Most of us aim to make wise financial decisions and keep an eye on where we’re spending our money. But can you say the same thing about your freight bill? If not, there could be hidden costs that take you by surprise.
The rapid increase in e-commerce shipments is putting a strain on carriers’ networks and is quickly affecting freight charges. And e-commerce shows no sign of slowing, especially during the holiday season. According to Deloitte, e-commerce holiday sales are expected to rise 17 to 22 percent this year as compared to 16.6 percent in 2017.
Carriers Adjust to Rising E-commerce Demands
The demand of e-commerce has forced logistics companies to get smarter about optimizing depleting resources such as available drivers and space on a truck. Business Insider reported truck transportation costs jumped 8.2 percent in April compared to a year ago, the largest year-over-year increase since 2005. In response, UPS recently announced another shipping rate increase that will take effect December 26, 2018.
UPS expects to handle nearly 800 million packages this year between Thanksgiving and Christmas (up from 762 million packages during last year’s peak period). The carrier will average 31 million deliveries each day, which is more than double the average daily volume. Other carriers also expect to see a similar uptick in delivery volumes this season.
To optimize resources, carriers now charge shippers based on dimensional weight, which takes cube size into account. The billable weight will be the greater of the dimensional weight compared to the actual weight. But dimensional weight is only part of the story. There are even more factors affecting freight bills – some you may not know about.
The Total Cost of Freight
To improve efficiency, carriers discourage practices that slow down the flow of packages through their distribution networks. If packages are not in compliance, accessorial surcharges could result in higher freight fees on top of any dimensional weight calculations.
Freight fees, which add up to significant costs for shippers, must either be absorbed by the shipper or passed on to consumers. Here are some of the most common ways companies incur additional freight costs:
Billable Audited Dimensions. It's no longer acceptable for shippers to give ballpark estimates or generalize package measurements. Carriers now have technology in place that scans and weighs each package as it moves through their network.
These systems, called dimensionalizers, accurately measure the outer bounds of the package, capture the actual weight and assign that information to the shipment’s tracking number. With dimensionalizers in place, carriers are paying closer attention to the accuracy of measurements provided by shippers.
Package shape and dimensions may change during transit, which can affect the package’s dimensional weight and surcharge eligibility. For irregularly shaped items, the furthest point-to-point distances are used for length, width and height, essentially building a virtual box around the item. These bounds are then used to calculate its dimensional weight.
If the dimensions change during transit, your carrier may make appropriate adjustments to the shipment’s dimensions and then tack on audit charges for the correction. As a result, many shippers are seeing an uptick in billing adjustments and freight re-classifications.
Additional Handling. These are the most common fees shippers encounter because of the applicability to a variety of packages. Parcel carriers may — at their discretion — charge an additional handling fee if they deem an item is packaged in an unusual way and causing inefficiencies in the network.
If it’s determined a package needs to be removed or handled by a person during conveyance through the distribution hub, carriers may penalize you for it. For example, a shipper sending brooms without a box is subject to additional handling because the batch of brooms cannot be moved through a typical conveyor.
Carriers look at four criteria when assessing additional handling charges: length, width, weight and packaging. Dimensions that classify a parcel for additional handling vary depending on the specific carriers but generally extra-large or oversize packages might fall prey to these charges.
Large, Oversize or Over Maximum Limits. The continued expansion of e-commerce has exacerbated the “overmax” problem for parcel carriers, as large items such as appliances, televisions and furniture can increasingly be purchased online.
In an effort to discourage shippers from sending large items into distribution networks that were designed for small packages, carriers often pass on fees for overweight or extremely large parcels.
Extremely large items that end up in the parcel network disrupt the flow of packages through distribution hubs and require additional handling to process, and in turn tack on more freight costs. Dimensions that classify packages in this category differ depending on the carrier.
Holiday Surcharges. Between November 19 and December 24, FedEx predicts it will handle more than 400 million packages. UPS says it moved 700 million packages during last year’s holiday season — that’s more than 1.1 billion packages shipped in the span of about six weeks.
FedEx and UPS have announced holiday rate increases for the second year in a row, providing even more evidence that these peak season charges are here to stay and shouldn’t be ignored.
The Best Defense? Proper Packaging
Shippers don’t have to drown in exorbitant adjustment charges and other fees. By harnessing the power of packaging, companies can use smaller parcels that provide stellar protection while improving the customer experience.
But be careful. Lots of companies can reduce the amount of packing materials but finding a partner that can do so without sacrificing protection is key. The solution to combating the impact of increasing shipping rates is with smarter, right-sized packaging solutions that don’t sacrifice protection.
Just like it’s important to keep an eye on your personal finances, it’s important to research each line item of your freight bill. Conducting consistent freight invoice audits not only lend to a three to seven percent cost recapture, according to Total Retail, but also leads to a better understanding of your company’s distribution footprint and highlights areas for improvement.
It is possible to take control of your freight fate. By examining your company’s specific freight costs, you’ll be in a better position to preserve your bottom line.