May 1, 2012, 12:00 AM

Special Report: Fulfillment - New ways to drive efficiency

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"Retailers that ship lightweight goods in large boxes need to be cognizant of the dimensional weight rating formula and need to reduce the size of the packaging without compromising the item whenever possible," Wood says. "Retailers can right-size boxes to fit within dimensional weight guidelines to avoid paying for wasted packing space."

Avoiding package surcharges and accessorial fees is essential for retailers seeking to lower their shipping costs. These additional fees, which include address corrections, residential surcharges and delivery area surcharges, can add more than 30% to the cost of shipping a package.

Carrier surcharges are increasing more rapidly than shipping base rates, according to Wood. In 2012, the large package surcharges for UPS and FedEx increased by 10%, residential surcharges for air shipments 9.1%, delivery area surcharges for commercial shipments 8.1%, and residential delivery area surcharges for air shipments 9.1%.

"Surcharges account for a large portion of UPS's and FedEx's profits and there are more than 70 additional fees associated with carrier invoices," Wood says. "UPS and FedEx, for example, will charge $11 per shipment for an incorrect address. Corrections can be as trivial as spelling the word 'Street' when the carrier wants it abbreviated 'St'. When the carrier determines an address to be incorrect, the guaranteed delivery time is relinquished and retailers have no recourse for getting their money back."

Address hygiene software, which cross-checks an address against a database of known addresses, can reduce the potential for address errors that can trigger a surcharge or lead the carrier to decide a package is undeliverable.

Last mile

While avoiding surcharges can lower a retailer's overall shipping costs, retailers still need to be looking at ways to lower their base shipping costs. Direct delivery to rural areas can be costly, as carriers often have to travel long distances to service relatively few consumers.

Having carriers hand packages off to the U.S. Postal Service for last-mile delivery can help retailers lower their base shipping rates. Packages are delivered by a private carrier to a regional or local post office, which delivers the package to the consumer. The process can add a day or two to delivery times, so retailers need to take that into account when estimating the delivery date for the customer.

Retailers also can cluster packages by ZIP code and have a private carrier inject them into the USPS system in bulk.

"A lot of retailers are opting for this type of delivery arrangement because it is cheaper than direct delivery," says Innotrac's Toner. "Another advantage is that the USPS delivers six days a week to every address."

As more e-retailers expand sales globally they are discovering the need for a shipping and fulfillment partner that knows the ins and outs of delivering to countries beyond U.S. borders. Besides helping retailers figure out how to clear customs and navigate local delivery procedures, local carriers can help retailers reduce delivery costs through local know-how and package consolidation centers.

Hermes, for example, operates 14,000 consolidation shops across Germany and other countries. A European shopper can choose to have her package shipped to one of these facilities. These locations can also hold an item if a delivery attempt is unsuccessful and receive product returns. The consolidation centers are typically businesses, such as gas stations and train stations, that tend to be open into the evening and are conveniently located near residential areas and along typical commuter travel routes.

A big benefit of consolidation shops is that a consumer notified of a missed delivery can contact Hermes and arrange to have the package sent to the consolidation shop of his choice.

"We attempt four deliveries and at any time during the process the customer can arrange pickup at a consolidation shop," Bense says. "It is a lot more convenient than trying to arrange a time to be home, and they can drop off a package to be returned at the consolidation shop."

Easy returns

Making returns easy for customers is important because they will inevitably send back some items they order on the web. Consumers look at returns as an inconvenience, so anything retailers can do to simplify the process can help smooth over any ill feelings customers may have about receiving items that they decide don't fit right or are not what they expected.

A retailer can make life easier for the customer by shipping an item in a box that's just the right size, and that the consumer can use for a return if necessary. "If the box an item shipped in is considered too large for a return by the customer, he is likely to look for a smaller box to avoid handling something so bulky. That can complicate the return process," says Packsize's Kiessner. "Wrong-size boxes also increase the dimensional weight, which adds to the return cost."

Indeed, some items like shoes and apparel have return rates as high as 50%, so retailers and consumers both have a stake in keeping return shipping costs as low as possible. "Right-size boxes are 40% more efficient by volume and weight," Kiessner adds.

With FedEx and UPS increasing their shipping rates, the need to reduce returns is becoming more important. While FedEx and UPS announced that they increased their shipping rates an average of 4.9% in 2012, the actual increase was closer to 6% to 8.5% for many e-commerce shippers.

"Base rates for shipments weighing between 1 pound and 35 pounds, which account for about 75% of shipments for most e-commerce companies, increased between 6.5% and 8.8%, and shipments weighing between 71 pounds and 150 pounds, which are much less common, have increased less than 2.8%," Wood says. "This is how the carriers are able to quote a 4.9% average increase. Given this significant base rate increase, as well as the accessorial surcharges increase, shippers need to find ways to mitigate these increases."

Retailers should also be setting customer expectations for delivery times and costs by giving the customers shipping options on their web site. "Show the shipping options, such as Next Day, 2-Day 3-Day, etc.," Wood says.

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