Shipping costs cover materials, manpower and many different supply chain activities that transport inventory to the end customer. Unfortunately for shippers, these costs are rarely broken down and explained so they can understand why shipping can become so costly. This blog post will bring you up to speed so you get better insight into where your money is going.
Shipping And Handling, Explained
Shipping and handling refers to the process in which an order is prepared, packed and sent to the customer. Consumers typically see “shipping and handling” as a category of fees added to their e-commerce orders, but they might wonder what exactly it covers. The fees break down into the costs of packaging materials, transportation, warehouse space for inventory, delivery and labor across all these activities. If there is a task on the post-purchase side of the supply chain, it likely falls under shipping and handling.
Though often used interchangeably, shipping and handling are two separate processes with the same end goal. Handling is what happens before the package is shipped: picking, packing, adding the correct shipping label and loading it onto the shipping vessel. Then, shipping costs include transportation, fuel, postage, driver labor and any surcharges incurred along the way.
What Affects Your Shipping Costs
You know better than anyone that shipping is a complex business with several moving parts. That’s why total shipping costs are so complicated — there are dozens of factors to take into account. These five are some of the most common.
- Shipping insurance: In an ideal world, every shipment arrives on time, undamaged and in the right location. That is not reality, however, so shipping insurance provides protection. Shippers who send out expensive items are particularly advised to use shipping insurance. It can save them from paying to ship replacement inventory on a regular basis. Most carriers charge for it as a percentage of the product’s value.
- Shipping charges: Shipping-related charges come from any services required to move a parcel from a warehouse or fulfillment center to the end customer. Human errors and the subsequent fees, such as adding the wrong address to a shipping label, fall under this category as well.
- Parcel handling: These handling fees cover the examples listed above. More required handling results in higher shipping costs.
- Duties and taxes: If you’re shipping to another country, you will be faced with fees that depend on what you’re shipping and where. Shippers choose between Deliver Duty Unpaid, which places the onuson the recipient/customer to pay, or Deliver Duty Paid. Both incur “disbursement fees.” Customs may also request new invoices if they suspect a shipment’s actual value differs from the declared value — which can add another fee to the total.
- Accessorial fees: These fees are added post-shipment to cover any losses of time and/or resources during shipping. Let’s dive into those.
Understanding Accessorial Fees
At the time an LTL (less-than-truckload) shipment is tendered, the carrier designates the terms of the pickup and delivery. There is typically a standard, but terms may be subject to change during busy shipping seasons. Accessorial fees are then added to the shipper’s invoice to cover any additional services required beyond the designated terms. Shippers are also responsible for fuel surcharges, which often fluctuate according to the Department of Energy diesel fuel index.
Shippers often choose carriers based on which company can provide the best shipping rates for the size of packages they will be sending. Pricing is based on one of two models: flat rate shipping, which is used by USPS, and dimensional weight, which is used by private carriers like UPS and FedEx.
Flat rate shipping is a near guarantee that you pay only based on the size of the packaging. USPS offers both envelopes and boxes in multiple sizes ranging from $7.15 to about $18.30 and will ship packages up to 70 pounds.
Determining Your Most Costly Fees
Carriers’ shipping calculators will certainly give you a baseline of your shipping costs per package, but you can break them down further. You’ll be able to rate shop and research what you’re being charged for so you can make more insightful shipping decisions.