Shipping is one of the largest expenses in e-commerce and wholesale, right after product cost. Despite this, in most businesses, a single agreement is made and left untouched for years.
However, a significant portion of this cost stems not from the carrier's price, but from your own packaging and process choices. The exact same product can often be shipped much more cheaply when placed in a different box.
In this article, we covered dimensional weight calculation, packaging optimization, carrier comparison, and cost tracking.
Table of Contents
Dimensional and weight calculation
Shipping fees are calculated based on whichever is higher: the physical weight or the volumetric weight of the package. When this rule is overlooked, unexpected bills arise for light yet large packages.
Volumetric weight is calculated from the package dimensions, and different coefficients may apply depending on the carrier. This coefficient must be clarified during contract negotiations.
For lightweight products, volume is almost always what determines the cost. Therefore, reducing package size for this product group yields direct savings.
For heavy products, the impact of reducing volume is limited, and the focus must be different. Here, carrier tariffs and bulk shipping discounts come to the fore.
If dimensional information is defined in product listings, the calculation can be made automatically while creating the shipment.
Packaging optimization
Packaging is the area that impacts shipping costs the most, yet receives the least intervention. Placing a small product in a large box can multiply the fee several times over.
Every box filled with void-fill material essentially means paying to transport air. This cost grows rapidly as the number of shipments increases.
Choosing boxes that match the dimensions of the products is the improvement that pays off the fastest. A brief orientation for packing staff on correct box selection is usually all it takes.
For non-fragile products, the use of mailers or poly mailers instead of boxes should also be considered. This choice significantly reduces dimensional weight.
However, protection must not be ignored; returns caused by damage will more than outweigh the savings.
Box standardization
Keeping a large number of different box sizes creates clutter in the warehouse and makes the right selection difficult. A small number of well-chosen sizes works more efficiently.
When shipping history is reviewed, it is seen that the majority of orders fit into a few size groups. This analysis is the healthiest way to determine the box set.
Three or four box sizes meet the majority of most businesses' needs. Custom solutions can be produced for exceptions.
Standard boxes also provide the opportunity for bulk purchasing and reduce packaging costs.
If the dimensional weight for each box size is pre-calculated and labeled, decision-making during packaging becomes easier.
Carrier comparison
Price differences between carriers vary significantly depending on the type of shipment. One carrier may be advantageous for small packages, while another is advantageous for heavy shipments.
Therefore, working with a single carrier is, in most cases, the most expensive option. Having at least two agreements is beneficial in terms of both cost and risk.
Region-based differences must also be taken into account; tariffs diverge noticeably in remote regions.
Comparison should not be made solely on price. Delivery time and damage rate are also parts of the total cost.
We covered performance data in the outbound cargo tracking article.
Automatic carrier selection
When working with multiple carriers, rules must be established for which shipment should be assigned to which one. Choices made by personal preference eliminate savings.
Rules can be defined based on region, weight, and service type. The system compares tariffs and suggests the most appropriate carrier.
When a customer requests a specific carrier, the rule should be able to be overridden. A setup without flexibility pushes the user to bypass the system.
Rules need to be reviewed periodically; when tariffs change, the optimum choice also changes.
This setup works together with shipping integration.
Shipment consolidation
Multiple shipments sent to the same customer at short intervals generate unnecessary costs. Consolidating these shipments provides direct savings.
Whether pending orders are going to the same address must be checked during shipment preparation. This check can be automated.
Customer expectations should also be considered when making consolidation decisions; an urgent order should not be put on hold.
Consolidation is much more readily accepted by dealer and wholesale customers. Weekly shipping days can be defined for this segment.
We covered shipment planning in the shipment planning article.
Reducing return costs
Every return generates two-way shipping costs, and this item is often overlooked in the shipping budget.
Lowering the return rate is one of the most effective methods of saving on shipping. Improving product descriptions significantly impacts this rate.
Returns caused by sending the wrong product are completely preventable costs. Barcode validation in packaging almost eliminates this error.
For damage-related returns, packaging quality must be reviewed; cheap packaging generates expensive returns.
We explained the return workflow in the return management article.
Passing costs to the customer
Whether shipping fees should be passed on to the customer is both a cost and a sales decision.
Free shipping increases the conversion rate, but its cost must be factored into the product price. Otherwise, margins quietly erode.
Applying free shipping above a certain amount is a common method that increases cart value. Setting the threshold correctly is critically important.
Additional fees may apply in remote regions, but these must be displayed before the order is placed.
Surprise shipping fees directly increase cart abandonment rates.
Cost tracking
Tracking shipping costs on an order basis forms the measurement foundation for all optimization efforts.
Average cost per shipment is the most fundamental metric and its change over time must be monitored.
The share of shipping within turnover should also be tracked; this ratio provides an opportunity for comparison within the industry.
Matching carrier invoices with shipment records is also important. Incorrect dimensional corrections are revealed in this check.
Costs in the cargo module are linked to the order and reported.
Points to consider
The most common mistake in cost-reduction efforts is compromising on protection quality. Increased damage rates quickly wipe out the savings.
Compromising on delivery time is also risky; a cheap but slow carrier can lead to customer loss.
Incomplete definitions of product dimensions ruin calculations from the start, and carrier corrections continuously generate billing discrepancies.
Not reviewing agreements for years is also a common loss; as volume increases, conditions must be renegotiated.
Dependency on a single carrier poses a risk in terms of both pricing and operational continuity.
Frequently asked questions
Can volumetric weight calculation be done automatically?
If product dimensions are defined, package volume can be calculated; the carrier coefficient is stored in the definition.
How many carriers is it appropriate to work with?
At least two agreements are recommended; this is beneficial for both price comparison and operational continuity.
Can carrier invoices be checked?
Comparisons can be made with shipment records; differences arising from dimensional corrections appear in this check.
Can shipping costs be tracked by channel?
Yes, they can be tracked; for channel profitability, see the multi-channel sales management article.
Shipping cost is managed more by your own processes than by bargaining with the carrier. Packaging choices make a bigger difference than tariffs in most businesses.
Determine your box set by looking at shipment history; every box filled with void filler means paying to ship air.
Work with at least two carriers and tie the selection to a rule; choices made based on personal preference eliminate savings.
Consider reducing the return rate as a shipping saving as well; every return generates two-way costs.
Finally, compare carrier invoices with shipment records; differences arising from dimensional weight corrections silently accumulate.
By consulting with the EQLEM team, you can set up your cargo cost tracking.