Accurately calculating shipping costs is one of the biggest challenges small and medium-sized businesses face. Whether it’s surcharges, seasonal rate changes, or other fees, sometimes shipping costs are unpredictable.
Additionally, keeping costs low is a great strategy for customer retention, especially for e-commerce. Recent data from Attest show that delivery costs become off-putting for customers starting at just $5.13 per package. Here are some of the best strategies for accurately calculating shipping costs and keeping those costs low in the first place.
How do you calculate shipping costs?
Each carrier calculates shipping costs slightly differently, but all carriers consider the dimensions and weight of each parcel and the distance from the origin to the destination. It’s also important to keep tariffs in mind, particularly if you’re shipping internationally.
Dimensions and Weight
Each package’s size and weight are major factors in the shipping cost. Carriers typically use a dimensional weight, called dim weight, to determine pricing and surcharges. Dim is a volumetric measure that measures a parcel’s weight, height, and width. Many of the carriers use a similar formula to calculate dim weight. For example, UPS and FedEx use this formula: Length x Width x Height / 139.
Distance from the origin to the destination
If you ship long distances with your business, you’ll quickly become acquainted with shipping zones. Shipping zones are how carriers charge for the distance packages travel with Zone 1 being the closest to the origin zip code through Zone 8 being the furthest distance from the origin zip code. For example, if you’re shipping from Boston, MA to California, your package will be charged for shipping across eight zones. This will incur higher costs when compared to shipping to New York City which would be considered Zone 1 shipping.
Below is how shipping zones for UPS, USPS, and FedEx are broken down:
Tools for shippers
Each carrier charges different base rates and adds different surcharges depending on the specific package and time of year. The most important tool is the shipping cost calculators provided by each carrier. These calculators will most often require the shipper to enter the origin and destination zip codes, as well as the package dimensions and weight and will provide the specific cost for the shipment. These calculators can be found on each carrier’s website (you can see FedEx’s calculator here and UPS’ calculator here).
How can I make shipping costs cheaper?
There are several strategies for lowering shipping costs. Below are five of the top ways to reduce your shipping costs:
- ‘Right size’ your packages
- Use flat-rate shipping
- Be educated about changes
- Know your carrier agreement or investigate getting one
- Expand your distribution network
Let’s talk about these strategies in more depth.
First, ‘right sizing’ your packages. This means reducing the weight or dimensions of your packages to reduce the shipping costs. This can mean finding different types of packages that fit your products with less empty space. Additionally, changing your packaging materials can help reduce shipping costs. Finding packaging or filler material that is lower cost or lighter weight can help reduce the overall costs per package. These are great options for businesses that ship less fragile or compactable items.
Second, use flat rate shipping when possible. USPS, UPS, and FedEx (and some regional carriers) offer flat rates for certain types of shipments and boxes. This strategy is great because it is extremely simple and makes shipping costs very predictable. Check out each carrier’s flat rate options at the following links: USPS flat rate supplies, UPS’s Simple Rate, and FedEx’s OneRate.
Third, keep your eye on carrier news. Carriers will often announce rate changes, surcharges, and peak season costs several months before they go into effect. Being aware of these changes beforehand will help you adjust before you spend too much. Carrier news like this will often be covered by news organizations such as SupplyChainDive and Inbound Logistics.
Fourth, know your carrier agreements. If you’re unfamiliar, carrier agreements are written agreements between customers and carriers that outline terms and conditions, services, and fees provided by each party. Often, these agreements are made with businesses with specific shipping volumes in exchange for lower shipping rates from the carrier. If you have a carrier agreement, knowing the ins and outs of your business’ agreement is vital to getting the most benefit from these contracts. Unfortunately, these agreements can be complex and difficult, so it’s important to look at them carefully to make sure you know what you’re getting (want to learn more about carrier agreements? Check out this episode of the Tee Up: Logistics Insights podcast).
Fifth, shipping across multiple zones is one of the largest costs of shipping. If possible, expanding your distribution network is one of the more effective ways to reduce shipping costs. For example, if your manufacturer is based in Pennsylvania but most of your customers are on the west coast it may be a great opportunity to expand your distribution network with a west coast location to operate with lower costs. Two ways to do this are to partner with an existing warehouse network or to build and operate your own. Check out this blog for more information about which route to take!
Whether you’re trying to figure out how to calculate shipping costs or looking to reduce your shipping costs, the ShipCaddie TWMS platform can help. Requesting a demo is a great way to see the full capabilities of the software. If you would like to set up a free, no-commitment demo, reach out here!