Author: Extensiv May 07, 2024 8 Min READ

Shipping Zones & How They Impact Logistics

8 Min READ
Shipping Zones & How They Impact Logistics

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Navigating Shipping Zones: How to Ship Faster and Save Costs

Whether you’re an ecommerce business or a third-party logistics (3PL) provider that supports them, your success hinges on how effectively you manage accurate order fulfillment and fast delivery, regardless of where your customers are relative to your distribution network. In fact, most customers will consider the cost of shipping before making a purchase. Digital Commerce 360 puts it best:

"There’s no such thing as a free lunch. Nor—even though shoppers may wish otherwise—is there such a thing as free shipping. Someone has to pay. Often, it’s merchants. Within the Digital Commerce 360 Top 1000, 77.2% of retailers offer free shipping in some capacity, such as with a minimum purchase."

While it’s your responsibility to estimate expenses and shipping times accurately and competitively, logistics complexities can make that difficult. Failure to meet shipping expectations can lead to a negative customer experience, resulting in lost sales and unhappy customers.

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So, how can you navigate the complex and ever-changing shipping maze, optimize shipping processes, and ensure you are working with the best carriers, rates, and routes?

Whether managing fulfillment costs on your own or outsourcing order fulfillment to a 3PL provider, shipping zone charts reduce shipping complexities so you can deliver your products faster at less cost. This is especially important if you offer free shipping solutions. While doing so may drive additional sales, you’re still paying shipping costs behind the scenes, so you’ll want to ensure you’re operating as efficiently and cost-effectively as possible.

What Are Shipping Zones?

Shipping zones are delineated geographic regions that carriers like UPS, FedEx, and USPS use to calculate shipping costs. They base their shipping zone maps on the distance from point of origin (where your package travel begins) to final destination. Each zone has different shipping costs and delivery timeframes. FedEx, for example, has eight standard U.S. shipping zones for domestic shipments and additional shipping rates for more remote places like Alaska and Hawaii.

Carrier zone shipping rates often change, at least annually. At the end of 2023, for example, major carriers like UPS and FedEx announced general rate increases (GRI) that went into effect at the beginning of 2024. For 2024, shipping rates for these carriers increased an average of 5.9%, which was slightly lower than the previous year’s increase of 6.9%.

While GRI has existed for years, many 3PLs and brands that manage their own logistics may have been complacent in ensuring their customer projections accurately reflected current GRI, primarily because for many years, from 2014-2021, the rate increase was stagnant at 4.9%. The first jump was in 2022, when it bumped up to 5.9% before reaching 6.9% last year, and settling back to 5.9% for 2024.

These rate increases have a direct impact on brands’ overall shipping expenses. And while 3PLs don’t pay shipping costs directly, logistics providers play an important role in ensuring their customers get the best rates and optimized services. So, in terms of overcoming shipping zone challenges, keeping a pulse on GRI is a best practice.

How to Calculate Shipping Costs with Shipping Zones

How effectively you estimate shipping costs and how you roll them into customer purchases can significantly impact profit and losses. While there are a lot of unique variables to consider for your specific business, products, and customer base, there are some standard criteria every business should consider to estimate shipping costs accurately:

  • Origin zip code
  • Destination zip code
  • Weight and dimensions (including packaging materials)
  • Content value
  • Service level and speed of delivery
  • Costs associated with order fulfillment, warehousing, and distribution

To get a better handle on what it may cost your business to ship a product, consider using an online shipping zone calculator. Most major ecommerce shipping companies have online calculators based on their company’s shipping parameters. Here are a few that might come in handy:

How Shipping Zones Impact Ecommerce Logistics

Shipping zones impact ecommerce logistics by simplifying cost calculations and establishing logistics processes and optimized routes. However, with carrier competition and different rate-setting variables, knowing which carrier to use and which zones are most efficient based on your customer needs is challenging. 

Most carriers base shipping costs on distance. Generally, a smaller delivery radius results in cheaper shipping costs, while packages that go farther cost more. Also, types of services your customers want, for example, specific shipping services and speeds, are factors that influence shipping costs, all of which are variables that could directly impact your shipping profitability and revenue stream.

Hidden Fees Impact Your Budget

When it comes to shipping and delivery, there’s a lot of fine print and many complexities, and it's hard to keep pace with mega retailers like Amazon. Some carriers may implement fuel surcharges or other fees relative to the shipping zone. For example, an intrastate package traveling within a single state may have lower fuel charges than an interstate package that moves across multiple states, which could result in higher fuel surcharges. While it may be easier to manage hidden fees if all your customers are within a few regions, the more your business scales and your customer base expands, the more likely you may encounter those fees. If you overlook them when you’re budgeting, they can negatively impact your bottom line.

