Why Shipping Costs Are So High for Your Business (And How to Save)

The Rising Costs of Shipping: What You Need to Know

So, why is shipping so expensive? Understanding the main contributors to high shipping costs is crucial for business owners—you can't reduce shipping costs until you understand what drives them up. Yes, getting products to clients or consumers from the warehouse does drive these costs—and we'll unpack that more below—but it isn't that simple unless you're looking only at outbound shipping.

Most businesses need to deal with an additional factor: inbound shipping. Shipping prices for inbound include inbound freight costs from various locations, both overseas and domestic. The rising demand for warehouse space has escalated pallet storage fees, further adding to the expense. Lastly, businesses don’t fully understand how the costs of a 3PC compare to handling fulfillment in house.

Hidden Expenses in Internal Fulfillment

You may think it's cheaper to handle your own fulfillment than look for a partner, especially if you're not sure what you need. But there are hidden expenses to internal fulfillment too, and you'll need to know them to understand the true shipping prices you're facing if you go it alone without a partner. Often, business owners overlook costs beyond the immediate expense of handling storage and shipping. Hidden costs like these can significantly affect your bottom line:

1. Staffing and Labor Costs: Salaries for warehouse staff, overtime pay, and the costs associated with hiring and training new employees can quickly add up.

2. Warehouse Rent and Utilities: The cost of renting or leasing warehouse space, along with utilities such as electricity, water, and heating, often constitute significant ongoing expenses.

3. Insurance and Supplies: Ensuring your inventory and operations can carry hefty insurance premiums. Additionally, supplies such as packaging materials, labels, and pallets can also be a hidden drain on resources.

4. Technology and Software: Investing in inventory management systems, order management software, and other IT services can be costly. These solutions also often require regular updates and maintenance.

5. Shipping Costs: Outbound shipping expenses from your warehouse to the customer can be a major cost component. Changes in carrier rates and surcharges can cause an unexpected spike in these expenses.

6. Customer Service and Returns: Managing customer inquiries and handling returns is another area where unexpected costs can arise. The time invested by your staff in these tasks should not be underestimated.

If your costs seem to be creeping up, it's vital to conduct a regular review of these elements. Consider evaluating the true cost of each component to ensure you're not missing any hidden expenses. (You should also regularly be auditing the costs associated with any shipping companies you use to make sure that you know about any rising shipping costs getting passed along to your business.)

If your business has international clients or suppliers overseas, you'll need to factor in those costs as well. You'll likely have some insurance costs, ocean freight rates, and delivery area surcharges—and you'll need to handle all of those yourself if you're committed to in-house delivery. By keeping a close eye on these areas, you can better control your overall fulfillment costs and make more informed decisions about whether to handle fulfillment internally or partner with a 3PL.

How Fuel Prices Impact Your Shipping Costs

Fuel prices play a pivotal role in determining your shipping costs. Simply put, as fuel prices rise, so do shipping rates. This is because the transportation industry heavily relies on fuel to move goods from one location to another. Whether it's trucks traversing highways hauling shipping containers, cargo ships crossing the ocean, or planes crisscrossing the globe, the cost of fuel directly impacts the cost of these operations.

Shipping companies often incorporate fuel surcharges to adjust for fluctuating fuel costs. These surcharges are added to the base shipping cost and can significantly increase your overall expenses. For instance, during periods of high fuel prices, you might notice a sharp uptick in your shipping bills. Conversely, when fuel costs drop, the fuel surcharge typically decreases, leading to lower shipping expenses.

In recent years, volatility in global oil markets has led to unpredictable fuel price fluctuations. This inconsistency has complicated budgeting for shipping expenses, making it challenging for businesses to predict and manage costs effectively.

The Role of Warehousing Fees in Total Shipping Costs

Warehousing fees are another big contributor to shipping costs, but this is truly an umbrella term that encompasses storage fees, receiving fees, and pick & pack fees. Each of these costs contribute to the overall cost structure of your fulfillment strategy.

