As we move into the busiest time of year for ecommerce businesses, the specter of sky-high shipping costs is still haunting us all. FedEx and UPS made the largest ever single-season general rate increases (GRI) in January, averaging 6.7% and 6.9% respectively. The USPS announced an average increase of 5.5%, and regional carrier Lasership/OnTrac announced an average GRI of 6.9%.
These increases don’t even include peak season surcharges, fuel surcharges, handling charges and residential delivery fees. From 2020 to 2023, accessorial and surcharge fees increased 15% to 30%. According to Reveel:
- The average UPS customer will pay 10.2% more in 2023 than they did in 2022
- The average FedEx customer will pay 9.1% more in 2023 than last year
- Less than 4% of businesses will see their shipping costs increase by 6.9% or less
The height of the pandemic is over, so why are shipping costs still going up? And what do these rising costs mean for ecommerce businesses that rely on small-parcel shipping carriers to deliver their orders? Let’s take a look at the factors influencing shipping costs and what you can do to minimize your own shipping costs.
Why Are Shipping Costs Increasing?
During the worst of the pandemic, shipping carriers weren’t able to keep up with the huge increase in demand for at-home deliveries. At the same time, a mass exodus of workers caused labor and capacity shortages. In response, shippers dramatically raised prices. Over the past year, demand has fallen closer to pre-pandemic levels, but it’s still far higher than it was in 2020. We’re seeing labor challenges continue, with the newly added pressure of high fuel costs, and inflation. In addition, shippers are reluctant to give up the high margins per package they’ve been receiving. Surcharges are proving to be the best way for them to protect their margins, particularly during busy seasons and for packages that require extra space or handling.
What Can Ecommerce Businesses Do?
Ecommerce businesses, as well as their third-party logistics (3PL) and fulfillment partners, are all experiencing the same price increases, but some of us have a lot more buying power than others. If you want to reduce your shipping costs, we recommend you focus on the following areas.
1. Know Your Shipping Costs
You can’t protect your profit margins if you don’t know exactly what you’re paying to ship each order. Gathering this data is crucial to making strategic decisions and negotiating with shipping carriers. Look for the places where you’re getting hit the hardest, whether it’s long-distance deliveries, oversized packages or something else. If your fulfillment center isn’t tracking detailed shipping costs, find one that can.
2. Distribute Your Inventory
If at all possible, distribute inventory across multiple fulfillment centers in the US (and around the world if you’re shipping internationally). Distributed inventory enables you to take advantage of less expensive regional and local shipping companies for shorter distances and last-mile deliveries. It also means you can offer your customers faster shipping options. A 3PL with multiple locations can dramatically reduce shipping costs while enabling you to manage inventory from a single source.
3. Minimize Packaging
The rapid adoption of dimensional (DIM) weight shipping charges across the industry tells us that shipping companies are optimizing for efficiency above all else. That translates to transporting the largest number of packages per trip. As a result, small lightweight packages are their sweet spot. If you can avoid oversized and DIM weight charges, you will save a bundle. Look closely at your packages and packing material to find ways to protect contents without incurring extra handling, oversized or DIM weight charges.
4. Negotiate With Carriers
Use the data you’ve collected to work with your carriers to negotiate fees based on the volume you ship and the characteristics of your packages. Ask about ways to reduce or avoid accessorial charges. Regularly compare rates and renegotiate with your existing carrier to see if they can do better.
5. Broaden Your Carrier Network
When you rely on a single shipping carrier for all your orders you have very little leverage to negotiate. Adding an additional carrier not only reduces your risk, but gives you more flexibility and leverage. Partnering with a 3PL that ships thousands of packages a day and works with multiple carriers gives you even more flexibility and bargaining power.
6. Take Advantage of Section 321
If your products are manufactured outside the US and sold directly to individual customers inside the US, Section 321 of the Trade Facilitation and Trade Enforcement Act can save your business thousands of dollars on duties and tariffs, fulfillment, and labor fees. This CBP-compliant shipment method is intended to reduce fees and speed up the customs process for incoming packages under $800 in value. ShipMonk’s near-border fulfillment center in Mexico was built for this exact purpose.
7. Ship Inventory Before Peak Season
It’s bad enough having to pay peak season surcharges to ship outbound orders. Try to order inventory early enough to avoid paying surcharges on your inbound freight shipments as well.
If you’ve tried all this and still aren’t seeing significant savings, there’s one last way for small-to-medium size businesses to save on shipping.
Leverage the Buying Power of a 3PL
A large 3PL with multiple locations, high-tech warehouse automation, and a robust management system ships tens of thousands of packages per day for hundreds of ecommerce businesses like yours. As a client, your ecommerce business benefits in many ways.
- Discounted Shipping Options — Due to our huge shipping volume, ShipMonk receives heavily discounted shipping rates with every major carrier and passes the savings on to our ecommerce clients and their customers.
- Virtual Carrier Network — ShipMonk’s Virtual Carrier Network (VCN) utilizes advanced technology and an expanded network of shipping carriers to solve the time-consuming challenge of carrier selection. Our carrier-agnostic system automatically identifies the best possible shipping method (economy, standard or 2-day) and carrier for each order, based on available capacity, rates, and the desired delivery time. ShipMonk clients leveraging the VCN have more flexibility, pay the lowest possible rates, and reduce the risks associated with a single delivery network.
- 2-Day Shipping — Thanks to our discounted shipping rates and our eight, first-party, fulfillment center locations nationwide, ShipMonk can guarantee affordable 2-day shipping to 100% of the continental US, even from single-warehouse origin points. With ShipMonk 2-Day, our ecommerce clients pay an average of 49% less than UPS/FedEx 2-Day rates, and 5% less than USPS Priority. They can offer their customers express shipping without the cost of express shipping premiums.
- Distributed Inventory — Eight US fulfillment center locations, plus four additional in continental Europe, the UK, Mexico and Canada, give our clients the flexibility to distribute inventory across several locations and manage everything from a robust, user-friendly cloud-based platform.
- International Shipping — We ship to 180+ countries and, best of all, we treat international orders the same as domestic orders. You sell, we ship, without ridiculous additional fees. Fulfillment centers in Mexico, Canada, the UK and Europe enable clients to expand their operations globally. Move your goods 3,000 miles closer to your customers to achieve significant savings on shipping and cut delivery speeds from weeks to days.
- Freight Shipping — ShipMonk can also help you find the best and most cost-effective way to ship inventory to one or more of our facilities via air freight, ocean freight or DHL Express. Our ecommerce clients enjoy the same volume discounts on inbound shipments as they do on outbound orders.
Time is running out for ecommerce businesses that want to save on peak season shipping this year! Start by reaching out to your current shipping partner(s) and fulfillment center. Look for ways to avoid unnecessary surcharges, diversify your carrier network, and reduce shipping rates. And if it’s time to upgrade fulfillment services, contact ShipMonk for a timeline and a quote.