How to Reduce Ecommerce Shipping Costs

Plans and ideas to decrease shipping cost appeal to most every ecommerce merchant. We recently spoke with John Haber, founder and CEO of Spend Management Pros , a shipping and logistics consulting company, about ways for merchants to reduce their shipping costs.

Practical eCommerce: How do merchants know if they’re overpaying for shipping?

John Haber:“One of the simplest ways to get a merchant to know whether he is overpaying for shipping is if he is losing sales. In the current environment, a great deal of times the choice on who to buy from can boil down to transport costs, and that is why free delivery is playing such a huge part within online retail. So losing sales is a good indicator that your customer may feel he’s overpaying for shipping and that you might as well be overpaying for shipping.

“Another way that you could identify that you are overpaying for transport, especially in the area of parcel transport, is if — when you look at your bills, possibly with the UPS or FedEx — you’re getting hit with fees on the backend after you bill a customer or following you manifest a bundle, you are probably overpaying for shipping. Things such as not minding a bundle correctly as a residential shipment rather than putting in the right measurements of a dispatch, result in charging fees that come after the fact and it is quite tricky to recoup these costs. So if you look at your bill and you see additional fees, then you are likely overpaying for transport.”

PEC: Additional fees, meaning merchants should not be paying extra charges?

Haber:“Additional charges can come in the shape of what we would call a’charging modification,’ particularly with carriers which bill on that which we call dimensional weight. Those are charges based on the dimensions of the bundle, instead of the true weight of a bundle. A whole lot of time we see that our clients are just putting in the real weights, and charging for real weights rather than dimensional weights — when you bill based on actual weight, the carrier does a billing adjustment and charges you a commission after the truth. The majority of our customers have already passed on that delivery cost and are unable to invoice this, or they have not identified that cost and they are overpaying in these areas. And so they do not set the price correctly on the front end when they are selling the merchandise.”

PEC: What are other errors that you — a shipping expert — see ecommerce merchants make in regards to shipping costs?

Haber:“There are three really good examples which come to mind when considering common mistakes that merchants make. The first one we see is that customers or merchants are using the incorrect [shipping] goods or maybe the wrong carriers. There are quite a few products which provide very good service levels at lower costs compared to conventional UPS or FedEx ground or air shipment. We call these hybrid products, and they’re partnered with the USPS to perform the so-called’last mile’ delivery. Again, plenty of times we see that just not looking at what is available is a frequent mistake.

“The second area is that we often find is that merchants are using the incorrect services within their specific carrier. A good example is that I am located here in Atlanta and I want to have a package to Chicago in 2 days. The majority of the general public, would say’Ok, I want it to be there in two days. I will ship two-day air.’ What they do not understand is that UPS and FedEx both ensure that a ground shipment from Atlanta to Chicago will arrive in 2 days or you get your money back. So you pay a premium for using an air product versus a floor product and you also pay a fuel surcharge cost, which is approximately 5 percent higher. So knowing how long it’s going to actually have a bundle to get there using a variety of services is an area where we see a great deal of mistakes being made.

“The next area that we see common mistakes made isn’t correctly auditing your invoices from carriers. A great deal of times carriers don’t bill correctly, and you will need to keep a real close eye on your invoices and be certain you’re being charged accurately and billed based on what you contractually agreed to, and if you are not paying close attention to this, then you are likely overpaying.”

PEC: How frequently does a billing error happen?

Haber:“Generally we see billing mistakes occur on each invoice. Our customers experience anywhere from 1 percent to 3 percent of the overall net spends as because of incorrect billing adjustments.”

PEC: How can a merchant choose the proper carrier? We’ve found the comparisons to be difficult because every carrier could have a particular instance where it is far better than another one. But no 1 carrier is always universally cheaper for each and every product. Thoughts?

Haber:“it’s quite hard, and the carriers — they all have different tariffs and rates constructions. For UPS and FedEx the floor tariff up is exactly the exact same for packages from 1 to 70 lbs. But anything over 70 pounds differs. And then once you move over to the air products, they have distinct grade structures entirely. They are completely dissimilar. And then once you proceed to other choices that we may explore; matters which are hybrid products with the U.S. Post Office or other carriers such as a Streamlite or a DHL Global Mail — they have different tariffs entirely. So it’s very tricky to do an apples-to-apples comparison.