● Storage fees are typically calculated based on the amount of space your products occupy. As your inventory grows, so do your storage costs. In some cases, businesses might also incur additional charges for long-term storage, which can accumulate if products aren’t moving as quickly as anticipated.

● Receiving fees get billed when your products arrive at the warehouse and cover the unloading, inspection, and shelving of your inventory. Someone needs to make sure everything is accounted for and ready for order fulfillment. The cost is generally calculated per unit, so higher volumes can lead to proportionately higher fees.

● Pick & pack fees happen during the actual order fulfillment process. Every time an order is placed, the warehouse staff has to locate the items, pick them from the shelves, and pack them for shipment. These fees can depend on the complexity of the order, such as the number of items or the need for special packaging or kitting.

Sometimes opting to partner with a 3PL can offer more competitive rates by leveraging collective shipping volumes from multiple clients. However, it's essential to compare these savings against the warehousing fees charged by the 3PL to ensure you're getting the best deal for your business. We'll go into those potential cost savings later on in this article.

How 3PL Partners Negotiate Better Shipping Rates

When it comes to negotiating better shipping rates, 3PLs like All Points have a distinct advantage. These companies handle shipping for a multitude of clients, allowing them to aggregate volumes and leverage economies of scale. This collective bargaining power is something individual businesses simply can't match when negotiating alone. By pooling their clients' shipping volumes, 3PLs can strike deals with carriers that result in significantly reduced rates across the entire delivery process.

Furthermore, 3PL partners often have long-standing relationships with major carriers. These established partnerships foster a level of trust and collaboration that translates into more favorable terms for their shipping services and transportation costs. Courier companies are more likely to offer better rates to 3PL providers due to the consistent and high volume of shipments they generate. This arrangement ensures reliable service and lower costs—much closer to the minimum package charges—which are then passed on to you, the business owner.

It's also essential to consider the specialized knowledge and expertise that 3PLs bring to the table. They stay updated on shipping industry trends, fuel surcharges, and regional pricing variations. This comprehensive understanding helps them negotiate rates that factor in these dynamics, ensuring you get the best possible deal. On the other hand, attempting to navigate these complex negotiations internally can be time-consuming and potentially less effective.

But there are other ways using a 3PL as a fulfillment partner can lower your shipping expenses.

Leveraging 3PL Technology for Cost Savings

When partnering with a 3PL provider, one of the key advantages lies in the advanced technologies they deploy to streamline shipping processes. These technologies can significantly reduce both inbound and outbound shipping costs for your business.

Real-Time Inventory Management: 3PLs utilize sophisticated inventory management systems to provide real-time data on stock levels. This ensures that you're never overstocked or understocked, even if you see increased consumer demand. Efficient inventory management means fewer rush orders (read: increased shipping costs) and optimized stock levels, which can reduce shipping costs.

Route Optimization Software: To cut down on shipping expenses, 3PLs use route optimization tools. These platforms analyze multiple routing options and select the most efficient paths. This not only saves on fuel but also ensures faster delivery times, which can enhance customer satisfaction (potentially leading to more business or an upswing in average order value).

Automated Order Processing: Advanced order processing systems automate the fulfillment process, reducing manual errors and speeding up order handling. Quick and accurate order processing means fewer returns and reduced handling costs for ecommerce companies and B2B business alike.

Consolidation Technology: 3PLs often have the capability to consolidate shipments from multiple clients. This aggregated shipping volume allows for bulk shipping rates, significantly lowering the per-unit cost of shipping for your business.

Data Analytics: By employing data analytics, 3PL providers can identify trends and patterns in your shipping history. This analysis can lead to smarter decision-making about shipping schedules, packaging sizes, and even carrier selection, all of which contribute to cost savings.

In essence, leveraging 3PL technologies not only streamlines your supply chain but also provides tangible cost benefits, helping your business maintain a competitive edge while keeping expenses manageable.

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