The ongoing boom in eCommerce has driven a shortage of industrial real estate, exacerbated an existing driver shortage, and placed additional strain on major U.S. ports.
Unfortunately, record sales volumes and tight transportation capacity have resulted in most major parcel carriers raising rates by 5.9% in 2022.
Additionally, peak season surcharges have become the norm for parcel carriers, further driving up shipping costs during high crucial sales periods.
As parcel shipping rates continue to rise, eCommerce businesses must find ways to mitigate the impact on the fulfillment budget.
Here are some ways shippers can alter fulfillment strategies to compensate for higher shipping costs.
1. Streamline Packaging
Packaging relates directly to parcel shipping costs. Parcel carriers rely on two methods to determine the cost of shipping a package - its actual weight or dimensional (DIM) weight. The dimensional weight came about as a way for carriers to avoid losing money on large, lightweight packages.
For example, UPS uses the following dimensional weight formula:
The exact divisor used in the formula may vary by carrier and specific service at that carrier. For example, USPS uses the 166 as its divisor. Using UPS’s formula, a 12x12x12 package would have a dimensional weight of 12.4. Since carriers round up, the package’s dimensional weight would be 13 pounds.
What if the items in the package only amount to a few pounds of actual weight? On top of that, say the package contains a significant amount of empty space filled with dunnage. In this case, the shipper pays the carrier to move a 13-pound package when they could pay for much less.
Warehouses must train packers to select the right shipping box size and how to use the least amount of dunnage possible to keep parcel shipping costs down.
2. Treat Employees Better
Do your pickers, packers, forklift drivers, and other employees like coming to work? On the surface, this may not seem like a cost issue. However, maintaining a happy staff in the fulfillment center can have a notable financial impact. For example:
3. Find a Cheaper Warehouse
Maintaining a warehouse in a primary market comes at a high cost. Also, three years is a relatively common length for a warehouse contract. Therefore, many businesses who were lucky enough to sign an affordable three-year agreement in 2019 are looking at a very different market come renewal time.
If you can’t afford to keep your metropolitan warehouse, consider moving outside of the major markets to keep costs down.
Warehouse costs in Los Angeles have risen 45 percent in the last year alone. Though rates in secondary markets have also risen substantially since the onset of the pandemic, the costs remain well below what you would pay in the New York City, Chicago, or Los Angeles areas.
4. Use a 3PL's Volume Discount
Your 3PL can help you soften the financial sting of rising parcel shipping costs through its negotiations with parcel carriers. A logistics provider can leverage the total shipping volume of all its clients to get lower rates with parcel carriers.
Depending on the size of the 3PL and its total volume, these rates may be substantially lower than what each individual shipper would pay on its own.
Strategic Real Estate. Applied Technology. Tailored Service. Creativity. Flexibility. These fundamentals reflect everything we do at Phoenix Logistics. We provide specialized support in locating and attaining the correct logistics solutions for every client we serve. Most logistic competitors work to win 3PL contracts, and then attempt to secure the real estate to support it. As an affiliate of giant industrial real estate firm Phoenix Investors, founded by Frank P. Crivello, we can quickly secure real estate solutions across its portfolio or leverage its market and financial strength to quickly source and acquire real estate to meet our client’s needs.