For an e-commerce business, freight costs can be considered the financial equivalent of that one person in your social circle who insists on splitting the bill evenly, regardless of who ordered the lobster. Sneaky, relentless, and very capable of quietly munching away into your margins without so much as a heads-up.
But all is not dark just yet. The good news is that you’re not helpless. With the right understanding and a few strategic moves, you can rein in this necessary evil of e-commerce (after all, shipping is arguably a core aspect of e-commerce) and keep your bottom line safe and sound.
In this article, we give you a succinct understanding of freight costs, discuss their key components, why they spike, and most importantly, how to bring them down with actionable smart freight cost reduction strategies. Ready to get your profit margins back? Let’s get started!
Understanding Freight Costs
When we think of freight costs, it can seem like a black box—unpredictable, mysterious, and somehow always higher than what was expected. But as an ecommerce business functioning in a time when there are over 30 million ecommerce platforms in the world, staying competitive and relevant means knowing where every cent goes and how it can be reduced.
And believe it not, you’re likely overpaying for freight expenses. Understanding how these work, their components, and what drives them allows you to gain the power to identify inefficiencies, question expenses in your shipping invoices, and make informed choices to protect your bottom line.
Let’s look at what your freight costs include next.
Components of Freight Costs
Here’s a look at the components of freight costs:
1. Cost of Transportation
Freight costs, first and foremost, include the cost of shipping your orders from your warehouse or supplier to your customer’s doorstep. This can vary significantly depending on the mode of transportation you choose and the distance between your warehouse and the customer’s address.
2. Cost of Insurance
Shipping insurance is optional for most ecommerce businesses. But not if you’re offering big-ticket or rare products that can’t be easily replaced. Think antiques, electronics, personalized products, etc. If these are within your catalogue, it’s essential to ensure your products are insured against damage and loss during transit. Again, the cost of shipping insurance can vary depending on the extent of coverage, the value of the item, etc.
3. Charges, Duties, and Taxes
This component is especially important if you’re shipping internationally. Cross-border shipping attracts customs fees, taxes, and other charges, which can spike your freight costs significantly. These can vary with country, product type, etc.
4. Surcharges in Fuel
Your freight costs also include any surcharges for fuel. The amount can differ based on the fluctuation in fuel prices, geopolitical factors, etc.
5. Cost of Accessorial Charges
Accessorial charges refer to the cost of additional services that shipping carriers offer. These include residential delivery, package pick-up, package storage, liftgate service, etc. These can also quickly add up to drive your freight costs.
Now that you know what makes up freight costs, let’s discuss the factors influencing them.
Factors influencing freight costs
Here are the factors that influence your freight costs:
1. Packages’ Features
Freight costs are determined based on your package’s weight and dimensions. Hence, heavier and bigger shipments naturally attract a higher freight cost, while lighter and smaller packages are cheaper to ship to customers.
Not only that, but if your package is fragile and warrants careful handling, the freight cost can further go up since the shipping carrier needs to take special measures and greater responsibility to ensure it doesn’t get damaged when transporting it.
2. The Distance Between Your Warehouse and the Customer’s Doorstep
Next, the distance between your warehouse or supplier and the customer’s address also influences the freight cost. The greater the distance, the greater the freight cost. This is because shipping carriers have to accommodate the cost of fuel, storage, and other expenses that come with long-distance shipping.
3. The Type and Nature of Products You’re Selling
The nature of the product you’re selling also has a bearing on your freight cost. You see, if you’re shipping oversized products, hazardous materials, etc., shipping carriers have to take additional measures to ensure proper handling and shipping. And they charge additionally for such services, driving up your freight cost.
4. The Transportation Mode
Air cargo, ocean freight, and ground transportation have varying cost structures. And so, the mode of transportation you choose to ship your packages through influences the freight cost.
