There is a lot that goes on in the back offices of e-commerce companies to ensure customers get exactly what they want when they want it. Logistics for e-tailers is a process that begins long before an order is placed. Selecting a courier company is a difficult task that requires numerous considerations. For medium to large industries, multiple courier partners are required that can handle thousands of orders per day.
Estimating the cost of shipping can be a tricky task for any e-tailer. Of course, most of the shipping companies provide an online calculator for estimating the cost. These calculators are unfortunately very generic and do not account for special products like chemicals, fragile artifacts, or products of unusual sizes and shapes.
Having been in the logistics industry for a fair amount of time, we, at Vamaship have seen it all. That is why we thought of sharing our knowledge on cost estimation with you. Simply follow these 5 easy steps to get an almost accurate cost estimate.
1. Develop a shipping strategy:
In simplest terms, a shipping strategy is a plan that lets you determine what your shipping goals are and what obstacles you need to overcome to reach those goals.
5 major areas that need to be considered by an enterprise when engaging a new courier partner, i.e., shipping rates and pricing, speedy delivery, transparency in shipping and tracking by using advanced technology, and finally the reach of the partner, based on the fleet of vehicles and channel partners they have in place.
2. Understand the impact of shipping rates on your bottom line
An important function of determining accurate shipping costs is to calculate what are the ideal shipping rates that would enable or enhance your company’s profitability. While creating a simple spreadsheet can help you understand the various elements that contribute to both expenses and profits before manifestation and up to order completion, another smart and efficient option is to deploy AI/ML (Artificial Intelligence / Machine Learning) to calculate and compare shipping rates.
Take the following costs into consideration while determining your bottom line.
Cost of Production: From raw materials to manufacturing, the total cost of end-to-end production for each category of products plays a huge role in the final pricing.
Cost of Packaging: Packaging is a huge part of the shipment process and can bear a significant cost, especially if a product has specific requirements to take into account like fragility or temperature
Prior Shipping Costs: With the help of integrated logistics platforms, you can review your shipping expense history and determine how much you have spent on shipping over a certain period, like 12 months, and how it needs to be reduced.
Profit Margin: Once you’ve established what your overall costs are, you can determine what they need to be and the optimum pricing for your product that will provide you a profit margin.
3. Understand how carrier partners calculate shipping costs
While shipping costs inarguably play a big role in determining how you negotiate with a courier partner to provide shipping services for your company, how these costs are calculated ranks equally high in terms of importance. The first thing to consider here is the basic variables on which you can determine the serviceability of a shipping agency as well as the costs.
The rates may also vary depending on additional factors like:
Shipping Zones and Delivery Routes: It’s established that the origin and destination are of great importance, but even the routes taken can impact your shipping costs in case there are any cross-border formalities or if an optimal route is not being used leading to delays in final delivery.
Handling Fees: This type of fee can encompass a range of possibilities, from special requirements for transportation (like temperature-control) to documentation processing (in case there are any customs clearances or requirements for proof of delivery in case of high-value products).
COD Reconciliation: Some courier companies charge independently for Cash on Delivery orders or additional expenses arise during the process of COD reconciliation. A company specialising in that particular requirement may not charge a separate fee for the same.
4. Determine the Peripheral Costs:
There are certain costs that are not spoken about openly. Their impact on the total cost may not be significant but you must still know where your money is being spent. Platform services cost, RTO cost, reverse shipping, additional weight (volumetric dimensions), same-day shipping, next-day shipping, express shipping - time of delivery, mode of transportation are some of the extra costs that may be applicable depending on your product and the logistics partner you use.
5. Include time as a cost while calculating the total shipping cost”
Last but not the least, always consider the monetary impact of delivery time. How much do you stand to lose if your shipment is delayed? Or how much money do you save by delivering the shipment on time? This is the most common mistake that most retailers make. They simply ignore the quality of service provided by the shipping company in order to get the lowest possible cost.