Shipping costs can significantly impact the profitability of small eCommerce businesses. Competing with large retailers offering free or expedited shipping requires strategic planning and negotiation. This guide provides actionable insights to help you secure better shipping rates and optimize your logistics.
Understanding Carrier Pricing Structures
Key Carriers:
- USPS (United States Postal Service)
- UPS (United Parcel Service)
- FedEx
- DHL Express (primarily for international shipping)
Pricing Components:
- Base rate
- Dimensional weight (DIM) pricing
- Fuel surcharges
- Residential delivery fees
- Extended area surcharges
Example:
Shipping a 2 lb package from New York to California:
- UPS Retail Rate: Approximately $16.20
- Negotiated Rate: As low as $9.75–$10.80
Understanding these components is crucial for effective negotiation and cost management.
Leveraging Shipping Aggregators and Software
Top Shipping Aggregators:
- Shippo: Connects your store to multiple carriers, offering discounted rates and label printing. Learn more
- Easyship: Provides global shipping solutions with real-time rate comparisons. Explore Easyship
- Pirate Ship: Offers USPS Commercial Pricing to all users, regardless of shipping volume. Visit Pirate Ship
Benefits:
- Access to pre-negotiated discounted rates
- Integration with eCommerce platforms for streamlined operations
- Real-time rate comparisons across carriers
Utilizing these tools can lead to significant savings and operational efficiency.
Managing Dimensional Weight Charges
Understanding DIM Weight:
Carriers charge based on the space a package occupies, not just its actual weight.
Calculation Formula:
DIM Weight = (Length × Width × Height) ÷ DIM Divisor
DIM Divisors:
- UPS/FedEx: 139 (daily rates), 166 (retail rates)
- USPS: 166
Example:
Package dimensions: 18″ x 12″ x 10″
- Cubic size: 2,160
- DIM Weight: 2,160 ÷ 166 ≈ 13 lbs
- Actual Weight: 3 lbs
- Charged Weight: 13 lbs
Strategies to Reduce DIM Charges:
- Use smaller, appropriately sized packaging
- Opt for poly mailers when possible
- Negotiate dimensional weight exceptions with carriers
Negotiating with Carriers
Preparation Steps:
- Analyze your shipping data: volume, average weight, destinations
- Be ready to discuss your shipping patterns and potential growth
- Highlight your commitment to consistent shipping volumes
Tips:
- Negotiate with multiple carriers to create competition
- Highlight your commitment to consistent shipping volumes
- Request a tiered discount structure based on shipping volume
Even businesses shipping as few as 50–100 packages per month can negotiate better rates by demonstrating growth potential and consistency.
Utilizing eCommerce Platform Shipping Solutions
Platforms Offering Shipping Discounts:
- Shopify: Offers up to 88% off USPS and 70% off UPS rates through Shopify Shipping.
- WooCommerce: Integrates with various shipping plugins to provide discounted rates.
- BigCommerce: Partners with carriers to offer competitive shipping rates.
Leveraging these built-in solutions can simplify the shipping process and reduce costs.
Choosing Between Free Shipping and Flat Rates
Free Shipping:
- Increases conversion rates
- May reduce profit margins
Flat Rate Shipping:
- Simplifies shipping costs
- May not cover actual expenses for all orders
Strategy:
Offer free shipping on orders above a certain value (e.g., $50) to encourage higher spending while maintaining profitability.
Understanding Commercial vs. Retail Pricing
Retail Pricing:
Standard rates are available at carrier locations.
Commercial Pricing:
Discounted rates are available through online platforms or negotiated agreements.
Example:
USPS Priority Mail (1 lb from NYC to LA):
- Retail Rate: $9.25
- Commercial Rate: $7.65
Accessing commercial rates can lead to significant savings over time.
Avoiding Common Contract Mistakes
Pitfalls to Avoid:
- Locking into long-term contracts without flexibility
- Overlooking minimum volume commitments and associated penalties
- Ignoring annual rate increases and additional fees
Consult with legal or financial advisors before signing shipping contracts to ensure favorable terms.
