This year’s holiday shopping and shipping season has been like no other, with the pandemic still causing supply chain issues and manufacturing delays. There have been port closures, an even greater use of e-commerce, a shipping industry capacity crunch, and a labor shortage that continues to impact companies of all kinds, including carriers like FedEx and UPS. These intertwined issues have combined to create a whole batch of new problems for businesses whose success depends on getting goods to consumers in a timely manner – especially during this time of year.
Because the carriers have been operating at full capacity, they haven’t needed to compete for business; there’s more than enough of it to go around. Since the beginning of the pandemic, consumers have massively increased their online shopping. Despite signs that people are going back to physical stores, the numbers for online spending have not seemed to dip all that much. This has put carriers – especially the big two (FedEx and UPS) in an unprecedented position of power. They can dictate terms, and if a shipper doesn’t like them, can just decline their business. This has empowered them to raise rates, especially for peak time frame shipping like the holiday season.
On top of this, consumers still demand instant satisfaction – i.e., getting their goods shipped and delivered ASAP, regardless of whether they actually need it right away or not. The ‘Amazon Effect’ is here to stay. Because of the combination of increased rates plus consumer expectations, many retailers have found themselves either having to pass along the cost increases, change shipping timelines, or eat the costs in the name of not losing business.
Obviously, this is not an ideal situation for retailers or consumers, but it is the reality everyone has to deal with. The question then becomes, what can be done about the situation? What are some ways that shippers should have prepared – and what are some lessons they can carry forth into preparations for next year’s peak season?
Lesson: It’s Never Too Late to Negotiate
Even though it’s true that the carriers do have the upper hand right now when it comes to negotiations, they are still willing to play ball. Just remember that they’re coming to the negotiation from a position of power, as they feel they can easily replace the revenue from your company. That doesn’t mean they want to, or that it wouldn’t cost them more to do so, so don’t feel that you have to give up and accept whatever they offer.
Lesson: Follow the Money
One of the key ways to manage your shipping expenses and mitigate price increases is to understand and focus on the areas where you spend the most money. It sounds obvious, but for many this is a lesson that needs to be learned. Take the time to truly understand what it costs you (and your customers) to ship a package. How much are you spending on shipping for each sale made?
The most common areas where money is wasted is in overpaying for services you don’t need, or not paying attention to specifics such as dimensional weight, zones, specific country expenses, or weight breaks. There may be timing, size and weight adjustments that can change your shipping category and save you money.
For example, with the recent changes in shipping rates and surcharges, it may have become too expensive for your goods to travel a great distance. You may need to think about establishing or working with a distribution center to cut the distance down to a more manageable (and cost-friendly) expense.
Weight is another factor worth spending some time on as it directly affects your expenses. If your current package size is now costing too much, are there adjustments that can be made? There are many ways to increase the efficiency of your packaging and boxing, while lowering the weight. Once you do that, you may even be able to re-negotiate rates with your carrier based on the size of packages now being sent.
In addition, reviewing what is shipped ground vs. express or international could highlight some areas of inefficiency and overpaying that could easily be adjusted. Not every package needs to be shipped express; and if they do, most likely an afternoon vs a morning guarantee is acceptable. Many customers will agree if you take the time to educate them about it.
Lesson: Understand the Minimum Charge
The minimum charge is the lowest rate a carrier will charge for a shipment; basically a price floor. Many shippers understand that, but they have little visibility into how often they’re hitting that minimum charge and how much savings is being lost. What percentage of their overall shipping is at the minimum? What products fit the profile that are subjected to minimum rates? Are the shipments too light or in specific zones? Can you incent customers to purchase more and move out of the minimum and into a rate that’s fully discounted?
This understanding is needed to negotiate properly. Increased discounts or rate cuts may not help your overall expenses if a majority of your shipping is at the minimum, and not impacted by increased discounts. Another issue with the minimum charge is that the discounted rate you successfully negotiated may simply drop your shipments to the minimum rate, and you’ll never see the full discount you expected.
These are common mistakes, where shippers feel they’ll get a better deal by negotiating a higher discount in the face of rate increases or seasonal peaks – but are unaware that the discount will have little to no effect. If this is the case for your business, then it is clear that deeper discounts aren’t where to focus negotiations. You’ll need to look for other discounts that will have an actual effect on the bottom line.
Lesson: Understand the Surcharges After the Charges
Many companies make the mistake of only factoring in the transportation charge and what was negotiated. All the carriers, especially now that they’re running at capacity, add on surcharges depending on what time of year it is (peak holiday season is one example) and how much “trouble” it is to ship your packages. These are, in essence, hidden price increases, especially if the charges never expire. Be sure to keep tabs on what these are and what they do to the cost per package; understanding the surcharges you’re subject to will enable you to challenge unexpected costs, and to have better information as you renegotiate.
Lesson: Offer Shoppers Choices
As mentioned earlier, not every shipment has to be express. Customers have come to expect it because of the ‘Amazon Effect,’ but they may not really need it. Research how much lower your expenses would be if certain packages were shipped slower, in more traditional timeframes. Incentivize customers to select slower shipping. It could be less expensive, or come with a discount, but if it will make an impact on your bottom line – and keep customers happy – then it’s worth establishing some options.
The last couple of holiday seasons have truly been game-changers for the entire industry. That said, in order to ensure you maintain the great service your customers have come to expect from you, it pays to be proactive about your shipping strategies for next year. It’s never too early to start preparing for the holidays.
About the Author
Josh Dunham co-founded Reveel in 2006, and is responsible for creating and advancing the corporate strategy and vision of the business. He directly oversees the technology and operations departments. Under his guidance, Reveel successfully acquired a technology partner and is now the industry leader in machine learning technology. Prior to co-founding Reveel, Josh served in several sales roles at DHL. He quickly became a top producer and remained in the top 1% of nationwide sales throughout his tenure. Josh has a Bachelor of Science in International Business from Pepperdine University. Josh serves on the board of Entrepreneurs Organization (EO) and will serve as the Orange County President next fiscal year. Josh finds passion in building. Whether it’s Reveels’ technology products, company culture, high performing teams, strategy, vision, or a motorcycle or truck, he loves creating things and making them great.