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May 2011 Supplement: Solving the "Free Shipping" Puzzle
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While volume discounts are an incentive for retailers to provide as much business as possible to one carrier, some retailers are too small to generate the necessary volume to qualify for volume discounts. Fulfillment houses that serve many retailers can help clients earn volume discounts because they negotiate rates collectively on behalf of their entire client base.
"By aggregating the volume of all our clients, we can help retailers get the best possible rates and volume-based discounts when negotiating with carriers, than if the retailer was to negotiate with the carrier individually," says Jeff Zisk, CEO of SpeedFC, provider of end-to-end e-commerce and transaction management services, including fulfillment.
Surcharges can be another unexpected shipping cost for online retailers. A common surcharge is for address correction, which is applied when the address on the package is incorrect, and the carrier has to look up the right information. Those charges can add up quickly and take a take a big bite out of a retailer's operating budget.
Address verification applications help retailers avoid such costly mistakes. As the order is processed, the address is run through a database of known addresses and the application flags any potential errors, such as a misspelled street name, incorrect house number or ZIP code. The retailer can contact the consumer and request an address confirmation.
SpeedFC performs address verification as part of its e-commerce and order management services. "Address verification is an important part of the shipping process because it helps retailers avoid unexpected surcharges and reduce in-transit times," says Zisk.
Weight plays a large role in determining how much retailers are charged to ship an item. What many retailers do not understand is carriers charge either by gross weight or dimensional weight, which is calculated by the length, height and depth of the box divided by 166. This divisor was changed from 194 to 166 on Jan. 3, 2011, by both UPS and FedEx.
Dimensional weight is an unfavorable calculation for retailers that ship lightweight items in large boxes. Because these items take up a lot of space, the carrier is unable to maximize the payload of its vehicles. Charging by dimensional weight allows carriers to account for the extra space taken up by large but light boxes. For example, a retailer shipping 10 pounds of unpopped corn kernels in a 125-cubic-inch box from New York to California will be charged by gross weight or $17.52. That same retailer shipping 10 pounds of popped popcorn in a 5500-cubic-inch box will be charged $62.98 based on dimensional weight to account for the extra space the box takes up.
"Dimensional weight penalizes retailers that ship lightweight goods because low-density items are less profitable for carriers to ship," says LJM's Wood. "Dimensional weight is a way for carriers to establish a charge based on the space a lightweight package occupies on their trucks and planes. Retailers that ship lightweight goods need to be cognizant of reducing the size of the package without compromising the item whenever possible."
Since carriers measure the longest dimension of a package—length, height or depth—retailers should use cube-shaped boxes whenever possible. A box that's five inches in length, height and depth can hold 125 cubic inches of product, whereas a box that's five inches in length, but four inches in height and depth holds only 80 cubic inches.
"The shape of the package is important when it comes to determining dimensional weight," says LJM's Wood. "Dimensional weight scales that measure the length, height and depth of the package can help retailers understand how the shape of the package impacts charges based on dimensional weight."
As part of its consulting services LJM will review up to a year's worth of a retailer's shipping data, including box sizes, to identify how retailers can minimize shipping costs and avoid surcharges that can significantly raise their shipping costs.
One way retailers can minimize gross weight charges for smaller, denser items is to use the U.S.P.S.'s flat-rate boxes. The advantage of a flat-rate box is that weight is not a factor in determining the shipping charge.
"As long as the items being shipped fit in the box, it doesn't matter what they weigh," says Dymo Endicia's Khechfe. "One summer my kids wanted to ship home some rocks they collected on vacation. These were extremely heavy items, but because we used flat-rate boxes the cost was far less than if we paid to ship them based on gross weight."
Endicia's software allows retailers to purchase U.S.P.S. postage online and print postage labels, verify addresses, determine which U.S.P.S. shipping option is the most cost-effective and timely, and generate postage spending reports. The latest version of its software includes all the necessary information retailers need about the U.S.P.S.'s most recent options: Regional Rate boxes and Critical Mail, introduced in January.
While the size of a package plays a significant role in determining shipping costs, packaging also influences customer satisfaction. UPS's Package Design and Testing Lab simulates the temperature changes, air pressure, vibration and compression a package is subjected to during shipping and how those elements impact the condition of the package and its contents.
Working with retailer Plow & Hearth, UPS was able to develop a packaging solution that reduced damage rates from 18% to virtually zero. "We work with customers to understand all of the variables that go into shipping and one of those variables is to make sure the right packaging is in place to reduce waste, minimize cost and avoid damages," says UPS's Mansour.
In addition to its package testing lab, UPS has an eco-friendly program for retailers that support sustainable packaging initiatives. As more consumers become eco-conscious, some retailers are appealing to those shoppers by adopting packaging that's deemed less harmful to the environment.
As part of its Eco Responsible Packaging Program, UPS helps participating retailers achieve sustainability by helping them select packaging materials that are biodegradable, recyclable or reusable, and still afford the best possible protection for the item. One of the credos of UPS's sustainability program is that damaged goods have to be returned, which increases a retailer's carbon footprint and thus should be avoided. The carrier also helps retailers select the right size box to avoid packaging waste.