Let’s face it, shipping costs have been out of control since 2020, and both ecommerce retailers and the third-party logistics (3PL) warehouses that serve them have felt the added pressure to maintain profitability. Regardless of which of these groups you belong to, you’ve had to contend with things like…

  • Escalating carrier general rate increases (GRIs)
  • Complex pricing and surcharges based on often arbitrary variables like shipping zones
  • Rigid contract revenue commitments
  • Fuel surcharge increases at carriers’ “sole discretion”

… just to name a few.

But there is relief in sight, if you are willing to act now.  

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Don’t believe me? Let’s find out why this is the case and what you can do to take control of your shipping costs.

What Comes Up Must Come Down

The law of gravity also applies to parcel pricing. Sort of.

Large rate increases are still happening, and surcharges continue to increase and become more complex. But carrier pricing power has weakened—meaning lower rates can be negotiated compared to a couple of years ago. Unfortunately for shippers, this won’t last forever, which is why now is the time to cut shipping costs.

Do You Want the Good or Bad News First?

The bad news is that cutting shipping costs can be hard. The good news is that there is a long list of ways to do it (which can also be bad news if you don’t know where to start). Rather than just giving you a list, we have distilled it down to two of the most effective ways to cut shipping costs: building a carrier mix and negotiating parcel contracts.

So Many Choices, So Little Time

There are more delivery providers in the market than ever as well as dozens of ecommerce shipping apps and fulfillment software options featuring automated rate comparisons, like Small Parcel Suite in Extensiv's 3PL Warehouse Manager. Whether you need coverage in a certain region or are looking for a cost-effective lightweight carrier, there are plenty of carriers to choose from—and tools to inform your choices. This is another reason why now is a great time to cut costs by building a carrier mix... But having too many choices (and so little time), isn’t that great. 

Here’s a simplified process to help organize your thoughts while building a carrier mix:

  1. Define your priorities and goals
  2. Identify target volume segments (more on this below
  3. Gather information on carrier options
  4. Evaluate carrier fit to your targets from steps 1 and 2, and select and implement carriers accordingly
  5. Develop a continuous process for managing a carrier mix by assessing, identifying opportunities, testing, implementing, and monitoring

Potential areas of savings include:

Lightweight residential: There are many cost-effective options here, but be sure to consider changes to delivery speed.

Local next day: This volume segment is often overlooked, but there are many options that can offer savings (compared to UPS or FedEx Ground), provided you can sort and segregate the volume.

Give and Take (But Mostly Take)

For shippers, parcel contract negotiations have been far more ‘give’ than ‘take’ over the last few years thanks to the new era of parcel shipping brought on by the pandemic. But—due to weakened demand, excess capacity, and the proliferation of carrier options—we are now in a shipper’s market. It’s time to take it back.

If only it were that simple. Parcel contracts are complex, and you'll have to do plenty of prep work before jumping into carrier contract negotiations, including:

  • Understanding your current carrier contracts and pricing.
  • Knowing your parcel data.
  • Deciding whether to conduct a request for proposal (RFP) or renegotiate existing contracts.
  • Determining obtainable pricing targets.
  • Setting savings goals.

Of course, if you don’t have the expertise and/or time to do this work yourself, help is available; there are plenty of parcel consultants that can do the heavy lifting as well as advise on negotiation strategy.

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Once you’ve done your pre-negotiation homework, follow these tips to generate cost savings results:

  • Set expectations with carriers at the outset
  • Target areas of greatest impact and/or areas misaligned to market pricing
  • Understand the full impact of all pricing components
  • Target expense predictability

Learn More

If this seems a little light on details and you'd like to hear the nitty gritty about how to cut shipping costs, you’re in luck.

shipping determining factors

In a recent webinar hosted by Extensiv, I led a deep dive into strategies for slashing your shipping costs, including optimizing your carrier mix and using powerful negotiation tactics to secure the best rates. Whether you're a retailer or 3PL, this webinar will equip you with the essential knowledge and techniques to take control of your shipping expenses and drive significant savings to your (or your customers’) bottom lines.

Missed the live event? You can find “Shipping Hacks 101: The Time is Now to Cut Shipping Costs” and other webinars covering the top fulfillment trends and insights from industry experts and thought leaders in Extensiv’s resource library

About the Author

Nate Skiver

Nate Skiver is the Founder of LPF Spend Management, a parcel consultancy dedicated to helping ecommerce companies compete on shipping. With 22 years of combined retail and consulting experience, Nate is a thought leader and LinkedIn influencer, providing a unique perspective as the only content creator dedicated to parcel and ecommerce delivery.

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