04 Jun Effective Ideas To Determine The Best Mode And Reduce Your Shipping Costs (Part 1 of 2)
Every company is looking for ways to reduce logistics spend. And for good reason – logistics costs can run 10% or more of revenue for many businesses and therefore represent a huge operating expense. Plus, what self-respecting logistics professional doesn’t take pride in saving money!
It’s interesting that with all the focus put on trying to negotiate better shipping rates with carriers, often times surprisingly little attention is paid to making sure the right mode is chosen for each shipment. The cost impact of selecting the wrong method of shipping can easily offset any benefit from a new rate that might save a few cents per lb. off an LTL shipment.
An easy way for many companies to reduce their logistics costs is to pay more attention to the method of shipping used in certain situations.
For most shipments, companies have 3 basic (ie. non-expedited) shipping options – Small Parcel, LTL (Less-Than-Truckload), and Truckload. The opportunity for savings and preventing overspending largely comes when old habits about the best way to route a shipment are not updated to reflect new pricing methods used by some carriers (such as the new dimensional pricing implemented by UPS and FedEx earlier this year) or other factors affecting price resulting from things like GRI’s, new contracts or fluctuations in fuel surcharges.
Regardless of reason, it’s a valuable exercise for shippers to regularly review their routing guides to make sure the optimal routing decisions are always being made. Disclaimer: realizing service is every bit as important as price, be sure to keep transit time and delivery requirements in mind too.
Decision: Small Parcel or LTL?
Many companies who ship mostly small items assume that the usual small parcel carriers (FedEx and UPS) are their only options and will ship everything with one of these carriers. This can include shipments big or small – a few boxes or several pallets – and it’s a costly mistake. The good news is the bigger your shipment, the more shipping mode options you have. But, the potential for overspending grows exponentially as well.
So what are the circumstances that open up these new options?
A long standing rule of thumb has been that shipments greater than about 200 lbs. end up being more expensive to ship with a small parcel carrier (UPS or FedEx) when compared to an LTL carrier (a trucking company who specializes in shipping pallets, not just boxes). This means if you have a single, or multiple items shipping to the same location that exceed 200 lbs. don’t use a small parcel carrier, call an LTL carrier. But it’s not always so simple.
To complicate things further – enter dimensional pricing by UPS and FedEx. This new method of rating some shipments introduced in early 2015 has changed the equation and made many bulkier, lighter weight shipments less expensive with LTL.
The thing to know is that under certain circumstances the two best known parcel shipping companies – UPS and FedEx – are not the only shipping options you have. Unfortunately, a lot of companies make the incorrect and costly assumption there are no other alternatives.
The bad news is for smaller, lightweight shipments this is still the case. Along with the U.S. Postal Service, Fed Ex and UPS still dominate this market.
An important note: even if you already “know” to use LTL you should re-evaluate your established break even rules for deciding between the two modes. Chances are LTL will be a better option for a significant new percentage of your shipments you would have assumed should just go small parcel in the past.
Along these same lines, LTL is a great option if you are selling a product too big or awkward for the small parcel carriers. There are plenty of successful online retailers selling products like couches and beds using LTL carriers to make deliveries to customers, so chances are your products can also economically ship LTL.
The bottom line is when it’s done right, LTL is a cost effective alternative to UPS and FedEx. Make sure the routing decision is made based on your current rates and contract with all your carriers. If you don’t currently have a contract with at least one LTL carrier – go get one now.
When you work with a third party vendor, like a warehouse or fulfillment center, ask for their help to make better routing decisions. The good ones will have the technology to optimize your shipments and make sure you are never paying more than you should.
In part 2, we’ll explain how to decide between LTL or Truckload for borderline shipments. CLICK HERE to read it.