Shippers publish rate increases with surprising precision every year. For the better part of a decade now, UPS and FedEx have increased their base shipping rates by 4.9% per year.
But in reality, shippers’ costs rise by significantly more than that. That’s because base rates only account for about 65% of spending on shipping. The other 35% comes from accessorial fees and surcharges.
These additional costs are tacked on to packages that — according to carriers, at least — cost more than expected to ship. That includes oversize charges for large packages, locational surcharges for residential deliveries or deliveries in extended areas, weekend delivery surcharges, address correction fees, and much more.
Shipping carriers also tack on a fuel surcharge, which changes in accordance with diesel and jet fuel prices.
Understanding the impact of surcharges on your shipping spend is critical for managing your company’s finances.
It’s also the first step toward saving money on shipping. Targeting specific accessorial charges during contract negotiation can lead to small tweaks that save big money. More broadly, this information may lead you to consider incorporating the surcharge-free U.S. Postal Service or another private third-party logistics provider into your strategy.
To plan for parcel surcharges, start by gathering information. Then start making changes.
Understand Your Data
The first step toward predicting your shipping costs is understanding and predicting your shipments themselves.
Supply chain managers should know, for instance, the size and weight of each standard package their company ships. That way, when carriers target large packages for surcharges — often by reducing the dimensions of the packages they consider “large,” so smaller and smaller parcels apply — you can quickly get a sense of which of your core products will be affected. The same applies to weight.
Then, using weight and dimension measurements, you should be able to quickly understand which parcels will be priced according to dimensional weight and which will be based on actual weight. Dimensional weight pricing targets large but lightweight packages for cost increases by calculating price from box size rather than weight. While not a surcharge, DIM weight pricing is a way for carriers to charge more than shippers expect. And every few years, carriers reduce the dimensional divisor they use to calculate DIM weight, which means DIM pricing affects more and more parcels.
Next, make sure you understand where each shipment goes and when it arrives. Many carriers now charge residential delivery surcharges, and most charge for deliveries outside certain ZIP codes. Some charge for weekend delivery. Changes to your marketing strategy, such as pushing customers to check out by a certain time of day, or to your shipping mix, such as integrating the U.S. Postal Service, could help you avoid some of those accessorial fees.
Finally, remember that fuel surcharges are nearly universal and are updated frequently. This line item can spike suddenly if oil prices change, so watch it closely, and consider budgeting more than you need for this expense.
The more you know about your shipments themselves, the more quickly you can get a sense of how surcharges — especially changes to surcharges — will impact your spending. You can also determine whether small changes to your standard packaging could reduce your shipping spend.
Audit Your Invoices
Once you understand your shipping profile, turn to the concrete evidence about how much you’ve spent on surcharges recently: The invoices your logistics provider sends. These data-rich documents include package-level information about pricing, as well as details about where each delivery went and whether it encountered any problems. By harnessing the power of that data, you can get a clear picture of how much parcel surcharges impact you.
Invoice audits are particularly useful for identifying spending that feels disproportionate. If one type of package is surprisingly expensive, explore modifications to that packaging or your pricing. And if one surcharge is eating up too much of your budget, consider making it a target in your next contract negotiation.
Renegotiate Your Contracts
Once you know how much you’re spending, you can negotiate lower rates on surcharges.
Many shippers think that they can’t negotiate with shipping carriers. But you can — and you should. While carriers may not be willing to budge on base rates, they may be open to reducing a certain surcharge or making a modification that excludes your most popular product from a certain type of fee.
Entering negotiations with a specific ask is key. The person on the other side of the table doesn’t know your products or your needs as well as you do. They may not even know that they can ask for what you’ve thought of. But when you make a narrow request, negotiators can quickly calculate the impact that the requested change would have on their profits, ask their superiors for permission, and say yes or no.
Use Reveel’s Shipping Intelligence to Optimize Your Parcel Spending
Reveel’s team of expert consultants includes former pricing executives from the world’s leading shipping carriers. We’ve been on the carrier side of the negotiating table, and we chose to take shippers’ side instead.
Now, we help our clients review their shipment data in great detail. We offer software and invoice auditing, namely a 45-point parcel audit on each of your shipments. We can also help you prepare for negotiations by identifying which surcharges to target and what prices to ask for. Contact Reveel today for a free invoice audit to see how much we can help you save.