Identifying and Managing Hidden Fees
Common Hidden Fees:
- Fuel surcharges
- Residential delivery fees
- Delivery area surcharges
- Saturday delivery fees
Action Steps:
- Regularly review shipping invoices to identify unexpected charges
- Use shipping software to analyze and report on shipping costs and fees
Being proactive in identifying and managing these fees can protect your profit margins.
Navigating International Shipping
Strategies:
- Use carriers specializing in international shipping for better rates and services
- Consider Delivered Duties Paid (DDP) options to simplify the customer experience
Example:
Shipping a 2 lb package to the UK:
- USPS International: Approximately $47
- GlobalPost via Easyship: Approximately $32
Optimizing international shipping can expand your market reach while controlling costs.
Metrics Carriers Use to Offer Discounts
Carriers consider various factors when offering discounts:
- Monthly shipment volume
- Average shipment weight
- Delivery zones
- Package size
- Return volume
- On-time payment history
Understanding these metrics can strengthen your negotiation position.
Cheapest Way to Ship Small Items
Best Option:
- USPS Ground Advantage or First-Class Package Service
Example:
6 oz package via USPS:
- Retail Rate: $4.55
- Commercial Rate via Shippo/Pirate Ship: $3.35
- Savings: Approximately 26%
Choosing the right service for small items can lead to substantial savings.
Common Mistakes When Negotiating Shipping Rates
With shipping costs increasing 5–7% annually, businesses must reduce expenses without hurting customer experience. One effective method is negotiating shipping rates—yet over two-thirds of companies don’t, often due to the misconception that only large corporations can. Even small businesses with consistent volume can benefit.
Here are some common pitfalls to avoid during rate negotiations:
Assuming Rates Are Non-Negotiable: It’s a myth that only enterprise-level companies can negotiate shipping contracts. If you ship consistently—even at moderate volume—carriers may be willing to offer discounted rates to retain your business. For example, a small online apparel brand might negotiate lower express rates by agreeing to a yearly shipping minimum. Fragmented carrier accounts across departments can hide your total spend, making it harder to leverage your volume, so centralizing shipping data is key.
Overlooking Shipping in Cost-Saving Initiatives: Many businesses review expenses like software licenses or office leases, but forget to include shipping in cost-cutting plans. Shipping audits, error checks, and late fee prevention should be routine. Policies like standardizing packaging sizes, encouraging ground shipping over express when time allows, and validating addresses before shipment can significantly reduce unnecessary costs.
Walking Into Negotiations Unprepared: Data is your biggest bargaining chip. Don’t let the carrier control the conversation with their numbers alone. Instead, arrive with your insights: what you ship, where it goes, average weight, peak times, and how often extra charges (like address correction or fuel surcharges) hit your bottom line. Software aggregating your shipping history across carriers can uncover trends and provide long-term visibility—some platforms store data for up to 7 years.
Lacking a Clear Negotiation Plan: Without goals, you’ll likely settle for generic discounts that don’t serve your needs. If your business frequently ships oversized goods, targeting dimensional (DIM) weight charges should be a priority. Or, if your volume is concentrated with one carrier, you might negotiate better pricing in exchange for more exclusive use. Know where your biggest shipping spend lies, and use that to guide your approach.
Underestimating the Impact of Extra Fees: Accessorial charges—like weekend delivery, remote location fees, and extra handling for irregular shapes—can quietly balloon your shipping bill. These surcharges often make up 25–30% of the total cost. For instance, if most of your customers are residential, negotiating down the residential delivery surcharge can yield significant savings. Don’t focus solely on base rates—dig into the fine print.
Relying on a Single Carrier: Putting all your packages in one basket reduces your leverage. Negotiating with multiple carriers lets you compare offers and encourages competition. One provider might offer better ground rates, while another offers more flexibility on peak-season surcharges. Leveraging this diversity allows you to mix and match based on cost and service level.
