How to Reduce Shipping Costs and Negotiate Better Shipping Rates

Reduce Shipping Costs and Negotiate Better Shipping Rates

There’s a lot that goes on in the back offices of e-commerce companies to ensure customers get exactly what they want when they want it. Logistics for e-tailers is a process that actually begins long before an order is placed. To fulfill any order placed, first you need a fulfillment partner. Selecting a courier company is a difficult task that requires numerous considerations (15 to be exact and exhaustive). For medium to large industries, multiple courier partners are required that can handle thousands of orders per day.

However, the process of selecting a shipping agency isn’t over simply at the point of selection. Before tying up with any courier partner, it’s important to preemptively discuss with absolute clarity the terms on which the courier partner will provide their services which includes everything required for end-to-end logistics at reasonable shipping rates.

So how can you keep costs down? To what extent can you negotiate and how can you ensure you are getting a good deal that helps you overcome challenges in shipping strategy? We’re going to give you a review of factors to consider to get the best from each courier contract.

What is a Shipping Strategy and Why Do I Need One?

In simplest terms, a shipping strategy is a plan that lets you determine what your shipping goals are and what the obstacles you need to overcome are in order to reach those goals. For example, one major common shipping goal is to reduce shipping costs by a certain percentage without sacrificing order fulfillment, delivery speed or customer satisfaction.

There are 4 major areas that need to be considered by an enterprise when engaging a new courier partner, i.e., shipping rates, pricing, speedy delivery, transparency in shipping and tracking by using advanced technology, and finally the reach of the partner, based on the fleet of vehicles and channel partners they have in place.

In addition to this, there are numerous challenges that you may face in reaching an open-ended goal like reducing eCommerce shipping costs, starting with variability and complexity behind the calculating of shipping rates by carriers.

Another big obstacle may be a possible reduction in customer satisfaction if they are made to absorb the shipping costs or if the delivery time is reduced to avoid higher shipping costs. There are also larger competitors like Amazon to think about as they can afford to absorb the cost of shipping, an advantage you may not yet have.

So how could these three particular issues be overcome? For problem number one, you’d need to first map out your existing courier costs, following which it’s important to understand how courier partners calculate their shipping rates. For the second obstacle, mapping out alternate routines or making use of technology to provide real-time tracking can reduce delivery speeds at the same shipping rates to improve the overall customer experience.

While many foreign countries specify the shipping costs to customers, that task is considerably more difficult in India and increases the likelihood of customers abandoning their carts. Covering the cost of shipping in the price of the product is far more effective. Focusing on the uniqueness of your product and developing creative pricing strategies can also add to customer enticement and help overcome competition-related challenges.

Mapping out these challenges and possible solutions will help you get a clear view of what your shipping strategy needs to be. Your shipping strategy would likely include how much you can afford to pay for shipping given the existing rates and which routes optimize delivery and customer satisfaction while addressing recurring challenges.

What is the Impact of Shipping Rates on Your eCommerce Business?

The bottom line of every business is to survive financially and make a profit. Accordingly, an important function of determining the best courier companies in India to partner with is to calculate what are the ideal shipping rates that would enable or enhance your company’s profitability. While creating a simple spreadsheet can help you understand the various elements that contribute to both expenses and profits prior to manifestation and up to order completion, another smart and efficient option is to deploy AI/ML (Artificial Intelligence / Machine Learning) to calculate and compare shipping rates.

How to Reduce Shipping Cost- Free Useful Tips

First things first, take a good look at your product/products. For multiple products, it’s best to divide them into categories based on their various shipping requirements. For example, one category of products may require temperature-controlled shipping while another category may consist of fragile products that require careful handling. Once your products are grouped together, you need to determine where your costs are being most greatly impacted and how much profit you need to make. These are the factors to take into consideration.

1. Cost of Production

From raw materials to manufacturing, the total cost of end-to-end production for each category of products plays a huge role in the final pricing.

2. Cost of Packaging

Packaging is a huge part of the shipment process and can bear a significant cost, especially if a product has specific requirements to take into account like fragility or temperature.

3. Prior Shipping Costs

With the help of an integrated logistics platform like Clickpost, you can review your shipping expense history and determine how much you have spent on shipping over a certain period of time, like 12 months, and how it needs to be reduced.

4. Profit Margin

Once you’ve established what your overall costs are, you can determine what they need to be and the optimum pricing for your product that will provide you a profit margin. 

Have an established understanding of your expenses, your requirements, and your profitability can help you determine what your shipping costs need to be as well as what shipping needs have to be met. The next step is to determine which partners meet shipping needs, what their shipping rates are, and what falls within these rates.

How Courier Companies or Partners Calculate Shipping Costs

While shipping costs inarguably play a big role in determining how you negotiate with a courier partner to provide shipping services for your company, how these costs are calculated ranks equally high in terms of importance. Countries like the U.S have specialized services that allow e-commerce businesses to view and compare services and real-time shipping costs of various courier companies. 

However, there are minimal streamlined platforms like that in most other nations, including India. This makes it doubly important to be aware of the determinants considered during these calculations. They can give you a better idea of what shipping costs actually cover, like packaging, shipping labels, security, or insurance, and also where additional hidden costs.

