How to Determine Shipping Cost Author: tylerg
April 09, 2013

Are you wondering how to determine shipping costs? Shipping costs are, of course, among the most important factors involved in determining the costs of your entire logistics operation. In order to make sure that you understand your costs and can plan for them in the future, you should standardize them to the extent possible. This requires a thorough, point-by-point review of the most basic operational factors impacting your logistics.

Although shipping costs can vary, they are largely under your control. Here’s what to look at.

Know the Basic Factors: Weight, Speed, Distance

These three items make up the triumvirate of fundamental factors that you need to be aware of when planning your shipping. Although there are other factors, such as insurance, these are the three that will always apply to every shipment. Understanding them and taking steps within your organization to minimize them will be step one in any comprehensive plan.

Standardize Packaging to Make Shipping More Affordable

Large enterprises such as Amazon have entire divisions dedicated to developing product packaging that is not only acceptable from the customer perspective, but also lightweight and affordable. You might consider developing standardized packaging for each different category of shipment, or delegating these duties to an appropriate logistics firm.

Externalize the Costs Where Possible

Obviously, you can externalize certain costs related to shipping and make each shipment a much more approachable proposition. Customers are willing to pay, for example, for enhanced speed or distance. You may even be able to externalize the costs of shipping insurance. As in many industries, it is often wise to shift as much of the cost as the market will bear.

Beware of Shipping Insurance

Shipping insurance can help to protect your investments, but it is not always necessarily the wisest move. If you are currently using a standardized shipping insurance scheme across all or most of your shipments, you can probably save a significant amount of money by finding a more granular way to determine and apply insurance needs across multiple categories.

Be Wary of Poor Vendor Relationships

All companies, from the largest to the smallest, have to maximize their vendor relationships in order to save the most money possible in logistics. Optimizing these relationships has several steps. As your shipment volume goes up, your negotiating position and therefore your contract terms should improve. Scour your vendor invoices for errors to ensure service level compliance.

Once you have all of these factors in place and relatively standardized, calculating shipping costs becomes an easy matter of comparing the weight and dimensions of your parcel with the distance traveled, the speed, and the insurance that applies. To easily calculate and further reduce these costs on an enterprise-wide basis, consider a suite of logistics software that will provide optimized parcel routing and give your shipping managers the tools to react to changing conditions. Such tools can reduce your costs by a significant percentage year-over-year.

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