Overview of Shipping Cost
In the era of eCommerce, where customers are getting used to the convenience of having things delivered to their doorstep, most businesses are shifting to a hybrid model. As these traditional businesses modify their operations to suit the new era, Shipping Cost becomes an essential point of discussion. Just like Jerry was smart enough to not fall into any of Tom’s traps, you as an e-commerce business have to be aware of the shipping cost, or it can eat you.
With the growth of technology, the logistics supply chain is far from simple. Logistics and courier companies have created a transport network that uses the perfect blend of technology and data to give you an optimised solution. Since you are not in the transport business, you are more likely to outsource the logistics part of your business to these companies unless you are Jeff Bezos.
Now we have established the importance of Shipping costs, let’s take a deep dive into the topic and make sure you have the required information about the crucial topic.
1) What is Shipping Cost?
Technically speaking, Shipping Cost can be defined as the cost of moving the goods/products from the shelves in the warehouse to the customer’s doorstep. While it may seem like a generic term by definition, the shipping cost plays an integral role in defining the company's bottom line. The company can alter the shipping cost by implementing various measures that directly affect the price. While there are some upfront charges that everybody knows about, some hidden costs and expenses can significantly increase the cost.
A shipping cost has four major components -i) Packing cost
ii) Labour cost
iii) Charges by the courier company to pick up/ deliver the shipment
iv) Import/Export/Government fees
Apart from these four components, additional and hidden costs are added while calculating the final shipping cost of a shipment. These hidden costs can be kept to a minimum by limiting these charges in the SLA contract. Companies often ignore these costs as they are not displayed upfront and may later have to pay an inflated price for their negligence.
2) Factors that can affect your Shipping Cost
Now that we have an idea about what factors influence the shipping cost let’s look at some criteria and delivery requirements considered while calculating the shipping cost.
Shipping costs are mainly decided after considering the following requirements:
2.1) Delivery Time
The price of shipping a parcel or an order can depend on the time frame you want it to be delivered. Many courier companies like FedEx and DHL allow you to provide domestic shipments within 24 hours, but they levy a premium charge for their services.
2.2) Package dimensions
Most courier companies charge according to the dimensions of the package. As you do not have a say in the dimensions of your package, you can control the size of the package by choosing the appropriate packaging. Larger your package, the more it will cost you to ship the parcel.
2.3) Package Weight
If you are an e-commerce business, most courier companies and shipping aggregators will charge you per 500 gms or according to the weight of your package. Since the weight of the packaging becomes a crucial factor, the choice of packaging can have a significant impact on the shipping cost.
2.4) Delivery Location
The delivery location of the parcel and the distance from the point of pickup or origin is another factor that is considered while determining the shipping cost. Most courier companies have a standard rate set according to the distance travelled and the accessibility to the delivery location.
2.5) Value of the contents
Courier companies usually charge a higher amount for fragile or expensive items that need to be handled with care. They have to ensure special precautions for particular shipments. The shipment's insurance costs also increase drastically if the contents are of higher value.
2.6) Customs and Duties
Government fees and import/export taxes are the most uncertain factors affecting shipping costs. While shipping internationally, neither the customer nor the seller can be sure of the costs they will have to incur to import/export the items as the international trading policies keep changing according to the region's geopolitical climate.
3) Ways To Reduce Shipping Cost
Now that we have a better understanding of calculating the shipping cost, let’s look at some ways you can reduce the shipping cost.
3.1) Multiple Carrier Partners
Every courier company has a different pricing strategy that changes depending on the size and weight of the package. When negotiating with multiple carriers, you can figure out the cheapest possible option for your business. There are some cases where a courier is better at handling orders to a specific region or location. This allows you to keep your options open and get the best price across the board.
3.2) Reduce the weight and the dimension
Unless you are on a flat-rate shipping plan, the dimensions and weight of your essentially determine the shipping cost. To reduce the price, you can use lighter packaging and the correct size of the box. Weigh your package before you ship them to get an accurate estimate.