The first things to consider are the basic variables on which you can determine the serviceability of a shipping agency as well as the costs. These are the original location and final destination of the shipment, the size and weight of the shipment, and finally the dimensional weight, which is the assumed weight of the shipment after packaging. 

Not all Indian courier companies consider dimensional weight in their base rates, but it is nonetheless a possible factor to consider in situations where small lightweight products become heavier or bulkier due to the packaging.

The rates may also vary depending on additional factors like:

1) Shipping Routes

It’s established that the origin and destination are of great importance, but even the routes taken can impact your shipping costs in case there are any cross-border formalities or an optimal route is not being used leading to delays in final delivery. Being aware of what shipping zones a particular shipping company is established in, and which ones make use of web-based tools for zone mapping can help. 

You pick a partner with pre-planned routes, thereby reducing the final shipping cost. Mode of transport can also add to the shipping rate, with shipments by air, sea, and road tallying different costs. In addition to that, fuel surcharges can also add to the final cost.

2) Handling Fees

This type of fee can encompass a range of possibilities, from special requirements for transportation (like temperature-control) to documentation processing (in case there are any customs clearances or requirements for proof of delivery in case of high-value products). Storage of products temporarily during transit (usually held at an intermediate location) is another place where a hidden cost may occur. 

Some courier companies charge independently for Cash on Delivery orders or additional expenses arise during the process of COD reconciliation. A company specialising in that particular requirement may not charge a separate fee for the same. 

For example, a courier partner with established fulfillment centers and storage facilities in the locations you require may include the cost of using the same in their base rate instead of including the same later as an exorbitant handling fee. 

Similarly, a company that deals with high-value products regularly, like jewelry or antiques, may include insurance or photographic proof of delivery in their delivery mechanism which reduces overall losses, though at a slightly higher shipping rate. 

By this point you should have a clear understanding of your production and shipping costs, your current profit margin and your intended profit margin, and what you need from a courier partner both in terms of cost and service. Adding to that; the factors and fees that are typically considered by shipping companies and partners, you’ll have clarity of which courier partner functions at the scale you require.

And which services need to be included in your overall logistics cost and not as an additional fee, as well as how to avoid incurring certain additional fees. Together, these determinants will give a clear idea of what cost-effective shipping rates are for your business. Now we can move on to the final step: entering into negotiations.

How to Negotiate With a Courier Partner or Company?

Now that you are aware of the shipping rates you require to maintain and improve profitability as well as the extent of services you require, you can approach the various courier partners of your choice with a firm offer. These simple tips will help you to really get the best possible deal and keep costs low while maintaining a high standard of performance.

1) Don’t Disclose Your Expectations

A basic rule of negotiation (or life, for that matter) is not to reveal your hand first. As a service provider, they will make the initial offer, which will likely be a standard template for pricing. With your accumulated knowledge of shipping strategy and how shipping rates are calculated, you can learn a lot. Find out how they reached their base rates, what is included within this pricing scheme, and if all of the services you require, like careful handling or returns management, are encompassed within it.

2) Do Not Negotiate With Yourself 

Make all the revisions you require to their existing proposal. This will give you better leverage to negotiate a viable price with that courier partner. After submitting your revised version of their offer, there may be a temptation for you to revise it further. Maybe after recalculation of profit margins, you were able to accommodate a higher base shipping rate. In such a case, it’s best to remain firm with your initial revisions to their offer to ensure you maintain the upper hand during extended negotiations.

3) Keep a Time-Limit for Negotiations

Negotiating the terms of an SLA with a courier partner is no easy feat. Given the overall impact that base shipping rates & unexpected hidden costs can have on profit margins, there is a heavy temptation to negotiate until you can bring the prices down. And it’s important to prioritize the services you require as all may not be encompassed within the shipping rate. 

For example, a furniture company will have requirements for larger cargo space, predetermined storage facilities, and proof of delivery. Return management would likely be a later concern given that the products in question are bulky and high-value. Setting a time limit can ensure the negotiations do not continue beyond a reasonable period of time and push you to focus on your priorities.

4) Look for bundles

Once your priority needs have been met, you can look for other tasks and benefits that you need to bundle together. See what are the various services that are usually available separately that can possibly be offered in a package deal. A clothing retailer may require real-time tracking, coupled with access to fulfillment centers, speedy delivery and proof of delivery. There may also be additional requirements for post-delivery action like returns management or customer follow-up. 

If you are able to confirm major commercial requirements on your terms, you can also try to include in bundle premium services on a free-of-cost basis. This can provide you greater overall savings, improve the end-customer experience via options like same-day-delivery (SDD) and next-day-delivery (NDD), or even grant you access to extended invoice payment tenures.

5) Be Willing to Say Say No

In the hunt for multiple courier partners, there is a great deal of pressure placed on business owners to know precisely what services they want and at what rates. The major advantage this knowledge gives you is an understanding of where to draw the line in terms of negotiations.

Sometimes, that also means walking away from a deal that isn’t cost-effective enough and approaching another courier partner. ClickPost integrated platform offers a wide range of 120+ different courier partners to choose from, so no e-commerce business has to settle for courier services that do not fulfill their requirements.