Challenging Rising Freight Costs on E-Commerce

We’ve come to the end of the first quarter and you’ve probably already seen the impact of the 2019 freight rate hikes from the parcel carriers.

FedEx and UPS raised their prices on average 4.9% in January and USPS increased their rates by 7.3% on Jan 27^th. Increases were implemented for all the additional surcharges as well. Additionally, the CPP (Commercial Plus Pricing) program was abandoned so some retailers will see even more significant increases. USPS has also announced a move toward using the dimensional weight to calculate their rates and is rolling out zone-based pricing for all First Class packaging service shipments.

Substantial cost increases such as these parcel freight rates are a significant impact on your profitability.
So let’s see what we can do to mitigate this cost driver.

Negotiate with your carriers

FedEx and UPS are becoming increasingly aggressive as suggested by the data that they handled more shipments than USPS in 2018 vs 2017 (source My Total Retail) Divisors (used to calculate DIM weight) are one key negotiable factor that can significantly impact your rates.

If you are receiving a lot of inbound freight from parcel carriers, consider asking your vendors to bill the freight to your account. You may have a little more leverage to negotiate a better contract.

Choosing the Right Service

You may not always need to choose the air/express service to meet your delivery requirement. For example, shipping UPS 3 Day Select packages to destinations that are within a three-day time-in-transit Ground territory can be shipped via a Ground service for less cost. In most cases, with or without contracted rates, FedEx shippers shipping to residential addresses should use FedEx Home delivery rather than FedEx ground.

USPS is also competitive depending on the size of the package and delivery requirement. ShippingEasy publishes a handy guide that compares the 2019 rates amongst these three carriers.

Right size your packages

You may reconsider the box altogether for some products and take a look at mailer bags. Unlined envelopes, bubble lined mailers and innovative products like Mailer boxes from market leader Pregis can eliminate the need for void fill and help reduce your overall shipping costs.

All parcel carriers including USPS (roll out June 2019) have now imposed dimensional weight to calculate freight costs. Basically, DIM weight calculations consider the dimensions of the box to determine a theoretical minimum weight for a package of that size. Carriers charge the higher of DIM weight vs actual weight. So eliminating any excess space will result in cost reductions.

Optimize your packaging – Reduce your DIM weight

With USPS rolling out their DIM weight pricing in June 2019, you’ll want to make sure you are optimizing your package size and minimizing your DIM Weight. It could be time to move away from stock boxes and customize sizes and/or consolidate SKU’s.
If you use a lot of different sized shippers, that might seem like a daunting task. You may wish to enlist the assistance of a custom packaging specialist to help you review your packaging program.

We’ve developed a SHIPPING BOX OPTIMIZATION TOOL. With this comprehensive tool, you can explore what adjustment you can make to any one of the packaging dimensions to see what it takes to minimize the DIM weight. Play with variable divisor factors that impact DIM weights. Add in other data points like volumes to evaluate consolidation opportunities. Knowledge is power and we’ve made it easy to collect, review and guide the way to cost reductions.

At Heritage Paper we work with E-commerce and shipping operations every day helping them optimize their packaging, reducing their costs and improving their bottom line. Contact us today to see how our team and our resources can help move your business forward.

Heritage Paper is a member of the Amazon Packaging Support and Supplier network.