Flat-Rate Challenges

Customers expect fair charges, but calculating precisely what’s “fair” can be problematic. For example, you might like a marketing pitch that says all orders over $25 get free shipping. That might work great for a customer in the nearest zone because the shipping costs will be lower and they won’t eat into your profit, but that same flat rate for a customer in a farther zone may actually cost you money. If customers think you’re being unfair in your product charges, it can create a headache for your brand, for example, bad reviews or negative customer feedback.

Inventory Management Issues

To decrease delivery radius and reduce shipping costs, some retailers look for options to warehouse their products from various regions instead of holding them all in one spot for distribution. While this may decrease your shipping costs by keeping your outgoing products in closer zones, your expenses may increase based on additional warehouse and order fulfillment costs.

4 Tips to Reduce Shipping Zone-Related Expenses

By using some best practices, you can decrease shipping zone-related expenses, increase your profit margin, and keep your customers happy.

1. Consider Dynamic Pricing

While a one-cost-applies-to-all might appeal to customers, that strategy can quickly cut into your bottom line. Instead, consider using a dynamic pricing model. With dynamic pricing, you can set tiered costs based on the product’s dimensional weight, delivery zone, and other factors such as faster delivery times. This approach gives customers some flexibility in how they get products from you. For example, if they want it in two days, they pay more than if they’re fine with a longer delivery window. Make sure your pricing structure is transparent and easy for customers to understand.

Examine your company’s historical order and shipping records to implement this model effectively. Determine which products’ weights and sizes are most frequently sent to which zones. Use a multi-location inventory management system that includes shipping and tracking information to ensure this data is always accessible.

2. Use Technology and Automation

Consider using technology tools and automation to optimize your order fulfillment strategy and shipping processes beyond the standard shipping calculators. To simplify and streamline the process, look for a solution that integrates with major carriers such as UPS, FedEx, and USPS. This will allow you to get shipping estimates quickly and easily without switching between multiple resources.

It would also be helpful if the solution includes automatic shipping label creation, which can reduce the risk of human error and ensure that you always choose the most cost-effective shipping option based on pre-established criteria such as weight, dimensions, and zones. If your solution offers real-time inventory insight, you’ll get even more benefits, including the ability to track what’s in your warehouses, orders, and shipping and delivery status, all the way through returns management.

3. Negotiate Rates

If you ship a high volume of products frequently, it’s a good idea to reach out to your core shipping providers to negotiate lower prices based on shipping zones and product volume. Many carriers will offer discounted rates based on these and other criteria. To effectively negotiate, analyze your historical spending with each carrier and identify specific zones and product volume. This will help you build negotiation strategies based on actual and forecasted usage.

4. Partner with a Logistics Provider

Partnering with 3PL providers can offer additional cost-saving opportunities. Experts in fulfillment efficiencies, outside logistics providers work closely with many carriers and move a high volume of products through many zones, allowing them to leverage combined volume from all customers to get better rates. Best of all, they can handle order management and distribution for you.

Unlock the secrets to prevailing in the world of ecommerce and logistics in our  exclusive webinar – hear Rick Watson’s unique perspective and actionable  insights for leading in the next era of commerce.

Benefits of Partnering with the Right Logistics Provider

Partnering with a 3PL or fourth-party logistics (4PL) provider can simplify the challenges of managing shipping zones. These professionals are experts in inventory management and order fulfillment, so they can help reduce distribution expenses, devise efficient order management tactics, and potentially access a geographically dispersed network that would otherwise be out of reach.

Here are three benefits of working with a 3PL or 4PL partner for shipping:

Leverage Logistics Networks

3PLs and 4PLs leverage their vast network of warehouses and carrier partnerships to secure volume discounts and negotiate competitive rates, resulting in lower shipping fees and a boost to your bottom line.

Optimize Order Fulfillment

If you’re focused on managing multiple, strategically located warehouses yourself, that takes you away from other more essential tasks like scaling with business. Working with 3PLs, especially those with multi-location networks, strategically positions your inventory closer to demand in different geographic regions, reducing transit times, unlocking faster shipping options, and potentially lowering zone-based costs associated with shipping longer distances.

