ECommerce shipping rates are unavoidable and can hamper operations when they get out of control. As brands review packaging and start building out their 2023 forecasts, or make updates after a challenging peak season, it’s a good time to review shipping rates and concerns. The new year will see higher rates, increased fees, and more challenges. However, declining freight and package volumes may give eCommerce companies a better negotiating position with carriers. There are a few essential things to know to take advantage of that potential.
1 2023 will see a big increase in ECommerce shipping rates?
For eCommerce sellers in the U.S., or if you’ve got U.S. distribution partners, shipping is going to get more expensive for just about every order next year. The major U.S. carriers have announced their general rate increases. At a 6.9% increase on average, these are the highest we’ve seen in years. That cost increase covers shipments to your customers as fees for residential delivery are rising. Plus, freight with services from carriers like FedEx are also increasing by more than 6%.
This general rate increase will hit many companies that will likely pass on much of it to consumers. However, that can eat into sales if customers don’t understand the change. ECommerce companies should work to educate consumers and provide direct reasoning about how much rates have increased and why.
If you don’t charge customers for shipping, it may be wise to look for ways to adjust product pricing to cover these cost increases.
2 Size still matters
Carriers already tend to charge more for larger or heavier packages. In 2023, fees for oversized or overweight goods will rise by about 18% for the major national carriers — announced when they also announced their general rate increases.
Any eCommerce company impacted by oversized fees needs to consider its carrier pricing and cost structure. They are likely paying for dimensional (DIM) weight, which has its own set of DIM cost calculations. DIM weight is a pricing formula that carriers use to set pricing based on package volume it takes up — because there’s only so much volume or weight that a trailer can handle.
As your orders or products get larger and heavier, you’ll want to look at different types of packaging and support. There may be times when an order can be split into multiple boxes to reduce costs and still guarantee fast delivery. Or, you may find that you’ll pay based on the size of a package instead of its weight, giving you a chance to increase filler and padding to product goods without increasing your cost.
3 Carriers are willing to negotiate
With all that focus on increased costs and extra fees, eCommerce companies should know that these aren’t fully set in stone. Carriers do negotiate with eCommerce companies as you start selling in higher and higher volumes. If you’re not there yet, consider working with a 3PL to take advantage of that company’s volume-based negotiations.
ECommerce companies should try to secure better deals relative to their specific products and orders. If you’re selling heavy, bulky items or orders, think about that DIM weight. You may be able to negotiate a more profitable change for your business by focusing on the DIM rates instead of trying to get a carrier to drop rates on every order. They may also be willing to reduce or remove some additional handling or residential delivery fees.
Create relationships with the carriers you use daily. Ask about the volumes they want to see from you and where they’re flexible. If you can’t make headway in these discussions, reach out to a third-party logistics company (3PL) to see if they have lower rates and reduced order fulfillment costs that can generate savings while protecting your customer experience.
4 Fees and penalties can outpace prices
Most of the internal discussion on shipping rates is about the price to get an order from the warehouse to the customer. However, there are many additional fees you can face that scale costs significantly. If you use a partner for fulfillment or sell via a marketplace, like Amazon’s FBA options, you’ll want to use 2023 as a time to review those services and their related costs. There may be many chances for you to save.
With Amazon FBA, for example, you may pay fees if goods are improperly packaged, lack barcodes, or need additional handling when they arrive at an Amazon warehouse. Even custom packaging needs to adhere to these requirements, which can be onerous to follow, leading some to just pay the marketplace to add barcodes or take other actions. As you grow, those per-unit costs may scale unnecessarily.
Look for options to process goods at your own facilities and provide proper labels, wrapping, SKU markings, and more. Eliminating the additional costs may help you increase profit margins for those goods.
Many warehouse providers, including those large marketplaces, also charge you more money if your goods sit on shelves for a long period of time. These long-term storage costs create a greater drag on revenue by increasing fees and further shrinking potential margins. It’s time to review your service agreements to see where you can cut out fees, or if there’s a need to reduce inventory holding to protect the capital you need elsewhere.
5 Shipping rates impact conversion rates
Shipping costs have always had an impact on a shopper’s purchase decision. Sometimes a surprise fee at the end will scare them away. Other times, free shipping thresholds may get them to spend more, or price estimates in the shopping cart may get them to stick around a little while longer.
One recent substantial review of shopping carts and checkout processes found that the higher the shipping fee is relative to the total order cost, the lower a conversion rate will dip. For example, when a shipping fee is about 5% of the total order cost, desktop users convert an average of 52.8% of the time. That drops down to 49.7% when shipping fees reach 10% of the total order value.
Increasing carrier costs and fees make pricing decisions tricky. The shipping fee debate will continue, but for now eCommerce companies should look at ways to keep shipping charges low. This can be through carrier negotiations for direct control. Or, you can artificially deflate costs by charging a flat shipping amount and slightly increasing product costs to make up for the rest.
Maintain an honest policy
The driving force behind your response to shipping rate increases should be honesty. If you’re negotiating with carriers for lower rates, be honest about order volume and what share of your total orders you’ll give the carrier. If you’re asking a 3PL to help you with negotiations, be upfront about product details, inventory volume, and more. And finally, if you pass on costs to customers, be honest about the increase and create a blog post or page that fully discusses what’s happening and why.
Customers are willing to work with brands when they feel the company is open and honest, explaining limitations or things beyond its control. The pandemic created leniency in customers that used to demand two-day shipping all the time. Everyone’s a little more forgiving right now.
The better you communicate at this stage, the more your partners and customers will want to work with you when things go well. And, the more they’ll stick with you when any mistake occurs. Good communication builds goodwill.
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Jake Rheude is the Vice President of Marketing for Red Stag Fulfillment, an eCommerce fulfillment warehouse that was born out of eCommerce. He has years of experience in eCommerce and business development. In his free time, Jake enjoys reading about business and sharing his own experience with others.