Many U.S.-based businesses overspend on shipping. In fact, it's estimated small and medium-sized enterprises (SMEs) overspend on shipping by nearly 13% yearly. So, why are many companies spending more than necessary on shipping? Well, many of them aren't leveraging shipping performance optimization techniques.
Want to reduce your shipping costs, boost your profit margins, and set your business up for long-term success? Keep reading to discover effective ways to lower your shipping costs.
11 Proven Ways to Reduce Shipping Costs
Whether you run a small enterprise or a large one, here are 11 proven strategies to lower your shipping costs:
Negotiate With Multiple Carriers
Different carriers offer different shipping rates. Unfortunately, many businesses opt for the first shipping carrier they encounter and stick with them for the long haul. Avoid this pitfall. Instead, compare multiple carriers and negotiate for better rates based on your shipping volume, frequency, and package size.
Generally, most carriers have different pricing tiers based on shipping volume and frequency. So, if you make hundreds or thousands of shipments monthly, you can negotiate for a discounted shipping rate.
Optimize Packaging
Packaging is undoubtedly one of the biggest contributors to high shipping costs. If you want to significantly lower your shipping costs, here are tips on how to optimize packaging:
- Use free packaging: Some carriers offer free packaging. If your carrier provides free packaging, take advantage of the perk.
- Use custom packaging: Besides actual weight, most carriers determine shipping costs using dimensional weight (DIM weight). This is the amount of space a package occupies relative to its weight. Use custom packaging that matches the dimensions of your package rather than standard packaging to lower dimensional weight shipping costs.
- Opt for poly mailers: Ditch boxes for poly mailers if you sell non-fragile items such as apparel, drinks, or health and wellness products. Compared to boxes, poly mailers occupy less space and lower packaging costs.
Calculate All Shipping Costs
Many businesses overspend on shipping simply because they don't factor in all shipping costs. To avoid unnecessary costs, account for all shipping-related expenses, such as fuel surcharges, delivery fees, and peak season surcharges.
If you're shipping products overseas, you'll also need to factor in international shipping fees, such as customs duties.
Use Third-Party Insurance
Shipping insurance can protect your packages and minimize the risk of financial loss in the event of:
- Theft
- Vandalism
- Natural disasters
- Water damage
- Other calamities
But, many shipping carriers usually charge a premium for insurance — especially for valuable goods.
Fortunately, you don't have to spend a fortune on insurance. To lower your insurance costs, opt for a third-party insurance provider. Third-party insurers typically charge a fraction of what mainstream carriers charge, and they offer flexible coverage.
Look for Discounted Supplies
Search for inexpensive shipping supplies to lower shipping costs. Many large shipping carriers offer small and medium-sized businesses low-cost packaging supplies.
You can also buy packaging materials like bubble wrap, boxes, and air pillows in bulk to unlock discounts from suppliers. Purchasing materials you don't need immediately may seem counterintuitive, but it can significantly lower your average cost per shipment.
Reduce the Shipping Distance
Most shipping carriers use shipping zones to calculate shipping costs. Shipping zones are geographical areas that carriers serve. In the U.S., shipping zones range between Zone 1 through 8, with the first zone being the closest to the origin and the eighth the furthest.
The further the shipping zone from your location, the higher the shipping cost. Additionally, the more zones your package traverses, the higher the shipping fees.
Partnering with an eCommerce fulfillment company with multiple warehouses can lower costs associated with shipping products across multiple zones. And best of all? It can save you time and expedite shipping, enabling customers to receive their orders faster.
This can be a huge boon for your business as nearly six out of 10 customers expect to receive their orders within two days.
QuickBox has four fulfillment centers across the U.S. in four locations: Denver, Atlanta, Wayne (New Jersey), and Los Angeles. These strategically located centers allow us to offer cost-effective shipping solutions and complete 95% of deliveries within 48 hours.
Add Shipping Costs to the Product Price
Customers don't want to pay for shipping. In fact, nearly 62% of customers won't purchase products from a retailer that doesn't offer free shipping.
While free shipping can entice customers to complete their purchases, it can hurt your bottom line. Want to offer free shipping and maintain your profit margins? Consider the following strategies:
- Increase product prices: Incorporate the cost of ''free shipping'' in your pricing. For instance, if a product costs $50 and the average shipping cost is $10, you could price the product at $60 to cover the shipping cost.
