How to Lower Your Ecommerce Shipping Costs

There are so many layers to the shipping aspect of the ecommerce industry that it can be a bit overwhelming. Even once you’ve decided on a shipping carrier and shipping service, the cost to send packages can vary greatly as a result of many factors. That’s why ShipMonk created this amazing, and amazingly concise guide.

Here you’ll learn about the different factors that affect shipping costs including base rate, surcharges, weight, shipping zones, and shipping speed. Delve into all these topics and conquer the complexities of shipping costs now!

Base Rate

Shipping carriers set a base rate for each shipping service they offer (2-day, standard, economy, etc.). Rates are tiered within each service for various package weight ranges and destinations (shipping zones). Carriers adjust their base rates annually according to projected operating costs, shipping capacity, forecasted demand, fuel prices, and other factors. Large shippers, such as retailers, marketplaces, and fulfillment or logistics companies, may be able to negotiate caps on annual rate increases. Smaller shippers tend to send all their volume through one carrier in hopes that they’ll get a discounted rate.

Surcharges

A shipping surcharge is an additional charge that is added to the normal cost of shipping a package. Surcharges are meant to help shipping carriers cover increases in operational costs due to forces outside their control, such as fuel price increases and rising labor costs. At a glance, the total shipping cost for a package includes the base rate plus any applicable surcharges that protect shipping carriers from fluctuating costs not covered by their base rates. There are seven main types of surcharges:

Fuel Prices
Peak Season
Residential
Delivery Area
Handling
Inflation
Logistics

By instituting surcharges and changing them as costs rise and fall throughout the year, shipping carriers can maintain profitable margins for each delivery. Large shippers may be able to negotiate waivers for certain surcharges, but have no control over the surcharges they do pay. Explore the seven types of surcharges and what you can do about them today.

Dimensional Weight

Shipping carriers charge for two things: their services and the physical space a package takes on a truck or airplane. Dimensional weight, a.k.a. DIM weight or volumetric weight, is a pricing formula adapted by shipping carriers to charge customers for the volume (cubic inches per pound) packages take up. The more space they take up, the more you’re going to pay. No matter which carrier you use, they calculate DIM weight with the same steps.

Weigh the package
Measure all three dimensions at their largest point (rounding up each number to the nearest inch)
Multiply the width x length x height
Divide that number by a mysterious number called the DIM factor (sometimes called the DIM divisor or density ratio)

To ensure profitability, each shipping carrier sets its own DIM factor, or the maximum cubic inches per pound they will accept. Because this number is the divisor in the equation above, the higher the DIM factor, the lower the DIM weight.

Some carriers (like UPS) will charge their regular business customers one rate, and infrequent customers a different rate. Because space and weight limitations vary by transport method (air freight, ocean, rail, or road), some shipping carriers (like DHL) use a different DIM factor for each mode of transportation. Discover the ins and outs of DIM Weight and carrier specific requirements on our ShipMonk blog.

Shipping Zones

Zones affect your shipping in two main ways: cost and time. The United States is broken down into Zones 1 – 8 for domestic shipments. These zones are grouped not by miles, but by zip codes from the point of package origin (where an order is shipped from) to the point of destination (where the package is going).

Major shipping carriers look at zones to determine distance traveled, which corresponds to an approximate number of days it takes a package to be delivered. Shipping zones are calculated based on where an ecommerce order is shipped from. Ergo, two packages going to the same destination, but coming from unique origin points, could have completely different shipping times because they are traveling through different zones to reach customers.

The time it takes an order to be delivered, paired with package weight, sets the shipping cost. Hence the more zones traveled the bigger the price.

The major shipping carriers discussed above have individual approaches to shipping zones as well, but those are just details. Learn more about shipping zones and how ShipMonk dynamically utilizes them to your advantage now!

Overnight Shipping

Overnight shipping is the fastest way to get goods to buyers. Shipping carriers are able to offer overnight delivery if they have transportation networks across the country. Depending on how extensive the network is, a parcel could arrive at its final destination faster or slower, hence why certain regions, Hawaii and Alaska, and rural areas may not get deliveries as fast as businesses or residences in major cities.

The different shipping carriers offer a range of overnight options. Selecting a carrier and option that’s right for your brand comes down to weight of package, cost, and how quickly you want it to reach its destination.

At ShipMonk, we are big fans of 2-Day shipping, as it’s an expedited delivery option that offers a happy medium between buyer satisfaction and business budget. That being said, if you’d like to learn more about overnight shipping, read our overnight shipping analysis for facts about this expedited method and the different options that exist for it with major shipping carriers.

2-Day Shipping

2-Day shipping is when ecommerce customers receive their orders within two days of purchase, assuming they click BUY before a specific cutoff time on a given day. In that tight turnaround an ecommerce order is processed and the information is sent to the designated warehouse or fulfillment center responsible for that order. The order is then picked, packed, and sent out for delivery through a shipping carrier.

Depending on the shipping carrier, and an ecommerce merchant’s internal processes, “2-Day shipping” could refer to two full days (48 hours) or two business days (which is counted from the moment of purchase, taking into account order cutoff time).

For example, say an ecommerce merchant has a 2-Day delivery policy for orders received before 3PM. If you place an order on Wednesday before the 3PM cutoff, it will be delivered on Friday. If you place an order on Wednesday after the 3PM cutoff, it will be delivered on Saturday. This is the case if the company has a flat 2 day policy though. As in, the package will be delivered 2 days later, regardless of the day of the week. If the ecommerce merchant has a 2 businesses day policy, then if you place an order on Wednesday after the 3PM cutoff, it will be delivered on Monday because you missed the Wednesday deadline and that led to the order being processed on Thursday.

At a glance the benefits of offering 2-day shipping include:

Reduced Cart Abandonment
Increased Customer Satisfaction and Loyalty
Additional Seller Talking Points

In general, 2-day shipping is a happy medium between meeting the demands of today’s gotta-have-it-now environment and not overstressing your budget so you’re still making a profit. Offering this shipping option also keeps you competitive with other brands, as customers have been known to pick one seller over the other based on delivery times. And that speed, combined with order accuracy, can entice buyers to come back and convert into repeat customers. For more about 2-Day shipping, we encourage you to check out our in-depth resources below:

Cost and Effect

As you can see, there are many different factors that affect shipping costs. The great news is that ShipMonk has many ways to help you navigate that complex world, from our variety of expedited shipping options to our Virtual Carrier Network, and a lot more! If the strategic ways we’re conquering the shipping world would make your life easier, and growth for your ecommerce business easier, contact the team today to begin your journey with us!