Businesses that ship a lot of packages via small-package shippers and less-than-truckload (LTL) carriers, such as retailers and manufacturers, often aren’t getting the best rates despite receiving what look like deep discounts from their carriers.
“Shipping companies discount everything on an invoice,” says Marc Schwalb, Strategic-Partner at Schooley Mitchell. “When a shipping representative presents a company with a pricing structure, it often initially looks good as there are multiple discounts. But the discounts, along with the savings generated by careful monitoring of an account, could be much greater.”
Smart Business spoke with Schwalb about the ways companies can increase their savings on shipping costs.
What do companies overlook in their shipping?
Generally speaking, companies receive greater discounts the more they ship with a single carrier. However, many companies miss out on these most basic discounts because their shipping department doesn’t have a great strategy. For instance, some shipping departments are splitting their shipping among multiple carriers. The result is that they don’t qualify for larger volume discounts from any one shipper.
Another issue is that there are several different shipping programs to choose from, some of which will be better for your business than others. As an example, a company could be shipping a high number of low-weight packages and losing out on discount opportunities due to minimum net package rates.
Many discounts are found by paying close attention to the details. For instance, retailers could face significant residential surcharges that could be cut in half if negotiated with their shipping partner. Similarly, there’s a major difference in the cost between requiring a signature when a package is delivered and choosing to have the package delivered without a signature. Oddly shaped packages could lead to higher prices. Minimizing the package cost requires a careful comparison of potential additional handling charges against the dimensional weight consideration of enclosing that odd shape in a larger, rectangular box.
How can companies lower their shipping costs?
Part of getting lower shipping costs is consistently monitoring accounts on a weekly basis. Weekly is important because shippers provide only a small window for a refund claim. For instance, if a package is delivered late, the sender can get a refund, but only if it’s submitted within a week to 15 days, otherwise the company will have missed its window.
It’s also important to monitor shipping weekly because companies can get address correction charges. By having a monitoring and review system in place, companies can fix errors and reduce their shipping costs.
What should a review process look like?
Setting up an effective review process requires expertise. That could mean hiring someone who has shipping experience, where they can use that knowledge to better negotiate rates and avoid additional fees. A company could also compare shipping prices with peers in their industry to learn where opportunities for savings exist.
Because this review process takes time and dedicated manpower, a lot of middle-market companies can’t deploy these strategies. Therefore, hiring a cost reduction consultant could help.
Cost reduction consultants are third-party experts who can review a company’s shipping costs to determine if and where overspending is happening. In most cases, there are charges and rate differences that are being missed that could lead to significant savings, even in cases in which the company feels as if they’re getting meaningful discounts.
Companies that are facing headwinds often look to improve margins by doing more marketing or boosting sales. Expense reduction can also be a strategy to bring profits back to a business. Just weighing and paying — not looking in depth at their charges and instead just paying — means missing a cost-saving opportunity. Shipping needs to be managed and monitored. Businesses should train their staff on how to be cost effective with each carrier and have a process in place to get claims accepted and refunds back to the business. Otherwise, it’s as if companies are sending money out the door along with their packages. ●
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