complexity is one reason that we provide extensive consultation options to help your business find the right shipping solutions at the right fees.
In this guide we’re exploring the roots of shipping costs, and precisely what affects those fees. This can be very useful for businesses that are looking to save on shipping or estimating how much shipping would cost for their products…and it may be more complex than you expect.
Factor 1: Shipping Zones and Distance
Shipping service providers divide up geographical regions into “shipping zones.” Throughout the country, different areas are assigned to different zones, and providers charge shipping fees based on how many zones the package moves through from its point of origin to its destination.
This may seem like a fancy way of saying, “The farther away you’re shipping, the more it costs.” While that’s partially true, shipping zones can be surprisingly complicated. Every carrier has their own shipping zone maps, so – for example – FedEx’s zones and UPS’s zones can look quite different in places. A slight change in a shipping route or carrier may not affect distance very much, but could pass through more shipping zones and thus increase your costs considerably.
Shipping zone costs can’t really be negotiated, but you can affect them by shipping from different points of origin, or working with a third party to store inventory at several shipping locations. This can lead to significant savings as your company expands over different regions!
Factor 2: DIM Weights
It’s common sense that volume and weight affect shipping costs – but many businesses also need to consider DIM (dimensional) weight. This refers to the ratio of volume, or the size of your package, to how much the package weighs.
Shipping companies care about this a lot, because space is money! So, they charge more for larger, lightweight packages, and less for smaller, heavier packages. DIM weight isn’t something that, say, an electronics seller needs to worry about much, but if your products are larger, delicate, and require plenty of protection (art, bedding, etc.), DIM weight could be responsible for a lot of your shipping costs.
One option is to pass extra DIM weight fees to customers, although that can be a tricky balance. Companies should also look for the most efficient packaging options to make sure their boxes are as compact as possible.
Factor 3: Shipping Methods and Time
Different shipping methods can vary greatly in cost! Air and ground are the two common options, with air shipping being considerably more expensive. If you are shipping overseas, you also need to consider ocean shipping charges.
The best approach is finding a balance between the shipping times you want to offer, and the shipping costs you are willing to pay. If you are set on delivering expedited or overnight packages, then your business needs to consider air shipping to meet deadlines. Two-day package delivery, outside of a certain radius, may also need to be shipped by air. Otherwise, ground shipping is a less expensive option that will, of course, take more time.
It’s important that every company examine their industry and operations to see if these costs can be passed onto customers, or absorbed as company expenses. We talk about some of the strategies behind this decision in one of our other guides.
Factor 4: Additional Fees or Surcharges
Your flat shipping rate may just the beginning, especially if you are shipping packages across considerable distances. As the package travels, it can pick up various surcharges and fees along the way, due to extra services required. This can include – but is not limited to –
Fees for especially large or heavy packages, like appliances
Surcharges for delivering is especially rural areas or areas outside shipping range
Fees for overtime work on specific days (past certain hours, or sometimes on weekends)
Fuel surcharges for certain kinds of transport
Tracking fees for digitally tracking and reporting packages status
Insurance fees associated with shipping
Duties, and similar charges for international shipping
These surcharges can be difficult to mitigate, but they should at least be estimated so that your shipping budget is ready for them.
Factor 5: Handling and Labor
If you are handling shipping in-house with your own employees, then you also need to calculate handling and labor costs. This can be difficult for many growing businesses, especially if you don’t have a position dedicated entirely to preparing packages for shipping, but work on shipping as a team (or even manage shipping on your own in a sole proprietorship).
One common method to finding your in-house handling costs is to use a simple formula. First, calculate how many minutes it takes to prepare and ship a single package. Then divide that number by 60. Multiply the resulting number by the hourly wage of that position, and you’ll get a rough handling expense for one package. While every business is different, this can make it easier to compare handling fees from alternative services.
If it starts to look like handling packages in-house is becoming too expensive for your business, a third-party fulfillment center can help your company find the most cost-effective options for shipping. In addition to outsourcing handling costs from your business, a fulfillment center can also offer discounts and deals that may not be available to you as a single company.
Fulfillment centers can also help you achieve key business goals that you might have been waiting on, such as setting up a robust e-commerce site that can drive sales across multiple regions, or offering more complex subscription packages and customization options at checkout. If your shipping expenses are looking less acceptable these days, it’s probably time to explore alternatives for the future!
