Navigating Carrier Costs and 3PL
Surcharges can be a major headache for how 3PL warehousing operators, not only inflating costs but also introducing unpredictability into budget forecasts. With shipping rates constantly fluctuating, accurately predicting expenses becomes a complex challenge. To safeguard profitability, how 3PL warehouses such as MacMillan use effective strategies for managing these costs. Fortunately, there are several tactics available to help contain expenses and preserve margins.
Base Rate vs. Accessorial Charges
Determining the true cost of shipping involves more than just looking at base rates. While base rates provide a foundational cost, they don’t encompass the full picture. Accessorial charges, additional fees for specialized services like lift gates or residential delivery, can quickly accumulate. Understanding these charges is crucial for managing outbound shipping costs effectively.
What is a Base Rate?
A base rate is the fundamental cost of moving goods from one location to another, usually negotiated between you and the carrier. Unlike base rates, accessorial charges are extra fees for additional services that aren’t part of the basic delivery. While base rates are generally fixed according to contract terms, accessorial fees can vary based on specific service needs.
Choosing the Optimal Base Rate
Selecting the best base rate involves evaluating various factors beyond just the quoted rate. Although base rates across carriers might seem similar, differences in package specifications such as size, weight, and distance can impact the overall cost. Additionally, accessorial charges and other fees can significantly affect the final expense. Tools like MacMillan’s rate shopping feature can help compare base rates in real-time, how 3pl warehouses use for ensuring you secure the most cost-effective shipping option for each order.
Understanding Accessorial Charges
Accessorial charges are additional fees imposed by carriers for services beyond the standard delivery. These can include costs for loading, unloading, packing, or delays. Recently, these surcharges have become more prevalent as carriers seek to enhance revenue streams. A recent survey indicates that more than 75% of carriers view these fees as essential to their financial stability. Being informed about these charges will help you develop effective shipping strategies and negotiate better rates with carriers.
Impact of General Rate Increases (GRI) on Base Rates
General Rate Increases (GRI) are an inevitable aspect of the shipping industry, influenced by rising costs in fuel, insurance, wages, and other operational expenses. Carriers often pass these increased costs onto shippers through adjusted rates. Typically announced in October or November, GRIs can lead to noticeable hikes in base rates. For instance, recent GRIs for major carriers include:
- UPS: 6.9% increase, effective December 27, 2022
- FedEx: 6.7% increase, effective January 2, 2023
- USPS: 5.5% increase, effective January 22, 2023
These increments, though seemingly modest at 4-6%, can significantly raise the base rates that 3PLs pay, impacting overall costs.
Key Insights and Strategies for mastering shipping costs
As the logistics landscape becomes increasingly intricate, managing how 3pl warehousing implement accessorial charges and other fees can be challenging. These supplementary costs can significantly impact a 3PL’s bottom line, but they also present an opportunity for negotiation. The key to negotiating effectively lies in understanding these surcharges and their impact on your total shipping volume.
Leverage Detailed Fee Knowledge
To negotiate better terms, it’s essential to understand the percentage of accessorial charges relative to your overall shipping volume. Armed with this knowledge, you can present a well-informed case for adjustments. MacMillan offers regular audits of your shipping bills to identify and dispute errors or overcharges can lead to cost recovery and increased carrier accountability.
Estimating Your Shipping Costs
Our Invoice Analysis tool offers a detailed breakdown of your UPS expenses. By importing your data and using our template, you can swiftly pinpoint where your money is being spent. This tool presents charges in a clear, organized format, highlighting the most impactful fees on your bottom line. Say goodbye to hidden fees and make informed decisions by checking out the link above.
Prevalence of Industry Standards
Many shippers 67% believe they are paying standard industry rates. However, understanding specific surcharges imposed by carriers can help you manage and reduce costs effectively.
Common Carrier Surcharges
Carriers impose various surcharges to manage operational costs and handle exceptions. While automation has streamlined many processes, certain scenarios still require manual intervention, leading to additional charges. Understanding how 3pl warehousing uses these common surcharges to help you take proactive measures to minimize expenses:
- USPS Shipping Surcharges:
- Non-Machinable Surcharge: Applied to packages requiring manual sorting.
- Fuel Surcharge: Adjusted based on fluctuations in fuel costs, calculated as a percentage of the shipping fee.