Access Technologies You Might Not Have

Managing warehouse, inventory, and order processes can be overwhelming, especially if it’s not your area of expertise. It can also be costly and time-consuming, and selecting the wrong solution can result in wasted resources. However, partnering with a 3PL or 4PL provider can grant you access to these technologies without incurring additional expenses or depleting your resources. Most logistics providers are experts in automation tools and data analytics. They can use their resources to enhance your order fulfillment and shipping services while minimizing human error and saving you money.

Need help finding a 3PL or 4PL partner to help manage shipping and reduce operational expenses using lower negotiated carrier rates and optimized shipping zones? Check out Extensiv’s Fulfillment Marketplace.

How Logistics Providers Help Customers Navigate Shipping Zone Complexities

Shipping zones are a complex web of costs, delivery times, and logistical challenges that can be difficult for many ecommerce businesses to manage. However, as a logistics provider, you can help your customers confidently navigate shipping zones.

Strategic Inventory Management

As a logistics provider, you can eliminate the hassle of inventory management by taking it over for your customers. Not only can you do it for them, you can do it better with the support of automation and other technologies. Using those tools to build a strategic inventory management strategy, you can optimize all of your processes, for example, storing your inventory closer to your customer’s ideal shipping zones so you can avoid long-distance shipments and offer cheaper and faster delivery options within postal zones. This can help you stay competitive and meet customer expectations, ensuring they’re never out of a product when they need it.

Shipping Zone Optimization

While online shipping calculators and maps are helpful, they can consume much of your customers’ precious time and resources. As a logistics provider, you can use your extensive knowledge of zone structures, carrier negotiations, and industry best practices to ensure your customers always have the best routes and rates, often offering them discounts and other benefits your shipping volume enables that they otherwise wouldn’t have access to on their own. You can help the retailers you support by using a WMS with integrated shipping tools to identify the most cost-effective options for each order and shipment, helping them save as much as possible on each delivery.

Decreased Documentation Errors

Shipping is a complex and costly process that can impact customer service. By adopting automation tools, like integrated shipping solutions, you can ensure all customer shipments are correctly documented, packaged, labeled, and delivered within an expected timeframe without incurring additional expenses. This will help decrease labeling and documentation errors. You can also help your customers by staying up-to-date on GRI, zone changes, and any relevant regulatory or compliance issues to help them reduce the risk of penalties, delays, or shipment seizure caused by improper or incomplete documentation or incorrect procedures.

Triumph Over Shipping Zones with Extensiv

Extensiv understands the intricate world of shipping and logistics—and the value of partnering with the right provider. Through its extensive network and industry expertise, Extensiv can help brands and 3PLs analyze order volume, shipping patterns, and zone distribution to determine the best shipping strategy to meet your business goals.

Extensiv can help you:

  • Analyze your order volume, shipping patterns, and zone distribution to identify the ideal 3PL/4PL provider in our network of pre-vetted partners that aligns with your business goals.
  • Know where and how much inventory to store at each warehouse in your fulfillment network to reduce shipping costs.
  • Get centralized visibility into inventory levels, order statuses, and activities across your fulfillment network to analyze historical order data by shipping zone.
  • Process orders efficiently using simple workflows and prioritized picking and packing based on destination zones, among other factors.
  • Simplify carrier account management and eliminate manual shipping calculations with automated rate shopping and real-time rate quotes from multiple carriers.
  • Share order details and shipping instructions seamlessly with the appropriate fulfillment partner and shipping route to ensure smooth fulfillment across a number of zones within a network.
  • Use data analytics and reporting tools to take a closer look at fulfillment and warehousing costs by shipping zone.

Don’t let shipping zone complexities derail your path to success. Extensiv can help you build an effective shipping strategy, optimize costs, and ensure your customers are satisfied with every engagement with your business.

Interested in learning more about fulfillment best practices? Sign up for a demo today, and subscribe to our blog above!

Shipping Zones FAQs

Why do shipping carriers use shipping zones?

Shipping carriers use shipping zones to improve efficiency and manage costs. Shipping zones allow carriers to calculate shipping costs in a simplified way instead of estimating the price for each individual address. By grouping destinations based on variables such as distance, carriers can establish predictable pricing models, streamline operations, and ensure fair charges.

What factors determine shipping rates within a zone?

Many factors can affect shipping rates within a specific zone:

  • Package weight and dimension (heavier and oversized items generally cost more)
  • Delivery speed (expedited services like overnight and next-day are often higher rates)
  • Fuel costs
  • Other services (signature confirmation, insurance, etc.)
How often do shipping carriers update their shipping zones?

Carries may update shipping zones based on factors such as:

  • New roads/routes, airports, and other transportation options
  • Population changes that could impact delivery density
  • Process optimization, more efficiency, or pricing models
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