The Shipping Challenge: Solutions to Reduce Costs & Improve Efficiency

Shipping is a BIG part of the ecommerce experience. 47% of merchants say they spend more than 10% of an order’s total value on shipping alone. Expensive right? Fast and reliable shipping is now table stakes for online sellers. If shipping is too slow, 22% of online shoppers drop out.  

Unfortunately, many brands are forced to make a choice: ‘Do we dig deep into our margin to provide same day/next day shipping? Or do we miss out on conversions because we skimped on our delivery offering?  

Both options are.... not ideal.  

But don’t get discouraged just yet. Plenty of brands are finding clever ways to offer the speed of shipping customers have come to expect, while maintaining healthy margins.  

Let’s talk about the true impact of lack-luster shipping, what may be causing your shipping woes, and strategies to reduce costs and improve efficiency.

The TRUE Cost of Slow Shipping  

If we look at the top three carriers, depending on the weight and size of your product, and how quickly you want it delivered, prices can range anywhere from $10 to $150 per package. And using services like Amazon FBA (Fulfillment by Amazon) or SFP (Seller Fulfilled Prime) isn’t always the most cost-effective alternative. Prices have seen a 4.8% increase just this year.  

To counteract the rising cost of fulfillment services, some brands resort to charging a hefty shipping and handling fee when a customer goes to checkout which.... doesn’t always come off well. When a customer is surprised by a high cost added to the last step of their purchase, it results in consequences like:

• Cart Abandonment: Many customers may add items to their carts, only to abandon them at checkout when they see the cost of shipping.
• Customer Dissatisfaction: Customers get frustrated if they think shipping costs are too high or unfair which can lead to negative reviews, reduced customer loyalty, and a damaged brand reputation.
• Value of Products: If the shipping costs seem too high compared to the price of the item they are buying, then customers may feel that they are not getting fair value for their money.

Ecommerce sellers often underestimate all the additional costs that come with providing a fast delivery promise. Like a new homeowner who forgets to work utilities into their budget, many sellers are left saying ‘wait where did all my margin go?’ We have seen brands tip from profitable to unprofitable because they do not fully account for things like:

• Shipping Zones: Carriers divide regions into shipping zones based on proximity to distribution centers. Shipping to zones farther away from the origin point often incurs higher costs.
• Shipping Carrier and Service Provider: Different shipping carriers and service providers have varying pricing structures. Negotiating rates and choosing the most cost-effective carrier for specific shipments can impact overall shipping expenses.
• Shipping Insurance: Offering shipping insurance to protect against loss or damage can add to the overall shipping expenses. The value of the insurance coverage correlates with the cost of the premium.
• Delivery Confirmation and Tracking: Providing tracking and delivery confirmation services may come with additional fees. These services contribute to the overall customer experience but add to the shipping costs.
• Peak Seasons and Demand: During peak seasons or times of high demand, carriers may increase prices due to capacity constraints. Ecommerce businesses may experience higher shipping costs during holidays or special promotions.
• Storage fees: Using a warehouse or fulfillment center to store product inventory creates additional costs to your delivery process. The specifics of this cost depends on the fulfillment provider, the amount of space occupied, and the duration of storage.

With Ecommerce Shipping; Efficiency = $$$

Many sellers feel as though the cards are stacked against them when it comes to shipping but, creating a cost-effective shipping strategy isn’t an impossible task. Here are a few ideas you can use to improve efficiency while maintaining brand value.  

• Flat Rate: Offer flat rate shipping options for standard-sized packages. This simplifies the pricing structure for customers and can be cost-effective for the business, especially if your products vary in size and weight.
• Negotiate Rates: Negotiate shipping rates with carriers based on your shipping volume. High-volume shippers can often secure discounted rates with major carriers, reducing overall shipping expenses.
• Rate Calculators: Implement real-time shipping rate calculators on your website that provide customers with accurate shipping costs based on the weight, dimensions, and destination of their orders. This ensures transparency and prevents surprises at checkout.
• Free Thresholds: Offer free shipping for orders above a certain threshold. This encourages customers to increase their order value, helping to offset the cost of shipping.
• Shipping Software: Invest in multi-carrier shipping software that allows you to compare rates from different carriers and choose the most cost-effective option for each shipment.
• Carrier Aggregation: Use carrier aggregation platforms that consolidate shipping volumes from multiple businesses to negotiate better rates with carriers.
• Fulfillment Centers: Utilize multiple fulfillment centers strategically located in different regions to reduce shipping distances and costs. This can result in faster and more cost-effective deliveries.

Outside of cost, if customers are forced to pay a shipping and handling fee, they want to know that the price is worth it. That their items, even a few weeks later, will arrive working and in excellent condition. Here are some things to keep in mind:

• Hybrid Services: Explore hybrid shipping services that combine elements of different carriers and services. Hybrid solutions can offer a balance between cost and speed.
• Optimize Packaging: Use packaging that is appropriate for the size and weight of the products. Efficient packaging not only reduces material costs but can also impact shipping costs based on dimensional weight.
• Tracking Software: Integrate shipping software that connects with major carriers and automates shipping processes. This can include printing labels, generating tracking numbers, and managing return shipments.
• Collection: Offer a click-and-collect option for customers to pick up their orders from a nearby store or designated location. This can reduce shipping costs and delivery times.

These are factors that brands NEED to understand to stay ahead of the game as studies have shown that 55% of consumers would switch to a competitor for faster delivery service.

Finding Balance with a 3PL Partner

“Everyone wants a slice of your margin. And if you are not careful, at the end of the fulfillment process, you may be left with nothing. The key question brands must ask themselves is, 'How many ‘hands’ (import, warehousing, fulfillment services, carriers) are touching my product between manufacturing and my customer’s front door?' If you can find ways to reduce those touches while maintaining high standards, you will win.” - Jason Frerich, Spreetail VP, Transportation

How do you reduce touches? You could build out a fulfillment network in-house (an extremely cost and time intensive process) or find a 3PL (third-party logistics partner) that can manage all aspects of multi-channel ecommerce fulfillment under one roof.

3PLs can leverage their networks and expertise to streamline shipping processes. They can also negotiate rates with carriers, allowing them to handle storage, packing, and shipping on your behalf. Other key advantages include:

• Focus on Core Competencies: By outsourcing logistics operations, businesses can focus more on their core competencies, such as product development, marketing, and customer service.  
• Scalability: 3PL providers offer scalable solutions that can adapt to fluctuations in order volumes. Whether your business experiences seasonal spikes or rapid growth, a 3PL can adjust its services to meet changing demands.
• Resources: 3PL providers often have a network of warehouses, transportation options, and distribution centers. This network can provide businesses with more extensive reach and faster delivery times, especially for those looking to expand their market presence.
• Risk Management: 3PLs can help mitigate risks associated with logistics, such as inventory management, transportation disruptions, and regulatory compliance. They often have contingency plans and the ability to adapt to unforeseen challenges.

A 3PL partnership can be a strategic advantage in optimizing fulfillment and beyond especially when it comes to accelerators, like Spreetail, who work in every aspect of your business from marketing to reverse logistics to ensure your brand grows and your customers stay satisfied.  

Looking at the bigger picture, focus on what is achievable, at the time, for your ecommerce business. Perhaps it's utilizing economy shipping or investing in technology, either way the goal is to constantly enhance your processes to provide a better customer experience and win the shipping challenge.