- FedEx Shipping Surcharges:
- International Fuel Surcharges: Fluctuate weekly based on jet fuel prices.
- Delivery/Pick-Up Surcharge: Additional fee for deliveries or pick-ups in remote areas.
- Handling Surcharge: Applied to packages exceeding 48 x 29 inches.
- Oversize Charge: For packages longer than 96 inches or with a combined length and width of over 129 inches.
- UPS Shipping Surcharges:
- Fuel Surcharge: Based on jet fuel prices from Canada.
- Address Correction: Charged to the shipper for incorrect addresses.
- Over Maximum Limits Fee: Applied to packages over 154 pounds or 108 inches in length.
Optimize Shipping with MacMillan WMS
MacMillan WMS offers live rate shopping to help you select the most cost-effective carrier for each shipment. By comparing rates, transit times, service levels, and surcharges, you can make smarter shipping decisions and reduce costs. Analyzing how 3PL warehousing optimizes real-time rate access ensures you always choose the best option for your needs.
Additional Surcharges to Consider
- DIM Weight: Carriers use dimensional weight to calculate shipping costs based on package size. Lightweight items in large boxes can lead to higher charges.
- Seasonal Peak or Demand Surcharge: Added during peak seasons fluctuations or high-demand periods to cover increased operational costs. These surcharges can affect both incoming inventory and outbound shipments. Accurate demand planning such as MacMillan can mitigate these costs by forecasting product needs and optimizing distribution strategies.
By anticipating peak season demands and ordering inventory ahead of time, you can minimize extra charges and reduce transit times, fuel costs, and other transportation expenses.
Understanding these elements and implementing strategic planning can lead to significant savings and improved shipping efficiency.
Strategies for Managing Shipping Costs
To accurately project your total shipping expenses, it’s essential to thoroughly investigate accessorial charges. Here are some strategies 3PLs should consider to optimize shipping costs:
- Negotiate Carrier Fees: Adjust fees based on your shipment volume and specific characteristics.
- Consolidate Shipments: Reduce the number of individual deliveries by grouping shipments.
- Optimize Packaging: Minimize dimensional size and weight to lower shipping costs.
- Improve Shipping Routes: Analyze and optimize routes to reduce fuel surcharges.
- Leverage Technology: Use advanced tools to streamline the shipping process and reduce fees.
Understanding and addressing these surcharges will help you manage shipping expenses more effectively and make the most of your shipping budget for how 3pl warehousing providers can optimize operations.
Key Statistics: 71% of companies are actively working to reduce accessorial costs through strategic initiatives, with an additional 26% planning to implement similar measures soon.
Essential Lessons for Outbound Shipping
As we conclude our discussion on outbound shipping, it’s crucial to remember that base rates alone do not define overall shipping costs. Consider the following points when estimating your shipping expenses:
- Understand All Costs, Including Hidden Fees
Initial rate cards from carriers usually only show base shipping rates. Ensure you inquire about accessorial fees and how to avoid additional charges.
- Regularly Review Your Shipping Invoices
Periodically review reports of your shipping expenses over a defined period (e.g., quarterly or semi-annually). Scrutinize these charges and request itemized bills from your carriers if discrepancies arise. Although this process can be time-consuming, it’s vital for how 3pl warehousing should be avoiding overcharges and aiding in contract negotiations.
- Plan Ahead to Avoid Peak Season Surcharges
Order inventory early to avoid incurring peak season surcharges twice: once when receiving inventory and again when shipping orders to customers.
Outbound Shipping Cost Takeaways
By understanding common carrier surcharges and employing effective shipping cost strategies, you can achieve significant savings. Analyzing your shipping costs and developing strategies to minimize expenses will enhance your business’s efficiency.
MacMillan offers a range of tools and insights to help you choose the best carrier for your needs. With our analytics and real-time rate shopping features, you can gain a comprehensive view of your shipping expenses and maintain control over your 3PL’s economics.
For More Information: Contact us at MacMillan for additional details on optimizing your shipping strategy.
About MacMillan: MacMillan simplifies eCommerce delivery with our comprehensive warehouse management software and outsourced shipping solutions. Serving thousands of brands and 3PLs daily, we streamline logistics to ensure your products reach your customers effortlessly.