5. Shipping Capacity Availability
Shipping carriers have limited capacity. And so, if you ship when there’s a shortage of shipping capacity, the shipping carrier can quote a higher cost to compensate them for the high demand. This is especially common during peak shopping periods such as the holiday or festive seasons.
Importance of reducing freight costs
The foremost reason for reducing freight costs is to, well, reduce costs and run a lean e-commerce business. No brainer, right? That is, until you realize the benefits of shaving a few bucks off of your shipping invoices are deep-seated and that they affect your operational efficiency, productivity, self-sufficiency, and customer experience. Further, for e-commerce businesses, especially those with high order volumes, even small, negligible improvements in shipping efficiency can mean a major financial win down the line. Here’s a look at why you should be putting your weight behind reducing freight costs:
1. Improved Profit Margins
The cost of shipping your packages to your customers can eat away at your operating costs. And when your operating costs increase, your profit margin reduces. Optimizing your freight expenses gives you a much-needed breathing room, without requiring you to raise your prices, compromise on experience, and jeopardize customer satisfaction.
2. Bigger Budget for Business Growth
When you save money on freight expenses, you get a bigger budget to invest in business areas that directly affect your productivity and profitability. You can consider investing in tools to help streamline and optimize your post-purchase experience, increase the strength of your sales team, or even double down on product development.
3. Reduced Reliance on Shipping Carriers
Freight cost reduction requires you to understand your shipping expenses and cost strategy. This insight positions you well to make informed budgeting decisions and helps in shipping carrier negotiations to ensure you get the best deal possible. You’re no longer at the mercy of your shipping partners, but instead in a better place to make sure you don’t get taken for a ride and your shipping budget doesn’t bleed.
4. Greater Flexibility in Product Pricing
When you reduce your freight cost, you gain greater flexibility in how you price your products. And in the highly competitive landscape of ecommerce, being able to offer attractive prices to your customers can mean the difference between barely keeping your head above water and thriving.
5. Satisfied Customers
Lastly, and perhaps the most important benefit of integrating freight cost reduction strategies is customer satisfaction. You see, when you optimize your freight costs and stay on top of your shipping operations, you pave the way for faster, more dependable, and efficient delivery. And that’s what keeps your customers coming back.
Strategies for reducing freight costs
We’ve walked you through what freight costs include, the factors influencing them, and the why behind reducing freight costs. Now, it’s time to discuss the how. Here’s a look at the top freight cost reduction strategies that you should seriously consider. Spoiler alert—the last one is a gamechanger!
1. Negotiate with Your Carriers
Choosing the right shipping carrier and negotiating with them effectively can impact your bottom line significantly. Rather than settling for the first quote they offer, consider undertaking rigorous business research, comparing carriers, and negotiating to get the best possible terms for your shipping needs.
Leverage rate analytics, shipment volumes, and note service inefficiencies to understand how you can reduce costs per package. This will help you reduce your freight costs, while preserving customer satisfaction and allowing you greater flexibility to adapt to a fast-growing market.
2. Streamline and Optimize Your Transportation Routes
The next freight cost reduction strategy involves optimizing your transportation routes to ensure your package reaches your customer’s doorstep in the shortest time possible and at the cheapest rate.
You can consider leveraging route planning tools to map out a route that avoids delays, consolidates shipments, and ensures timely and efficient delivery. Fewer detours can translate to lower fuel costs, reducing your susceptibility to fuel surcharges.
3. Combine Small Shipments into a Big Consignment
Shipping small package loads separately can quickly rack up big costs. To avoid this, consider combining multiple small shipments into a single large consignment to maximize shipping container space and minimize your cost per package.
By taking measures to avoid partial-load charges and leveraging full-capacity shipments, you enhance shipping efficiency and reduce wasteful freight costs.
4. Undertake Freight Audits
Conducting freight audits is non-negotiable. It’s a smart and proactive way to account for every penny you spend and is an invaluable exercise for reducing freight costs and boosting profitability. After all, think about it, if you’re not combing your shipping invoices for errors, you can never know whether you’re overpaying for your shipping.
