Many costs associated with shipping products are outside of our control, but there are creative solutions that can help control parcel rates. Small parcel rates have continued to increase year-over-year as ecommerce becomes the preferred shopping method for many people. With a higher demand for fulfillment services, the price of shipping products will increase as well. The cost of shipping is determined by three factors:
- The distance of the shipping origin to the shipping destination.
- The size and weight of the package.
- The shipping service you use.
There are a few creative logistics strategies you can implement to reduce shipping costs.
Zone Skipping
The cost to ship a product anywhere in the U.S. is determined by its shipping zone, which is the distance between the origin and the shipping destination. Longer distances require more mileage, fuel, and labor, which results in higher small parcel rates. Zone skipping is when you ship the bulk of products via full truckload (FTL) to a fulfillment center closer to the shipping destination and complete the last mile journey at a cheaper rate. This strategy is great when you have a high density of orders in a heavily populated area. Finding a fulfillment center located centrally to your largest customer base will ensure the most savings.
Let’s say 1000 packages weighing 5 lbs are shipping via FedEx 2-Day from California to multiple locations in Michigan. In this scenario, Michigan would be Zone 8 and the cost would be $72.83 per package according to FedEx’s shipping rates for 2024. However, if you were to ship these packages FTL to Evans’ fulfillment center first, then the rate will be $26.76 per package since the shipping destination is in Zone 2. This reduces your package cost by $46.07 and a total cost savings of thousands of dollars even after factoring in the FTL shipment cost.
Package Optimization
The lighter and smaller your package, the better. Ounces have a big impact on price when you are shipping thousands of packages a month. Rates are rounded up to the highest pound, so if your package is 3.5 lbs., you are paying the 4 lb. rate for shipping. In this example, reducing the weight by 1 oz can save thousands in shipping costs. The best way to reduce the weight and size of your shipments is by using smaller packaging or lighter dunnage.
Package rates are calculated by actual weight or dimensional weight (whichever is larger). Dimensional weight is the amount of space a package occupies in relation to its weight. You can calculate dimensional weight by multiplying all dimensions and then dividing by the dim divisor. The dim divisor varies across companies and can be negotiated in your carrier contracts.
Dunnage is the material packaged with the product to prevent damage during transport such as paper, packing peanuts, etc. Some dunnage may not seem like it’s adding a lot of weight, but it may take up too much space which requires a larger box. Optimizing your packages will reduce dimensional weight thus ensuring the best possible savings.
Pick the Right Service
There is no one-size-fits-all solution when it comes to small parcel rates. FedEx, UPS, and USPS, have different products and services that are optimal in different solutions. It’s important to understand what is important to your customers while researching the best parcel options. Do your customers want their orders as fast as possible, or do they care more about free shipping? Is the service provider able to deliver to your entire customer base? What tracking information are they able to provide? Working with a 3PL will help you pick the best service for your business and advise on bulk shipment solutions. In addition, you can receive discounted rates based on the 3PL’s high shipment volume across many fulfillment customers.
Evans Distribution Systems is a full-service fulfillment provider that can help you meet customer demand. Contact us at sales@evansdist.com or call 1-800-OK-EVANS to speak to an expert today.