How to Reduce Ecommerce Shipping Costs

March 14, 2012 · by John Haber

Spend Management ExpertsStrategies and ideas to reduce shipping expense appeal to most every ecommerce merchant. We recently spoke with John Haber, founder and CEO of Spend Management Experts, a shipping and logistics consulting firm, about ways for merchants to reduce their shipping costs.

PEC: How can merchants know if they are overpaying for shipping?
John Haber:
“One of the easiest ways for a merchant to know if he’s overpaying for shipping is if he’s losing sales. In today’s environment, a lot of times the decision on who to purchase from can boil down to shipping costs, and that’s why free shipping is playing such a big role within online retail. So losing sales is a good indicator that your customer may feel that he’s overpaying for shipping and that you may as well be overpaying for shipping.

“Another way that you can identify that you’re overpaying for shipping, especially in the world of parcel shipping, is if — when you look at your invoices, perhaps with the UPS or FedEx — you are getting hit with charges on the back-end after you invoice a customer or after you manifest a package, you’re likely overpaying for shipping. Things such as not manifesting a package correctly as a residential shipment and not putting in the correct dimensions of a shipment, result in billing charges that come after the fact and it’s very difficult to recoup those costs. So if you look at your invoice and you see additional charges, then you’re likely overpaying for shipping.”

PEC: Additional charges, meaning merchants shouldn’t be paying additional charges?
“Additional charges can come in the form of what we would call a ‘billing adjustment,’ especially with carriers that bill on what we call dimensional weight. Those are charges based on the dimensions of the package, rather than the actual weight of a package. A lot of time we see that our customers are simply putting in the actual weights, and charging for actual weights and not dimensional weights — when you charge based on actual weight, the carrier does a billing adjustment and charges you a fee after the fact. Most of our clients have already either passed on that shipping cost and are not able to invoice it, or they haven’t identified that cost and they’re overpaying in those areas. And so they don’t set the price correctly on the front end when they’re selling the goods.”

PEC: What are other mistakes that you — a shipping expert — see ecommerce merchants make when it comes to shipping costs?
“There are three really good examples that come to mind when thinking about common mistakes that merchants make. The first one we see is that customers or merchants are using the wrong [shipping] products or perhaps the wrong carriers. There are a number of products that provide very good service levels at lower costs than the traditional UPS or FedEx ground or air shipment. We call these hybrid products, and they are partnered with the USPS to do the so-called ‘last mile’ delivery. Again, a lot of times we see that just not looking at what’s available is a common mistake.

“The second area is that we often find is that merchants are using the wrong services within their particular carrier. A good example is that I’m based here in Atlanta and I need to get a package to Chicago in two days. Most of the general public, would say ‘Ok, I need it to be there in two days. I’m going to ship two-day air.’ What they don’t know is that UPS and FedEx both guarantee that a ground shipment from Atlanta to Chicago will arrive in two days or you get your money back. So you pay a premium for using an air product versus a ground product and you also pay a fuel surcharge cost, which is approximately 5 percent higher. So understanding how long it’s going to really take a package to get there utilizing various services is an area where we see a lot of mistakes being made.

“The third area that we see common mistakes made is not properly auditing your invoices from carriers. A lot of times carriers do not bill accurately, and you need to keep a real close eye on your bills and make sure that you’re being billed accurately and charged according to what you contractually agreed to, and if you’re not paying close attention to that, then you’re likely overpaying.”

PEC: How often does a billing error occur?
“Generally we see billing errors occur on every invoice. Our clients experience anywhere from 1 percent to 3 percent of their overall net spends as due to incorrect billing adjustments.”

PEC: How does a merchant select the proper carrier? We have found the comparisons to be difficult because each carrier may have a specific instance where it is better than the other one. But no one carrier is necessarily universally cheaper for every single product. Thoughts?
“It is very difficult, and the carriers …read full article