3.3) Use Carrier Packaging
Popular and standard courier partners like FedEx charge an additional fee if you use your branding on the boxes instead of using the boxes provided by them. Therefore, unless you need to push your branding on the packaging, using the packaging provided by the carriers can save you a significant amount.
3.4) Find Discounted Supplies
To support small businesses, many courier partners provide discounted supplies like bubble wraps, dunnage, etc., when you buy them in bulk. You can also score free packaging from carriers like UPS and FedEx, saving you a ton of money in supplies.
3.5) Pay Online
Shipping carriers are constantly providing exclusive discounts and free perks if you pay your bills online, saving them operational costs. You get an instant 16% discount on UPS priority shipping and free pickup if you pay online.
3.6) Pre-Paid Shipping
Pre-paid shipping is another payment method that can provide you access to exclusive and upfront discounts. To encourage customers to pay for their shipments upfront, carriers offer upto 20% discounts on prepaid orders.
3.7) Third-Party Insurance
Shipping insurance can make up a significant portion of your shipping cost, primarily if you frequently ship high-value items. Negotiating with a third party insurance deal rather than purchasing the insurance from the shipping company can significantly lower your shipping cost.
3.8) Maintain Accuracy in Billing
Shipping costs can come with a horde of other charges. If your customer pays the shipping cost upfront, make sure that you send a detailed estimate with all surcharges and additional costs that you may incur. This ensures that you do not pay any additional surcharges from your pocket.
3.9) Use Hybrid Services
Hybrid services combine shipping services from different carriers. They offer discounts on carrier services and will deliver the parcel to the nearest location. While they may offer cheaper services, you should consider that the delivery time with these hybrid services is usually longer.
3.10) Shipping Friendly Packaging
Shipping friendly packaging like Poly mailers is an excellent choice over boxes to save on shipping costs. The weight and the size of the package can be reduced significantly while using poly mailers to ship non-fragile items like clothes.
4) How to Calculate Shipping Costs?
While it is essential to understand the factors affecting the shipping cost and methods to minimise them, it is equally important to understand how to calculate an accurate estimate before shipping a parcel. You can manually figure out the cost of each factor/ component discussed above and add it up to find the total shipping cost. You can also calculate the shipping cost for a particular parcel using the shipping calculators available online.
Shipping calculators are online tools that allow you to estimate the shipping cost by asking for a few crucial inputs like dimensions, weight, delivery pin code, etc. from you. Some calculators online allow you to calculate and compare different carrier rates. At the same time, some popular carriers have a shipping calculator tool that can give more accurate information. Here are some popular shipping calculators that you can rely upon to get a precise estimate.
4.1) FedEx Shipping Rate Calculator
FedEx is one of the most popular carriers around the globe and is especially popular among e-commerce companies. The courier service is known for its next-day delivery service. The courier company has a shipping rate calculator for e-commerce shipments that allows you to get an accurate estimate to ship with one of the world's largest delivery fleets. The FedEx Shipping Calculator also displays the rate for using special services like priority shipping, overnight express, next-day delivery, etc.
4.2) UPS Shipping Rate Calculator
UPS is another popular carrier that ecommerce companies prefer. The carrier's website has its shipping rate calculator tool to check shipping and freight costs for domestic and international shipments. The Shipping Rate Calculator will enable you to calculate the delivery duration and estimated delivery date, which can be an essential metric to display on your checkout page.
4.3) USPS Shipping Cost Calculator
USPS, or United States Postal Services, is the official postal service of the United States. Business owners typically prefer to use the services of USPS when they need reliability in an affordable range. The USPS website has an inbuilt shipping cost calculator that asks for the zip codes for the origin and the destination, country, and type of goods. Since it is the postal service, it is bound to pick up packages from every part of the United States and has a pretty good reach, even to remote locations. Additionally, it provides shipping services to 190+ countries and allows transportation of all types of goods.
4.4) DHL Ecommerce Shipping Cost Calculator
DHL is a global service that provides shipping services across borders to individuals and e-commerce businesses. The DHL Shipping Cost calculator will estimate your shipping cost by asking for the origin and delivery pin codes. This cost calculator allows you to choose the packaging for your order. You can check the prices of special delivery services of the carrier by providing the dimensions of the software.
