Strategies for adapting to shipping cost increases
ERA Magazine Channel Crossing – January 2011
By: Ayal Latz, President, a2b Fulfillment, Inc.
Shipping rates are going up – again. Both UPS and FedEx have announced average increases of 4.9% effective January 3. The USPS is not far behind at 3.6%.
These percentage increases can be misleading because they represent carriers’ average increases. Specific rate changes by service, zone and weight and package size vary wildly as carriers respond to market demand, target market share goals and attempt to neutralize the very moves that our industry has enacted to lower shipping costs.
What can shippers do? While you can’t protest and expect to get anywhere, you can make a few changes to protect yourself and manage your costs. Deal with these rate increases by understanding the market, the available programs and be willing to act.
The alternative to inertia is bleak. Rate increases decrease margins, leaving fewer marketing resources available. Or, this forces the Marketer to increase prices and/or shipping and handling, affecting sales negatively.
Work with your fulfillment partner. They study carrier rates and programs and can make recommendations tailored to your specific needs and requirements. Leverage their volume for discounted rates and programs not readily available to lower volume shippers. Together you can understand the advantages and disadvantages with trade-offs between cost, speed of delivery, traceability and image/customer perception.
Geography can be used to your advantage. If a high proportion of orders are shipped to one market area, then ship from there. With a national mix, your fulfillment partner can help you analyze it and provide optimum solutions.
Put your products on a New Year’s Diet and trim the fat out of your packaging!
Marketers understand that weight is a key driver in shipping costs. So what in your product, packaging and packing materials adds to weight? On-going innovations in materials lead to lighter and stronger packaging options. Shave off several ounces, putting your shipping unit into a lower weight, i.e. price bucket. Product redesign may be difficult in the short term, but packaging and packing materials offer fairly quick and inexpensive ways to gain savings.
Carriers can price packages by weight or by size, whichever benefits them. 2011 rate increases include a new (lower) divisor to calculate dimensional weight, which benefits them, not shippers. Reduce both your product and package size when possible. Otherwise, you may find that your 20 lb. package is billed at the 30 lb. rate. Ouch!
Consider separate packages for consumer direct and retail.
With consumer direct it is critical to get your package weight and size correct. For retail, packaging has an additional objective. And packing material can be very different for each channel. Tangible outcomes of weight and packaging optimization not only include lower shipping costs to the consumer and retailer, but also reduce your inbound transportation and storage costs.
Rate increases are here to stay. Plan ahead, analyze your business and take action wherever possible.
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