How to Achieve Better Discounts on Freight Rates
If you’re a small or medium business, you probably understand the value of affordable shipping – you have to be able to offer low cost shipping (or in some cases perhaps free shipping) in order to win customers in this highly competitive e-commerce environment. Choosing the wrong carrier or shipping option could cost you thousands. It could also stifle growth. That’s why it’s critical to minimize shipping costs whenever possible. They’re some of the highest fees your business will ever pay in terms of fulfillment and logistics.
Of course, you have multiple options for negotiating shipping rates: you can negotiate your rates with multiple carriers or you can tap into another entity, such as a fulfillment center, that can help you leverage better rates via their higher shipping volumes.
Negotiating Rates with the Carriers
Assuming you haven’t conducted recent negotiations with the major freight carriers, one of the first things you should do it schedule a review with your current provider and at least one other freight carrier. This applies to both small parcel shipping (e.g. UPS and FedEx) and LTL (less than truckload) shipping. In fact, it’s a good practice to institute an annual review and quote process with the freight carriers in order to ensure that you’re receiving the best rates possible.
Prior to meeting with representatives from the shipping carriers, you should have all of the following data on hand:
- Shipping volume
- Average and ranges of weights of shipments
- Shipping service levels used and approximate distribution percentages of each
- Destination characteristics including international shipments and residential shipments
- Packaging, additional services and dimensional requirements
Once you have your information, you’re ready to meet with the carriers and negotiate. It’s imperative that you speak with more than one carrier in order to leverage the competition into additional discounts. Your most powerful and compelling negotiating leverage will come in the form of:
- High shipping volumes, usually greater than 500-1,000 shipments per month
- High concentration of similar sized orders, such as a high volume of shipments over 50 pounds
- High concentration of similar service levels, such as a high volume of expedited shipments
When Your Volumes Aren’t High Enough
Even though you might be the best negotiator on the planet, you’ll have no leg to stand on if your shipping volumes aren’t high enough or your shipping characteristics don’t garner any leverage. Companies shipping fewer than a couple hundred orders per month will likely fall into this category, as will companies that don’t have a high concentration of higher weight shipments or expedited shipments (Ground shipping of light weight products is the most difficult area to achieve savings due to the smaller negotiating “wiggle room”.).
But if your volume isn’t high enough to get the discounts you seek, you may still have options.
Fulfillment Companies can Lower Your Shipping Costs
If you want to ensure the best discount with a reliable service, you may want to consider working with a fulfillment company. Most people know that fulfillment companies store and ship products for companies, but a lesser known fact is that they help businesses achieve high shipping discounts because they aggregate freight and can negotiate steep discounts with freight carriers.
A fulfillment company enables e-commerce merchants to outsource warehousing and shipping functions and focus on core operations. Advantages include:
- Decreased time and cost to manage a shipping staff.
- Volume discounts on shipping that equate to better freight prices than what a small business could obtain.
- Reduce fixed cost to your company. Without housing inventory, your business needs less space.
- Volume discounts received on supplies, such as packaging materials.
- Value from spending more time on business growth rather than shipping.
- No hidden costs or fees.
Ultimately, fulfillment companies can get you better discounts in a lot of ways besides freight.
How Much can Fulfillment Companies Save Your Business?
Fulfillment companies get great rates due in part to warehousing and aggregate shipping. They simply have a lot more to send out, so carriers want their business the most. The best fulfillment companies should pass those savings onto the customer.
The specific savings can vary depending upon the fulfillment company, but the message is clear; you can achieve significant savings with fulfillment companies. According to PickAndPackCompanies.net, the following potential percentages for shipping discounts:
- Ground: 20-30%
- LTL and truckload shipment: 45-50%
- Express: 20-30%
Keep in mind the higher your volume the more enticing it is for a fulfillment company. They are likely to give you a better discount based on volume.
Most fulfillment companies will want to know about volume. That’s because there are certain discounts tied into that factor as well. This can include things like:
- how many orders you ship per month
- where you ship your orders
- how much shipping services you use
They are not only sizing you up as a customer, but they are trying to determine the size of your volume discount. These types of discounts are a win-win for both parties because while you are getting discounted rates, the fulfillment company gets to ship a higher volume.
Are Their Contract Terms?
Another way in which fulfillment companies offer discounts is through contract negotiations. Locking into a long-term agreement can lead to a deeper discount. Terms typically run either month-month or yearly, but if you sign for a multi-year agreement, you may be looking at some serious savings.
Other discounts can include service level and weight. The greater the weight of your shipment, the higher the discount. Be sure to always inquire about discounts with a fulfillment company. They’re great negotiators and always looking to do business.
Lower Shipping Rates are Needed to Survive
Ultimately, you have a choice when it comes to offering the lowest shipping rates for your customers – accept your current rates, attempt to negotiate directly with the shipping carriers, or use a fulfillment service to leverage their steep discounts. Regardless of the avenue you pursue, lowering your shipping rates so you can overcome any buyer hesitations or entice buyers with free shipping offers may just mean the difference between success and failure. It’s just too competitive in the e-commerce landscape not to spend time each year analyzing your shipping rates and determining the best course of action.