Shifting Costs Directly to Customers Without Adjusting Rates: Passing shipping costs to customers might seem simple but risky. Research shows that nearly half of online shoppers abandon their carts if shipping fees seem too high. Whether you offer free shipping or charge separately, keeping carrier rates as low as possible helps you remain competitive. This is especially important in markets where customer loyalty hinges on affordability and convenience.
Bottom line: Any business with predictable shipping volume can negotiate rates to cut costs and stay competitive significantly.
Final Tips and Action Checklist
Use shipping aggregators like Shippo or Easyship for discounted rates
Optimize packaging to reduce dimensional weight charges
Leverage eCommerce platform shipping solutions
Regularly review shipping invoices for hidden fees
Negotiate with carriers based on your shipping data
Offer free shipping strategically to boost sales
Consult with eCommerce advisors before signing shipping contracts
Explore international shipping options to expand your market
Implementing these strategies can enhance your shipping efficiency and profitability.
Frequently Asked Questions
How can I identify and eliminate billing errors in carrier invoices?
Carrier invoices often contain discrepancies, such as incorrect surcharges or misapplied rates. Regularly auditing these invoices can uncover errors that, if corrected, lead to significant savings. Utilizing third-party audit services or shipping software can automate this process, ensuring accuracy and cost-efficiency.
How can I negotiate better rates during peak shipping seasons?
Peak seasons often come with higher shipping costs and limited carrier availability. To mitigate this, plan by forecasting demand, consolidating shipments, and negotiating peak season surcharges in advance. Establishing strong relationships with carriers can also provide leverage during high-demand periods.
How does my shipping volume influence my ability to negotiate rates?
Carriers typically offer better rates to businesses with higher shipping volumes. However, even small businesses can negotiate discounts by demonstrating consistent shipping patterns and growth potential and consolidating shipments to increase volume. Highlighting these factors during negotiations can lead to more favorable terms.
What are the benefits of using multiple carriers versus a single carrier?
Relying on a single carrier may limit flexibility and bargaining power. Utilizing multiple carriers allows rate comparisons, service level optimization, and increased negotiation leverage. It also provides contingency options in case of service disruptions with one carrier.
How can I effectively manage and reduce dimensional (DIM) weight charges?
DIM weight charges are based on the package’s volume rather than its actual weight, often leading to higher costs. To reduce these charges, optimize packaging by using appropriately sized boxes, eliminate unnecessary void fill, and consider negotiating DIM weight factors with carriers.
What role do shipping aggregators play in cost reduction, and how do I choose one?
Shipping aggregators consolidate shipping volumes from multiple businesses to negotiate better rates with carriers. They offer discounted rates, streamlined label printing, and integration with eCommerce platforms. Consider factors like carrier partnerships, integration capabilities, and customer support when choosing an aggregator.
How can I leverage technology to optimize my shipping strategy?
Implementing shipping software can automate rate comparisons, track shipments, and analyze shipping data. These tools provide insights into shipping performance, identify cost-saving opportunities, and enhance carrier selection and route optimization decision-making.
What considerations should I make when negotiating international shipping rates?
International shipping involves additional complexities, such as customs duties, taxes, and longer transit times. To negotiate better rates, understand the specific requirements of each destination country, consider consolidating international shipments, and work with carriers experienced in global logistics.
How do accessorial fees impact my shipping costs, and can they be negotiated?
Accessorial fees, such as residential delivery charges or fuel surcharges, can significantly increase shipping costs. These fees are often negotiable, mainly if they constitute a large portion of your shipping expenses. Analyzing your shipping data to identify frequent accessorial charges can provide a basis for negotiation.
What are the best practices for reviewing and renewing shipping contracts?
Reviewing shipping contracts ensures the terms remain favorable and aligned with your business needs. Best practices include setting calendar reminders for contract renewal dates, analyzing shipping data to assess performance, and benchmarking rates against industry standards. Engaging in proactive negotiations before contract expiration can improve terms and cost savings.
Need Expert Assistance?
Partner with eMarspro, a full-service eCommerce agency, to help optimize logistics, enhance marketplace performance, and drive sustainable growth. With tailored strategies and expert support, eMarspro enables you to navigate the complexities of online selling.