- Create free shipping thresholds: Set a minimum amount of money customers must spend to qualify for free shipping. This can incentivize customers to spend more, increasing your average order value (AOV). Just be sure to set the minimum threshold slightly above your AOV to encourage extra spending without driving away customers who find the minimum exorbitant.
- Limit free shipping to certain products: Offer free shipping only on select products — such as high-margin ones — to cushion against high shipping costs.
- Reserve free shipping for loyal customers: About four out of 10 customers will sign up for your loyalty program to be eligible for free shipping. Limit free shipping to customers who have signed up for your loyalty program to reduce shipping costs and build brand loyalty.
Use Hybrid Shipping Services
Hybrid shipping services comprise multiple carriers that work together to transport packages from the origin to the destination. For instance, a hybrid shipping service may collect your package and then pass it on to another carrier, which will ship it to the recipient. This can lead to a significant shipping cost reduction.
However, hybrid services are often slower than single carriers and have stringent weight, volume, and dimension requirements.
Partner With a Third-Party Logistics (3PL) Provider
As your business expands, managing shipping can quickly become a logistical nightmare. Third-party logistics (3PL) providers can save you from logistical issues and help with various tasks. These include warehousing, returns processing, and eCommerce order fulfillment.
Here are some ways that 3PL logistics can lower your shipping costs:
- Slashed overhead expenses: Handling supply chain functions such as warehousing and order fulfillment can be expensive, especially as product demand rises. 3PL providers can lower overhead costs, allowing you to dedicate resources to other core business areas.
- Expertise and experience: 3PL providers possess vast knowledge of the logistics sector. They can help you optimize shipping routes and packaging, lowering shipping costs.
- Better carrier rates: A 3PL company can combine shipments from multiple businesses, enabling it to unlock volume discounts you might not be eligible for.
- Multiple warehouses: 3PL providers often have a network of strategically located warehouses. This enables 3PLs to store products closer to customers and reduce shipping distances.
- Access to sophisticated technology: Some 3PLs offer their clients access to advanced tools that can help them optimize their shipping operations. This saves clients the high initial cost of purchasing logistics software.
Monitor Shipping Carrier Rates
All the major shipping carriers usually increase their shipping rates annually based on overhead expenses like fuel and labor. While these increases vary across carriers, most major carriers increase their shipping rates by about 6% on average. For instance, both FedEx and UPS announced a 5.9% average rate increase on their shipping services for 2024.
Keeping an eye on carrier rates can allow you to take proactive rather than reactive measures when carriers increase their shipping rates. You can stay abreast of the latest carrier rates by subscribing to the email newsletters of the major carriers. Or by reading authoritative industry publications.
Reduce Returns
Businesses lose a hefty amount of money on customer returns. In 2023, returns cost retailers $743 billion, equating to 14.5% of sales. High returns can significantly increase shipping costs, decrease profit margins, and lower customer satisfaction. If you want to avoid these issues, here are some measures you can take to reduce customer returns:
- Provide detailed product descriptions: Write comprehensive product descriptions to help shoppers make informed purchase decisions.
- Use high-resolution photos and videos: Provide customers with high-quality product images and videos to help them visualize products. This can reduce returns from customers who say products don't match the visuals.
- Provide a clear shipping policy: Include a detailed shipping policy to set expectations and give shoppers peace of mind.
Work With a Reputable 3PL Provider to Optimize Your Shipping
Shipping costs can quickly escalate and hurt your bottom line. But they don't have to. By implementing these 11 proven strategies, you can lower shipping costs and maintain healthy profit margins.
With QuickBox's LogicPod WMS technology, you can optimize your shipping. The robust business intelligence dashboard can give you invaluable insights into your order statuses, inventory levels, and carrier performance. Best of all, it has an intuitive interface you can use to create detailed custom reports without the help of a developer.
Ready to discover how QuickBox can help you optimize your shipping and grow your revenue? Contact us today to talk to one of our experts.
SOURCES:
2011 Shipping Overspend Study. (2011).
Consumers Expect Online Orders to Be Delivered Within 2 Days. (September 2023). OnTrac.
State of Shipping Report. ( February 2023). Shippo.
FedEx, UPS 2024 Rate Increases: What Shippers Should Know. (November 2023). Industry Dive.
2023 Consumer Returns in the Retail Industry. (December 2023). National Retail Foundation