Carrier/freight Cost Definition: “The amount you pay to transport goods from one place to another, whether by land, sea, or air.” (source: Upcounsel)
Last week, our VP Fulfillment Logistics Professional Sean Compton, released a weekly update report and Vimeo about understanding carrier costs. In addition, we decided to write this article to explain the moving parts to freight costs. Because, despite every brand owner acknowledging the significance of eCommerce fulfillment, we fail to understand the carrier pricing process.
Grasping carrier costs is like understanding the build of a car. Knowing the mechanics, inside and out, allows you to fix when a part fails to operate. Similarly, when shippers understand the ever-fluctuating carrier market, their processes, and pricing modules, they know how to best judge when things take a wrong turn. Which, in return, saves money, time, and headaches.
Which factors determine carrier costs? To answer your question, the 3PL (third-party logistics) team here at OceanX has decided to discuss those carrier moving parts:
Primary Factors for Base Rates
Most carriers operate on a fixed rate program, sometimes accompanied by various sur-charges. Fixed rates depend on two factors: weight and distance.
How do they calculate their costs with the weight and distance narrative? Regarding weight, USPS and hybrid carriers typically perform under two weight scales 1. Parcels under a 1lb 2. Packages that weigh more than 1lb:
- Lightweight Parcels (1lb and under): Lightweight parcels round to the next ounce increment. For instance, if the package weighs 6.4oz, it would be rounded to 7oz.
- Heavy weight parcels (1lb or more): Similarly, heavyweight packages round to the next pound increment. For example, a 1.1lb and a 1.9lb parcel would round up to 2lbs.
The weight factoring sounds simple, but what about distance?
Distance categorizes into zones:
- Shipping Zones. Zones represent how far a package will travel until it’s delivered. Shorter distances = lower zone, while longer distances = higher zone. Lower zone translates to cheaper carrier costs than higher zones. By way of example, a package will cost less if the shipper and recipient are in California versus the recipient in New York City.
Now that we have the base cost factors covered, we need to discuss additional carrier surcharges.
Carrier Calculated Surcharges
What are carrier surcharges? Surcharges are additional charges added to the existing cost of carrier fulfillment. Surcharges vary on the topic. Below is a list of the most common reasons for surcharges:
- Fuel. Fuel is a variable surcharge going up and down depending on fuel cost.
- Extended area surcharge. Lesser known or extended area. Some carriers will send these to zipcodes in lesser parcel dense regions.
- Residential surcharge. Big box carriers / commercial deliverers. The commercial deliveries do not have the residential surcharges applied to them. But being delivered to a house will.
- Saturday Delivery Surcharges. Although Saturday is a selected service, it’s a surcharge, nonetheless. This surcharge is for carriers that typically do not deliver on Saturday. However, say somebody ships with UPS next-day air, while they do not usually deliver on Saturday, it’s possible to select the next-day shipping for Saturday delivery.
Additional Freight Cost Factors
It’s crucial to include all cost factors when devising a plan for carrier saturation. Here are two essential things to consider when figuring in additional cost factors:
- Dimensional Weight. Carriers either charge you by weight or package dimensions. For cases of dimensional measuring, calculate the dimensions by multiplying length x width x height, then divide by the standard published divisor of 139. After that, rounded to the nearest pound increment. For example: A 2lb parcel that measures 12 x 12 x 12 is shipped as 13lbs because (12x12x12)/139 = 12.43lbs then rounded to 13lbs. In other words, if you are shipping lightweight packages, it’s better to calculate the box dimensions for accurate rates.
- Cusp Weight. Cusping the weight of packages means changing the packing materials to alter the weight. For instance, if you have a package that weighs 3.1lbs, it will ship at a 4lb price rate. If you are longing to save money, ask yourself, can anything be changed, removed, or altered (without risking quality) to keep the 3lb price rate?
Another thing to mention with carrier costs is International Shipping. Shipping internationally is a complicated and detailed process; for more information, check our blog article about international shipping, VAT (Value-Added Taxes), and Incoterms (International Commercial Terms) here.
Can 3PLs Assist with Carrier Costs?
Collaborating with a 3PL can reduce your fulfillment costs with their built carrier relationships, transportation, cusp weight methods, decentralized or centralized distribution, and much more. While the carrier market is forever fluctuating, having some reliability with a 3PL is worth saving shipping costs and peace of mind.
Like our car example, hundreds of mechanics revolve around a vehicle. Understanding what each part represents and its purpose can prevent future complications. Make the effort today and partner with a 3PL provider to help reduce and consult through the process of carrier costs.