Do Shippers really save money by using Receiver Pays Shipping?
Within our customer base we have observed that there are many ways shippers pay for or pass on the cost of shipping. Here are the options:
- Sender pays for all shipments.
- The receiver pays for their own shipping by nominating their carrier account to the sender prior to shipping.
- A mixture of both receiver and sender pays, depending upon the value of the order.
- Sender pays, but the sender recovers the freight cost from the recipient via a freight charge on the customer’s invoice.
Receiver pays is better for the shipper, isn’t it?
Each of the above options have their pro and cons. Initially, many shippers think that using Receiver Pays is a great option for them. Shippers don’t need to pay the carrier for the shipment, and if the carrier fails to deliver then it’s the receiver’s responsibility to deal with the carrier, (assuming the sender has shipped the package correctly). The shipper doesn’t need to account for the carrier charge and so it seems quite appealing as an option – on the surface.
The sender may sometimes still be required to pay the carrier
I say on the surface, because there are some hidden risks for the sender when using Receiver Pays shipments that some may be unaware of. The first, and probably the major concern, is that in Australia, if for any reason the carrier is unable to bill the receiver, then legally the carrier is entitled to bill the sender for the shipment cost.
Some senders may say, well it’s not likely to happen often and we can always reverse the charge by speaking to the carrier and providing a correct account number. However, like all things that require admin support, the process of communicating with the carrier and providing the correct details to reverse the charge is a very time-consuming process and will inevitably encounter significant carrier admin fees because of this. In fact, in some cases it will likely be cheaper to just pay the original invoice rather than trying to reverse this charge.
Higher Costs for reducing Sender Pays Volume
Another drawback with using receiver pays is that the sender is reducing the volume of freight they ship out and often then having to receive and load many other carriers other than their preferred carriers. We often encourage our customers to make their freight profile as attractive as possible to carriers. This allows for the best opportunity to negotiate the best available rates. By splintering your freight spend between sender and receiver pays and over many carriers, you may be reducing the leverage by which you can negotiate a better deal.
Productivity Costs of Receiver Pays
Furthermore, by allowing multiple additional carriers into the warehouse we contend that this could be detrimental to the productivity of your dispatch staff. It also means that dispatch staff may have to be trained on multiple ways, or software systems for dispatch and must maintain records for third party accounts. All of this increases complexity, introduces the risk of mistakes and increases costs through lost productivity.
As an example, I was recently in a warehouse with a client and watched as a carrier that was not their preferred carrier turned up and said that they were here to pick up a shipment on behalf of their customer (receiver). This collection had been booked by the receiver, without consultation with the sending warehouse.
The clients dispatch operator had to then stop what they were doing, start ringing the customer service staff, confirming the order, confirmed that it was authorised to leave, pack the order and create a new con note manually and dispatch it all while the driver was standing there getting frustrated by how long it was taking.
Some pressure was involved as it was an airfreight shipment. At one point it looked like the driver was going to leave because the items were not ready, and the warehouse staff member’s productivity was completely ruined. A loss of time and productivity for everyone.
How to make Sender Pays shipments more effective
We would suggest that if you are going to allow a policy of extensive Receiver Pays shipments, then strict control of procedures is a must.
Firstly, you should formally reconcile all the consignments on your carrier’s invoices to ensure that you are not being charged by your carrier for Receiver Pays shipments that have been rejected by the carrier.
Secondly, you could persuade, or even insist that your customers only nominate carriers that you are already dealing with. This limits the number of carries that comes to the warehouse and will allow you to quickly and easily ship the consignment as you already have the software systems in place to ship via these carries.
Introduce an Admin Fee for Receiver Pays
If you feel as though this second point is too restrictive, you could consider introducing a small admin fee to cover the additional costs associated with generating Receiver Pays shipments for carriers that are outside your preferred carrier(s) and waive the fee if the shipment is sender pays. A fee is reasonable as there is no doubt in our experience that Receiver Pays shipments outside your carrier(s) is more costly to process.
I can hear some people saying, “Why would I want to encourage Sender Pays shipments? That means I need to pay for the freight”. Going back to the start of this blog, our preferred method of dealing with this issue is Sender Pays and recovering the freight cost from the receiver by invoicing the actual shipment cost there and then.
Freight Cost Recovery
This is the best of both worlds. For those customers that are really valuable to your business, you can pass on the benefits of complementary freight. For those customers that are smaller, or those that generate small, but frequent orders you can pass the actual cost of shipment to them quickly and easily.
In our experience, many of your customers may find that the cost of the freight via your carrier is actually cheaper than what they would pay via their own carrier. By following this process, you get to build the volume with your carriers to improve your rates, streamline your shipping processes and at the same time recover the cost of freight where you believe it’s prudent to do so.
2Ship for accurate Freight Costing & Recovery
The key to this strategy is to ensure that you have an effective shipping platform, like 2Ship, to automatically and accurately price your shipments via carrier API connections and live rates, including surcharges. This way you can assure your customers that the freight recovery process is genuine and accurate.
2Ship will automatically send your shipment costs back to your WMS or ERP in real time via ftp or API. You can take this information and use it to invoice the actual shipment cost to your customer quickly and easily. Of course, if you would like to add a margin or fee 2Ship has “customer pricing” and so this is simple policy to implement.
In conclusion, by using sender pays and an effective freight recovery policy you can streamline your shipping process, improving you freight cost purchasing power, while also offering a better service for the receivers through quicker and more efficient shipping.
Of course, we realise that some shippers have much bigger customers that will demand they use their carriers. In this case, we hope that this blog may help improve your awareness of some potential risks associated with receiver pays shipping and help you manage those risks more effectively.
If you would like assistance in improving either your freight cost recovery or your operational processes to deal with this type of issue then please contact us and we will be happy to arrange a consultative meeting to discuss.