By carefully reviewing invoices against agreed-upon rates and contracts, audits help uncover billing errors, duplicate charges, and incorrect tariffs that often slip through unnoticed. Flag these discrepancies in time, and you can file claims and recover your money.
5. Integrate Sustainable Solutions
Integrating sustainable solutions into your freight cost reduction strategy isn’t just good for the environment, it’s also great for your bottom line. Consider eco-friendly initiatives like recycled packaging, EVs, etc., to cut back your operational costs.
These initiatives help reduce waste, reduce fuel expenses, and can even attract tax incentives that can further reduce your freight costs.
6. Facilitate Load Planning
Facilitating intelligent and informed load planning can be a powerful freight cost reduction strategy. It involves organizing package shipments with the aim of utilizing the shipment transport space (container, truck, etc.) completely. This helps you reduce the number of trips and save on fuel costs.
7. Diversify Your Transportation Modes
The next freight cost reduction strategy is to explore multiple transportation modes. Consider integrating a combination of rail, air, road, and sea strategically to match the right mode with the correct leg of the shipping journey. This will help you optimize cost, efficiency, and speed.
For instance, rail might be cost-effective for long journeys, while air is ideal for urgent deliveries. Diversifying your transportation modes gives you flexibility, reduces your reliance on a single shipping carrier, and also helps you optimize your shipping budget.
8. Onboard a Post-Purchase Experience Software
The last freight cost reduction strategy is one that addresses all the above-mentioned strategies in just four words—Post Purchase Experience software. LateShipment.com’s Post Purchase Experience software platform helps you balance shipping efficiency with customer satisfaction like a Funambulist, or what we common folks refer to as a professional tightrope walker. It does this by offering you four advanced tools:
- Shipping Insurance Software
LateShipment.com’s Shipping Insurance software automates your shipping insurance needs and protects your profit margins with capabilities such as comprehensive risk coverage of up to $2000 per package, global coverage, cross-carrier support, customizable insurance rules, flexible coverage, centralized claims management, effortless claims handling, quick claims approvals, and more! As a result, you enjoy a 99% claims success rate.
- Delivery Experience Management Software
Integrate LateShipment.com’s Delivery Experience Management software to optimize your delivery processes from start to finish. With this tool, you can send proactive and personalized delivery updates to your customers across channels, and facilitate on-brand tracking pages that also encourage customers to explore other products every time they want to check in on an incoming order. Not only that, but this tool also offers smart incident alerts to inform you of delivery issues, proactive issue resolution, advanced shipment tracking, and in-depth analytics.
What do these capabilities translate to, you ask? A 72% reduction in Where Is My Order (WISMO) enquiries, a 12% increase in revenue from repeat purchases, and a 6X increase in post-purchase customer engagement.
- Returns Experience Management Software
So, you’ve got the delivery experience locked down with LateShipment.com, now it’s time to optimize your returns experience management too! The Returns Experience Management software reduces your return-related support tickets by 80% and your returns processing time by 95%, while facilitating up to 40% of revenue retained from store credits and exchanges.
It achieves this with features such as on-brand returns and exchange portal, downloadable shipping labels, automated returns status updates, branded return tracking pages, customizable returns rules, and flexible routing rules, to name a few.
- Parcel Audit and Shipping Refunds Software
The final weapon in your LateShipment.com arsenal is its Parcel and Shipping Invoice Audit software that helps you submit claims and recover refunds for late deliveries, damaged parcels, lost ones, and more, facilitating as much as 20% savings in shipping costs.
Its notable features include automated shipping invoice audit and refund recovery, expert claims redressal, cross-carrier performance tracking, discrepancies overview, and detailed insight into your shipping invoice audit processes.
Get ready to reduce your freight costs with LateShipment.com. Book a demo today!
