Is Your Freight Spend Too High? Simple Steps to do a Freight Cost Analysis for DTC Shipping

High-growth ecommerce businesses may spend up to 70% of their budget on shipping and transportation. When shipping direct-to-consumer, there are many variables that factor into overall freight cost—cross-referencing each aspect alone can be a misleading way of optimizing your transportation spend.  

There can be aspects of your shipping mix or selected services that need to be consolidated or negotiated for a reduction in cost. The only way to know where you may be overspending on freight costs is to conduct a thorough analysis of your shipping invoice.  

Brands should conduct a comprehensive freight analysis on a regular basis to ensure they’ve optimized their shipping strategy. Only by collecting all costs and all shipping variables will you be able to properly assess your overall transportations costs.  

Here are the steps to take to conduct a thorough freight cost analysis for direct-to-consumer domestic shipping.  

What is a Freight Cost Analysis?  

A freight cost analysis is a systematic way of identifying areas within your shipping costs that may need to be adjusted. A freight analysis should be used to compare costs that you are currently incurring for parcel deliveries.  

Freight costs should be reviewed and analyzed on a regular basis. Any changes to your product, packaging, warehousing, fulfillment location, or delivery speed will mean changes to your shipping costs. Without assessing the optimal carrier and service for any adjustments, you may be overpaying for shipping.  

Here are a few examples of reasons to conduct a regular freight analysis:  

• Your shipping carriers announced new prices—carriers adjust prices annually, sometimes more often than annually  
• You notice consumer buying habits are trending up or down from different zones, which naturally changes the overall cost of your  
• You’ve decided to make changes to your packaging (eco-friendly!), your kitting (fewer boxes!), or packing materials (safer products!), which may alter the dimensions of your parcels, naturally changing the overall cost 

Steps to Conduct a Freight Cost Analysis for DTC Shipments

Step One: Build a Freight Cost Table

Gather the following information. You’ll need to build a cost table (or multiple tables) to chart the following cost factors.  

• Rates by weight and zone of the carrier(s) and service(s) you are auditing  
• Zip code tables or zone tables (these vary between carriers, you’ll need one for each carrier you’re auditing)  
• Zip codes for Delivery Area and Extended Delivery Area surcharges (these vary between carriers, you’ll need one for each carrier you’re auditing) 
• Residential surcharges, if applicable, for each carrier and service  
• Fuel surcharge rate for each carrier and service  
• Dimensional divisor for each carrier and service 
• Other surcharge details which may apply to your parcels (additional handling, non-qualifying dimension, etc.)  

The exercise of building your initial tables is the most important part of your analysis. If you’ve done that as thoroughly as possible, sorting your data should prove simple. Remember this process is best for DTC ecommerce brands. 

It’s easy to rate-check on a per service basis—looking at the Delivery Area Surcharge across carriers, for example. But that base cost doesn’t take into account the entirety of your shipping mix. Only once you have included the many variables that factor into shipping your product can you get a clear analysis of your overall transportation costs.  

Step 2: Compile and Organize Historical Data  

Locate a shipping file with historical information containing 30-90 days of shipping data. It is important that this includes the following data points, at the bare minimum:  

• Origin zip code 
• Destination zip code 
• Shipping zone  
• Dimensions (length, width, height) 
• Weight (actual and billed) 
• Carrier  
• Service 
• Net cost 

Make sure all your data types are normalized within your chart. For example, it is common to see leading zeroes dropped from zip codes once data is moved to a document or sheet. If these aren’t fixed, you will not have an accurate analysis.  

Step 3: Sort Your Shipping Data for a Specific Outcome  

Once you have collected and charted the specific details you want to assess, you’ll want to merge that data with your historical shipping file. There are a few ways to do this, it depends on your desired outcome and the software you prefer:  

1. Excel file or sheet. You’ll need to leverage formulas like v-lookup to access data across multiple tables and roll the data up into a pivot table.  
2. Microsoft Access. You can import all the tables and import your historical shipping file, run a series of queries that will ultimately produce a master report for export.  

The software you use will only work as well as the information you gather. Ultimately, by sorting this data according to your main objective, you’ll get a total landed cost rate. It will be the amalgamation of the variables combined.  

Step Four: Assess Your Outcome  

There are multiple goals you may have from conducting a freight analysis. You can use this data to assess various outcomes.  

Here are some possible ways to use the data in your freight analysis.  

Compare Historical Data  

If the analysis is simply to compare your historical data over time, without changing the service or origin fulfillment center, then you should compare specific periods of time. By doing this you’ll naturally see cost fluctuations and be able to assess if your rates are optimized for business growth. Seeing rates get too high in any area may mean it’s time to then reassess the services you choose.  

Cross Reference Other Services  

If your goal is to compare your current data with another service, you can re-rate the shipments in your historical data with the costs of a new service.  

Be sure to factor in the appropriate rate ingredients (surcharges, zones, dimensional weight, etc.) so that the comparison is accurate. Fuel is typically calculated once all other rate ingredients are added to the base rate. 

Optimize to Change a New Shipping Origin  

You can also use this process to calculate the costs from a different origin fulfillment center. You can perform a freight analysis with a new potential fulfillment center to assess a lower overall rate.  

To do this, first determine the fulfillment center with the lowest zone to your destination. Then determine and assign the rate ingredients compiled from that zone.  

In a two-fulfillment center setup, where one is on the East Coast and one is on the West Coast, it is typical to see a spilt where approximately 70% of shipments are optimized, for cost and transit time, when shipped from the one origin and rest from the other origin. For example, it is cheaper and faster to ship a parcel from PA to NY than it is to ship it from CA to NY. Likewise, it is cheaper and faster to ship a parcel from CA to AZ than to ship it from PA to AZ.  

Bottom Line  

Shipping is a vital aspect of ecommerce. It’s so important to get the right mix of service, delivery speed, and cost. The wrong mix can hinder your growth. It can be complex to understand each line item of your shipping invoice, but by compiling the relevant information and analyzing it against your historical data you’ll better understand what you are paying for.

If you outsource to a 3PL or logistics partner, they should be helping you conduct a freight cost analysis on a regular basis. Leverage their expertise to help you optimize your shipping and transportation strategy.  

Tags: Calculators & Formulas, freight