Five Tips for Saving Money on Shipping
Shipping merchandise can be one of the most complicated operations for any small business. Poor or no planning can result in owners overpaying, as well as losing sales if the company can't provide consistent and cost-effective delivery to customers.
For businesses that don't often send larger shipments of several pallets at a time or can't afford to hire a logistics provider to manage its shipping services, developing a set of guidelines can be essential.
"Effectively managing shipping costs directly affects a small business's bottom line," says Don Anderson, vice president of transportation services at Tompkins Associates, a Raleigh, N.C.-based supply chain and distribution operations consulting firm that works with large and small businesses. "Every dollar saved in transportation translates to an equal improvement in financial performance."
Here's a look at several factors business owners should consider ahead of time before shipping their products to customers:
Match delivery requirements and fees for common shipments.
Once you've chosen a shipping service provider -- such as UPS, FedEx, DHL or the U.S. Postal Service -- work with its small-business specialist to match the carrier's fees and services with common shipping requirements for your business, such as mode of transportation and delivery timing. According to Tompkins Associates, businesses that don't work with their carrier to map out shipping criteria can spend as much 40 percent or more in fees than those that do, Anderson says.
One factor to discuss with a specialist is when to ship a package by air or by ground. "How much can be saved by using ground services versus air services can depend on distance shipped, the weight and size of the package and its value," says Anthony Pagano, director of the Center for Supply Chain Management and Logistics at the University of Illinois at Chicago. "Look at the carrier's tariff schedule and compare prices."
Pagano also recommends that business owners institute rules so that their staffs know when to ship orders, and avoid paying higher "express delivery" fees. "If you need to ship at the last minute, air might be the only alternative, but at an increased cost," he says.
Establish transportation cost charge-back policies.
Let customers know when they will pay for shipping and when your business will, Anderson advises. "For example, three-day parcel service may be the standard level of service that's paid for by the company, and any premium services -- such as overnight air or two-day parcel -- are paid for in part or entirely by the customer," he says.
Once these policies are set, inform your sales and customer services staffs, as they generally deal directly with customers, Anderson says.
Use a postage meter.
A postage meter is a portable machine equipped with a scale that weighs packages, assesses exact postage charges and prints shipping labels. Systems like these can help eliminate the need for mailers to guess the weight of a package and purchase additional postage "just to be safe."
"Using a postage meter can eliminate over-postage and is much easier than going [directly to your shipping carrier] and waiting in line," Pagano says. Postage meter provider Pitney Bowes contends that postage meters can save small-business owners as much as 20 percent annually on postage.
Leasing a postage meter can be affordable, Pagano says, with monthly fees starting at about $20.
Know when to consolidate.
When sending shipments weighing between 150 pounds and about 20,000 pounds (usually referred to as "less than truckload" shipments, or LTL) consider working with a freight consolidation service, which will combine yours with other shipments to create a full truckload.
"Less than truckload or container load rates are usually much higher than full truckload or container load rates," Pagano says. "LTL shipments have to go to a truck terminal to be consolidated [by the carrier] into a full truckload for shipment. If the small business has a full truckload shipment, then the carrier can pull up to the company’s terminal and load the truck and go, saving time."
Track carrier performance.
One way is to have your carrier keep a "scorecard," which usually tracks service and cost. Service factors can include pickup, delivery, response to customer service inquiries by shipper, access to online status data, accuracy of that data, meeting pickup or delivery appointment times and meeting agreed-upon in-transit times (from time of pick up to time of delivery), Anderson says.
Cost factors usually include baseline by weight or distance, cost by service level (premium overnight or expedited, standard service, for example), non-essential fees such as special handling or meeting time-specific delivery times.
Work with your carrier to identify and resolve lapses or failures in service or cost performance. Anderson also recommends soliciting input from your customers.
Related: Shipping 101
"It’s critical that shippers not rely solely on carrier data [since the data comes directly from the carrier]," he says. "Another option is to poll your customers or vendors who are receiving your shipments."
In other words, good shipping practices should result in lower fees -- and happy customers.