“One of the things which you could do is invest to a manifesting system in which you’ve got a multi-carrier platform. It lets you input the delivery characteristics. What’s the origin zip code? What is the destination zip code? What’s the weight? What service do I want? And then as soon as you manifest that bundle, it is going to return exactly what the cost is with lots of different providers so you can make a determination based on the information that is returned from the manifesting system. That manifesting system in turn will create a shipping label for your carrier that you choose. So it is possible to automate the procedure.

“It costs money to invest in the manifesting system, but for smaller merchants, you can find reasonable vendors which make this cost pay off within a specific amount of time whereas if you are not making a kind of investment on the front end, you are probably overpaying over time. So it’s a smart investment one that we promote. It’s something which we help our clients with and we all know a good deal of vendors that provide that and it’s also a service which we help provide to our clients.”

PEC: Inform us about the company you founded, Spend Management Pros, and the services which it supplies.

Haber:“I have been in the logistics area for nearly 20 years. Like many logistic specialists or individuals with logistics expertise, I started off with UPS and did quite a lot of work for UPS within corporate finance and corporate plan and did lots of work together on comprehension, helping them understand the sustainability of the biggest clients, their national accounts, and portfolio sections. When I left UPS, I worked for another consulting firm and started up a supply chain consulting practice named NPI and was there for six decades. We built up a fairly large customer base and have branched off and formed a new company named Spend Management Pros .

“Our job is to give visibility to our customers concerning areas in which they’re overspending across their supply chain, especially with respect to freight costs. We work with a few hundred distinct clients and we have been very effective in helping businesses across all industries, whether it’s manufacturing or retail or banking and insurance or fulfillment. If you invest in cargo, we’ve been quite successful at helping mitigate a few of those costs and turning people into profits and putting money back in our customers’ pockets.”

PEC: You have described the hybrid versions that both UPS and FedEx offer. A good deal of merchants are not aware of these hybrid models, which combine private carriers — such as UPS — and the United States Postal Service to really do the delivery, often home delivery. Could you describe those to us?

Haber: “Yes. With business-to-consumer transport, unlike business-to-business shipping, in the parcel world there’s a good deal of competition and several merchants do not understand that they’ve a great deal of options available. You will find products provided by UPS, such as UPS Sure Post and UPS Mail Innovations. FedEx offers a product named FedEx Smart Post. There is a new national carrier named Streamlite. There’s a carrier named DHL Global Mail and you will find regional carriers that provide hybrid products where they do the pickup and they do the majority of the motion of the bundle and the USPS does the’last mile’ delivery.

“Many of the services provide full tracking and tracing capability, but they do this at a far lower cost than your conventional floor package products with UPS and FedEx. They may take 1 day longer to arrive at the end client. A good deal of them arrive at precisely the exact same time and what about using these products is that you are able to remove some of the very costly surcharges related to regular ground shipments, such as delivery area surcharges and residential surcharges. Sometimes these costs can add up to nearly half of the cargo costs on an individual shipment. So in case you’re able to eliminate just the these extra charges on these shipments, you can eliminate up to 50 percent of your cargo costs on that specific shipment.”

PEC: Can a smaller merchant — a merchant that is sending a half dozen packages a day — use these services?

Haber:“Yes, they could absolutely use the services. The thing about these services is that they aren’t sold proactively. You need to request them. And that means you need to request your UPS account representative or whomever you are shipping with, whether these sorts of services are available. They would rather you use the bread and butter since the profit margins for them, internally, are better. But simply ask them if they are available — they will tell you that they are available and they’ll establish a program in which you may use these services.”

PEC: How would they ask that question? What exactly would they request?

Haber:“They’d ask if there are shipping services which are reduced cost, that still offer good service levels. Another way to position it’s that you have heard of goods where the U.S. Post Office makes last mile delivery but the pickup is produced by a UPS or a FedEx or these other carriers. Just asking if there are hybrid products where your carrier picks up the package but the delivery is made by the U.S. Post Office. Your carrier will know just what you’re asking them about.”