Managing direct and indirect small parcel shipping costs

2021 has brought continued volatility and uncertainty to small parcel shipping rates as we continue to see record volumes of ecommerce orders. Because of this, many carriers have implemented caps to avoid being overwhelmed and help avoid volume congestion nationwide. The parcel market is suffering from this lack of capacity, which has led to higher shipping and operating costs for both carriers and shippers as well as continuous peak surcharges.

2021 has brought continued volatility and uncertainty to small parcel shipping rates as we continue to see record volumes of ecommerce orders.

Direct small parcel shipping costs

The tangible aspect of shipping anything is the rates, and we all know they have been crazy. Across the board, we are seeing higher shipping costs, transportation delays and limits in the form of reduced pickups and equipment. Shippers are trying to manage hefty increases including additional handling, large parcel and delivery area surcharges. The reality is, we will only see a retreat in these continuous peak charges and extra fees when volumes begin to wane. The effects of the pandemic have also bolstered the impact the duopoly of UPS and FedEx has had on the market, so shippers have few options as these large carriers continue to raise rates and cap volumes. Therefore, managing your carrier network and ensuring you are getting the best pricing from your carriers is becoming more difficult and time-consuming than ever.

The reality is, we will only see a retreat in these continuous peak charges and extra fees when volumes begin to wane.

Consider indirect small parcel costs

The capacity constraints have not only increased prices across the board for shippers, but they have also increased indirect costs. Working with carriers on daily planning and forecasting packages, equipment planning, management of daily sweeps and pickups takes a lot of time and effort. If you have multiple distribution centers (DCs), the equipment coordination takes more efforts to coordinate equipment at each DC. It’s also important to ensure cost visibility with your carriers to see what you are paying for and how much, which can take a lot of resources. Intangible costs may not be reflected in rates you are paying to carriers, but they are reflected in your rising labor costs as well as the time that your team members may be spending managing these processes.

Moving forward strategically in this tight market

While we are not getting out of this chaotic season anytime soon, there are a few things you can do as a shipper to create a successful game plan for your small parcel shipping strategy as we move into Peak Season 2021.

1. Integrate flexible tactics into your supply chain planning. This can include adding regional carriers or last-mile delivery services to help pick up the slack where your current carrier network isn’t cutting it. If you are a high-volume shipper, it might be worthwhile to leverage several carriers to diversify your last-mile deliveries. This strategy can also include tactics like BOPIS if you have a physical location to save on small parcel shipping fees. Learn more about the rise of regional parcel carriers and how including regional carriers can be a great strategy.
2. Supply chain visibility continues to rise to the top as your ultimate tool. Having end-to-end visibility helps pinpoint areas of concern in the process and address them quickly. It can also help you with insight into your carrier performance and understand what changes you need to make to increase success.
3. It’s likely that peak surcharges will become permanent, so consider negotiating specific peak surcharge discounts and capacity guarantees into your contracts. Review current carrier agreements and understand that your contract terms and conditions can be much more important than temporary rate discounts. Learn more about carrier negotiation for shippers.
4. Quantify how much you are paying for carriers in 2021. This should help you identify your greatest problems as well as areas where you have taken the greatest increases. It also provides a solid basis to begin discussions with carriers on how to improve your current agreements and lower costs. It’s also important to make sure your contracts give you appropriate discounts for all accessorial costs and that these costs are capped year-over-year.
5. Work with a 3PL to leverage their small parcel volumes, rates, carrier network and equipment management to help you with the direct and indirect cost and improve customer service and experience.