What is shipping cost reduction?

Shipping Cost reduction can be defined as the act of cutting costs on shipping to improve profitability. Cost reduction is often confused with cost avoidance, which is more properly defined as the act of eliminating costs or preventing their occurrence in the first place. Both types of cost control, which are two sides of the cost containment coin, are important and necessary for a company to achieve and maintain profitability, especially in a weak economy.

A cost reduction, or reduced shipping cost services, is a "hard" cost savings and usually takes the form of a tangible, year-over-year bottom line cost reduction, such as:

  • The direct reduction of capital or operating expenses, such as a decrease in annual lease payments, a reduction in telecommunications cost, or a reduced annual IT maintenance fee
  • A process improvement that results in real and measurable cost reductions, such as an update that allows more units to be produced on a line at the same time-frame (productivity improvement) and/or with the same amount of raw material inputs (waste reduction)
  • A net reduction in prices paid for raw materials procured when compared to prices paid in the previous year

A cost avoidance, which is a "soft" cost saving, usually takes the form of a more intangible cost avoidance, which does not appear on, but materially impacts, the bottom line cost such as:

  • A delayed price increase, despite rising costs on the commodity markets
  • A negotiated purchase price that is lower than the initial quote
  • Additional value-add services in a contract that are free-of-charge
  • Long term contracts with price protection provisions
  • The identification of a new production process that supports utilization of a lower cost material

Once you've identified those areas that are hemorrhaging cash, you can reduce the costs by identifying cost reduction strategies and change management plans to implement those strategies. The following strategies are often good starting points:

Labor

Talent management and contingent workforce management.

Parts

Strategic sourcing, design for supply, and enterprise cost management.

Operations

Manufacturing intelligence, best practice implementation, supplier management.

Transportation

Distribution network redesign, shipment consolidation, multimode utilization.

Buying

Spend analysis, strategic sourcing, decision optimization.

Selling

Market intelligence, partnerships, green and sustainable, brand building.

In addition, you should consider bringing in some external expertise to help you with this effort, as consultants that are knowledgeable about cost reduction are often able to quickly identify significant cost savings opportunities and help you realize them faster, and at higher rates of return, than internal efforts.

How FreightOptics helps you reduce costs

FreightOptics reduces shipping costs the following way:

  • Choosing the smallest possible box

    Freight companies now use dimensional weight to set charges for shipping. Thus, the price you pay is now the dimensional weight or the actual weight, whichever is greater. Reducing package size and excess packing materials can lower your shipping costs and prevent you from incurring extra charges that you won't be able to recover from your customer.

  • Select the right service

    For example, many customers don't realize that Freight Ground service guarantees delivery the next afternoon within the immediate service area of about 450 miles. Unless you need a package to arrive the next morning, you don't need to incur the extra cost of air shipping.

  • Put technology to work

    Adding Quantum View Manage functionality lets you track both inbound and outbound shipments. The payoff is you can forecast daily workloads for staffing purposes, let salespeople know when new items will be in stock and have more control over inventories. Quantum View Notify service will send email or text messages to your customers with their delivery date and a freight tracking number to drastically reduce "where's my order" (WISMO) calls. If you do get a call, you will be able to check status right on-screen to cut way down on the time involved. It gives you one-call resolution.

  • Save time with a thermal label printer

    Many small businesses spend time filling out labels by hand and stuffing them in clear plastic pouches. That takes a lot of time compared with printing labels with a thermal printer. You can lease one for $2 a week or get it subsidized through the freight Customer Technology Program. These labels are more professional-looking, adhere better to packages and give you the ability to add your own logo or marketing message, such as a discount for reorders.

Different ways to reduce shipping costs

To reduce shipping cost services, here are some options:

Leverage flat-rate shipping

All of the major shipping companies offer flat-rate shipping options (USPS' is often the least expensive). Flat-rate boxes provide benefits to the company by standardizing numerous elements in the process, and therefore are often a very good deal for consumers. USPS, FedEx, and UPS all provide flat-rate boxes that are available for free. This itself can add up to a big savings if you've been paying for boxes. Order a couple boxes of each size from the companies and determine which are the best fit for your business on the basis of cost, shipping time, box size, and other factors. Doing so could reduce your shipping costs by 15% and save you time.

Negotiate shipping rates

UPS and FedEx both know that once you start using a specific company and method of shipping, you are likely to use it for a long time, so each company is happy to provide incentives for you to switch. Assuming you are currently using one of the major companies, a few phone calls to the competitor should get you a quote, which may provide significant savings compared with your current rates. Even if you are not looking to switch, the phone call can still offer great value. Mentioning the rates offered by your current provider is great leverage for negotiating a lower rate.

Shop around for shipping supplies

Packing supply costs are unavoidable. They add up, and the materials can take up a disproportionate amount of space compared with their functionality. But resigning yourself to the realities of shipping supply expenses does not mean you can't find ways to cut costs. As mentioned above, flat-rate boxes (along with different-size envelopes) are provided free of charge by the major shipping companies for using their service.

Shipping refunds

Another way to save is rooted in the policies of the shipping companies have. Both FedEx and UPS offer a slew of money-back guarantees. Often this relates to the time of delivery (e.g., "guaranteed delivery by noon"). Roughly 10% of the time (depending on the method of shipping and time of year), FedEx and UPS do not meet their guarantee and you are entitled to a shipping & freight refund .