While these are some of the calculators from the carrier pages that allow you to calculate the shipping cost with the particular calculator, other shipping calculators on the market let you check and compare the shipping cost through a single window. These shipping calculators are usually provided by shipping software offering multi-carrier integration and other delivery management services. Some of the reliable shipping calculators include:
4.5) ShipRocket Shipping Calculator
ShipRocket is a shipping aggregator which provides delivery and shipping management services to ecommerce companies. With the shipping rate calculator on ShipRocket’s website, you can calculate domestic shipping costs with the help of delivery and pick up pin codes. You can also get an accurate shipping estimate for international shipments by mentioning the package's weight and dimensions. ShipRocket reviews show that the shipping aggregators' services are trusted in the Indian Market but have a limited number of carriers with typically suitable features for a lower order volume.
4.6) EasyShip Shipping Calculator
EasyShip is another shipping service provider that allows you to ship with multiple carriers through a single integration and provides pickup services in 28 countries, including most of Europe, America, and some parts of Asia and Africa. The software allows you to deliver to over 200 countries, and the shipping cost calculator of the software will enable you to estimate the shipping cost based on the actual cost model.
5) What are the hidden charges you should keep in mind?
As with any pricing model, some of the costs added to the final total of the shipping cost are not declared beforehand but are often later added as surcharges or additional charges. The best to avoid minimising them is to put a cap on these charges while discussing SLA terms with your carrier partners. You may have to leverage your order volume and projected growth to get a better deal on these charges. Here are some of the additional charges that shipping companies tend to include in their final bill:
5.1) Fuel Surcharges
Shipping companies add Fuel Surcharge to adjust their costs to cover any additional expenses incurred due to a change in the fuel prices. These charges are usually calculated by using a base charge that the logistics company decides, and you can leverage your order volume to minimise these charges.
5.2) Handling Fees
Shipping carriers often charge you an additional fee to pick and pack your shipment, as this cost is not usually covered in the shipping rate. It is better to negotiate this charge earlier, as it can significantly impact the final shipping cost.
5.3) Packaging Charges
The carrier levies these charges as it packs your orders so that your products/goods are not damaged in transit. Some carriers like Blue Dart offer weather-resistant packaging, which may come at an additional cost. It is better to negotiate these charges alongside the handling fees.
5.4) Labour Costs
Labour costs are usually incurred at the warehouse as manual labour is typically involved in loading, unloading, inventory assessment, packaging, etc. You can reduce these costs by implementing WMS systems or optimising your warehouse for efficiency to reduce labour costs.
5.5) Restocking Fees
In the case of a returned item, the item has to be verified and restocked in the inventory to be resold. If you use a third-party service for inventory and storage management, you will have to consider and negotiate a reasonable restocking fee with your third-party partner.
5.6) Shipping Insurance / Security
Shipping insurance and security for your orders may not be necessary for every e-commerce business, as every company has products of different values with special handling requirements. If you typically ship low-value products, it will be better to choose a shipping partner with free insurance services or discounted rates.
5.7) COD Handling
In traditional markets like India, COD is still the preferred method for most shoppers. Since the remittance of the cash collected can be a tedious process, most courier partners charge a fee for handling this payment method. You can negotiate the charges and terms of reconciliation as per the usual COD order volume that you get.
Shipping cost is an essential expense for an ecommerce business. Calculating shipping costs might help you estimate the average shipping cost for all your products so that you can charge the customer appropriately or get a rough figure that you will have to pay if you plan to provide free shipping on your platform.
To sum up, shipping cost is the sum of all costs incurred to move a product from the shelves in the warehouse to the customer’s doorstep. If you are an ecommerce business that is just starting, it is better to use the services of a 3PL partner to deliver your orders, as you can leverage a better deal according to the order volume that you may handle. Suppose you are looking to scale and add more partners and other delivery management services to your platform. In that case, it might be better to go with a fulfilment management software like ClickPost, as it will allow providing multiple services to your customers through a single integration.