Reduce Shipping Costs by Increasing Shipment Size and Decreasing Shipment Volume or Frequency
It’s safe to say that all shippers today are aware of the impact recent inflation has had on current freight prices for domestic shipments. Many of the major Australian carriers are now asking for annual price increases of between 5% and 10%. These significant increases are having a major impact on the cost of shipping cargo around Australia. It’s understandable that companies often look to increase their own prices to pass through the rising costs, but not all companies have customers that will willingly accept price increases without impacting on demand and profitability.
We often have clients, or prospective clients, ask how they can minimise the impact of these rising transport prices on their costs. Many attempt to engage with new carriers to try and negotiate lower prices, to reduce shipping costs, but in a rising cost environment, and, especially when demand and supply are imbalanced, achieving this outcome is difficult and often unrealistic. The good news is that there are some simple changes that you may be able to make to your processes that may result in significant cost reductions that can offset some, or all these price rises.
At Freight Controller we collect freight cost data from many carriers and monitor KPIs across multiple clients, carriers and industries. Looking at this data we can see a strong correlation between the increasing of the average consignment size and a decrease in cost per kg. When our customers consistently increase the charge weight of their shipments then they often see the cost per unit decrease. Essentially, they are becoming more efficient with the way they dispatch their orders; leading to the desired goal to reduce shipping costs.
How can you Aggregate Orders?
There are several ways in which clients can increase the average size of their shipments in order to reduce shipping costs. Typically, this is achieved by reducing the frequency of their dispatches by aggregating orders or delaying shipments. We understand that some of our customer clients may not wish to order less frequently, or may not even be aware that they order multiple times in a day from the same vendor. As a shipper you can control this process by doing one of two things, or both.
Firstly, have a chat with your client and show them that by ordering multiple times a day or even everyday it’s adding to your shipping costs, which in turn adds to their costs. By negotiating with your clients to order less frequently, or introducing policies that incentivise the client to order larger quantities less frequently, you can change their behaviour to the benefit of all parties.
Secondly, and if you believe that discussing the change of behaviour with your client is too confronting, or fruitless, then you can take matters into your own hands by using freight management software to integrate with your order fulfilment system. By aggregating inbound orders and increasing the size of your shipments you may find that your typical carrier, or a bulk carrier, will offer lower shipping rates and reduce the per unit cost of shipping, all without disturbing your clients, and in so doing you can reduce shipping costs.
How about the Long Term?
Some clients also use this issue to think strategically about their product portfolio and add products to their range that can be purchased by their customers at the same time. By adding complementary products to your range your sales grow, but the shipment frequency stays the same and thereby increasing the size of your shipments.
Our clients that have taken this long-term approach have calculated that the marginal cost of shipping is very low, that is, if they dispatch five products instead of two to the customer then the cost of shipping those additional three additional products is very low. This is because often the cost of the shipment is mostly a fixed cost, such as the Consignment Fee, or Basic Charge, or even a Minimum Charge applied by the carrier. When you add the fuel levy to this component of the shipment cost you can see that the additional kilograms shipped is not a major part of the cost. Therefore, by doubling the shipment kg you have had a very significant impact of the cost per charge kg and therefore achieved your aim to reduce shipping costs greatly.
If you have noticed that the cost of freight has crept up to an unacceptable level, then taking action to increase the size and reducing the frequency of your average shipments is a simple concept that may help. This is especially the case when negotiating lower and lower prices and changing carriers is a well-worn path that has run its course. Working with your clients and changing your shipping processes will take consistent effort and determination, but the reward to reduce shipping costs is there for you if you can succeed.
If you want further advice on how to implement these ideas to reduce shipping costs then please contact us to discuss. We would be happy to analyse your freight data for actionable insights on your behalf, and / or implement a freight management software system to assist in building these shipping processes.