Shipping Costs: The Good, The Bad, and The Best

Rich Harkey

January 17, 2019


In a global economy you have internal/external pressures to maintain high levels of performance at the same time managing the costs between customers and carriers. The challenge is managing your parcel shipping costs while continuing to reflect the capabilities that makes your company truly unique and drive its value. These capabilities stand out as true differentiators that are hard to mimic and difficult to replicate.

In times of uncertainty, forward-looking companies cut shipping costs to further align their costs with their business strategy. Strategic shipping cost cutting helps lower the cost structure, but it’s not all about getting cheaper. Instead, strategic cost cutting helps ensure an organization is ready for growth. It focuses on the aspects of the business that are controllable while freeing up resources to fund transformation and future growth.

One of the first steps to smarter, more strategic shipping cost cutting is identifying and understanding the differences between bad costs, good costs and the best costs:

Bad Costs

These are shipping costs that do not align with the overall growth strategy of the company. Good companies cut waste and funnel the resources to better areas, and bad shipping costs are the first to get cut. For parcel shippers, there are a variety of hidden bad shipping costs within each invoice.

Surcharges should make up no more than 16% of your total net spend. You would be surprised to know some shippers have shipping costs that are made up of 50% surcharges. Optimized shippers have negotiated reduced surcharges to reduce their overall shipping spend.

Fuel is typically the largest percentage of any clients’ surcharge impact.   That said, if you find that another one of your surcharges surpasses your fuel expense then it needs action.

Overpaying your shipping costs is also a bad cost to avoid. Each parcel invoice is littered with mistakes and overcharges. Ensure that your parcel invoices are accurate with a parcel invoice audit to avoid carrier overpayment.

Good Costs

These costs drive initiatives and strategies that support the company’s overall growth goals. They are based on an understanding of customer preferences and match them with the organization’s operations.

Ensure your clients service level expectations are in-line with your carrier cost expectations. Make sure you can meet the client’s delivery expectations with your shipping service levels at the correct price.

Best Costs

Some of the best costs build and expand a company’s truly differentiated capabilities. These are the handful of capabilities that make a company truly unique and drive its value. These capabilities stand out as true differentiators that are hard to mimic and difficult to replicate.

Optimizing your contract allows you to deliver a high expectation of delivery times to your customers. Lowering your surcharges, service level rates and ensuring invoice accuracy are all best shipping cost practices that all companies should adopt.

Once a company’s shipping costs are classified, strategic cost cutting becomes a process of minimizing exposure to bad costs and maximizing investment in the best ones. The practice helps create a more resilient growth model, particularly important during times of uncertainty.

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