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Ecommerce brands need to understand the many nuances of freight shipping in order to keep their transportation costs reasonable and to supply their products to customers in a timely and damage-free manner.
Moving products across the country and around the world can get expensive and complex. The factors that contribute to overall freight costs are many, but the main ones include origin, destination, product characteristics, and required transit time. For shipments that need any special attention (fragile, hazardous, dangerous goods, heavy, large, odd shaped, perishable, or temperature controlled) the cost and complexity only increase. Additionally, consumers have begun to expect incredibly fast and high-quality service. Any delays or damage are not tolerated.
For high-growth brands, managing transportation costs is a big part of their viability in the market and scalability. But there are many aspects of freight that brands may not realize are negotiable.
What is Small Parcel Freight?
Freight is a general term for goods and products being shipped or transported. There are many classes of freight that are determined by size, density, weight, and packaging.
Small parcel freight is one of many categories. It is typically smaller packages sent individually, rather than in large bulk. Small parcel shipments have the following characteristics:
- Typically weigh under 70 lbs. per shipment, but up to 150 lbs. for FedEx and UPS.
- Can be shipped in your packaging or the carrier’s packaging.
- Shipments are not palletized.
- Often come with higher fees and surcharges.
For ecommerce brands moving their products across the country and to consumers, there are many considerations when choosing a freight type. Small parcel is best for the following types of products and shipments:
- Direct-to-consumer shipping (B2B often requires larger volume)
- Small, low-value products (packages can be put on multiple different trucks)
- Items that can handle a lot of movement (packages may be re-sorted often)
“When vetting your freight carrier, there are so many factors you need to look at: the product itself, weight, the destination , and much more.”
Freight Carrier Types and Their Benefits
There are many types of shipping carriers who meet different needs depending on why type of freight and shipments you have.
Asset-based carriers (FedEx and UPS) own the equipment and infrastructure required to move shipments through the entire shipping journey. They work directly with shippers and are generally a more reliable, but potentially more costly shipping option. One example is FedEx which provides FTL and some LTL services.
Consolidators are non-asset-based carriers, which means they outsource trucks, facilities, and infrastructure to move shipments. They often they aggregate other shipping partners to complete the shipping journey, most often giving packages to USPS to complete the last-mile of delivery. Examples include DHL and Pitney Bowes.
Regional carriers serve specific sections of the US. They are a great option if your products only need to go to a dedicated area. Some merchants piece together a few local carriers to extend their networks nationwide, which can be complex but cost-effective. Examples include Lazership and WeShip.
Independent operators are a wide-ranging option to pair with any of the above carrier types or used on their own. Amazon has many fulfillment options for ecommerce brands to use. There are also crowdsourced shipping and delivery options—some larger merchants including Apple and Macy’s, are using these crowdsourced delivery services to offer same-day delivery. Examples include Amazon, Uber, and Postmates.
Freight Classifications, Explained
Freight classification or freight class is a standardization of prices across all Less-Than-Truckload freight carriers and businesses. This measurement is determined by National Motor Freight Traffic Association (NMFTA).
Every commodity and product type is given a classification called a National Motor Freight Classification (NMFC), which corresponds to a specific freight class number. They range from 500 down to 50 and will always be based on the density of the product or material*. For example, bricks and cement are freight class 55, refrigerators are 92.5, and ping pong balls are class 500. Ping pong balls are very low density, therefore packing many into a freight container is lighter than packing the same volume of bricks.
Density is the main consideration when classifying freight—it’s the biggest factor, but as described below it’s not the only component. Here are some of the aspects when classifying freight.
- Density—the ratio of weight-to-volume per cubic foot. Basically, how much space your shipment takes up relative to its actual weight.
- Handling—if your product requires any special handling, due to hazards, size, or fragility, it may be placed in a higher class.
- Storability—how easy it is to store or stow your products can be a factor, including a shipment’s size, shape, or ability to be stacked or nested.
- Liability—higher class is assigned to perishable or fragile items, that require temperature-controlled trailers or specific shipping timelines.
- Value—if you are shipping high value goods, the carrier is more at risk for losing money which can increase the freight class.
What Factors Affect Freight Costs?
The rate of your freight cost will be based on several factors. When setting up shipping for your brand here are the primary considerations:
- Distance. The distance your shipment travels is a big factor. Changing the origin point (by fulfilling closer to your customers) can make a big difference.
- Type of product. How your goods get packaged up is a huge consideration. The way they stack, nest, and their overall density will have a big impact.
- Timing. If your products need to be delivered quickly, whether they are perishable or your customers expect fast delivery times, this will cost more.
- Carrier. The type of carrier and shipping service you choose will drastically affect your cost. Some carriers may have more infrastructure and lower fees.
- Additional Support. If products need any added support this will increase rates; including a liftgate, white glove service, or high-risk goods.
“DCL doesn’t just pick, pack, and ship. The team actively finds ways to improve and get better, like how to reduce shipping costs and save us money. The DCL team is always coming up with ways to help me improve my business.”
How Shipping Zones are Decided
The distance your shipment needs to travel is arguably the most important contributing factor to the overall cost of transportation. It’s a non-negotiable aspect of getting a package from origin to destination, so understanding shipping zones and how they affect shipping costs is an important baseline fee in your overall shipping cost.
What are shipping zones?
Shipping zones are numbered geographical areas where carriers pickup and drop off packages. Zones are named numerically, typically ranging from Zone 1 to Zone 8, for all domestic shipments in the US. Shipping carriers utilize zones to measure the distance a package travels, not based on miles but instead on groupings of zip codes, from the origination point to the package destination.
How are shipping zones calculated?
Zones are calculated dynamically based on where a package is shipped from. The origin is categorized as Zone 1 and the destination zone will depend on how far it goes from the point of origin. A shipping Zone of 8 will be the furthest destination.
How do shipping zones affect costs?
Shipping carriers utilize zones to calculate rates for certain services that they offer. Some, like the USPS, offer flat rate shipping that lets you pay the same price no matter which zone the destination is located in. For services that fall under the zoned category, in most cases the greater the zone the greater the shipping cost will wind up being.
What is My DIM Factor?
In shipping, not all weight is created equal. Something small and light (ping pong balls) takes up space very differently than mini fridges. Carriers try to optimize their freight space, and so they calculate the density of shipments rather than just the actual weight.
What is DIM weight?
DIM weight, or dimensional weight, is a pricing technique used by shipping companies to ensure that they don’t lose money on large, lightweight shipments. It’s a volumetric measurement, calculated by a formula using the volume weight of a package based on the dimensions of the box.
Dimensional weight = (length x width x height of the box) / shipping factor
What is DIM factor?
What most ecommerce brands don’t know is that DIM weight can vary from carrier to carrier, because each has a unique DIM factor that they use to calculate their DIM weight with.
Here’s an example: With a box measuring 48 inches x 20 inches x 20 inches will equal 19,200 cubic inches, which is the cubic volume of that package. Carriers like FedEx, UPS, and DHL Express take that number and divide it by the rates for their shipping—different types of shipping will incur a different division number. FedEx and UPS will use 139 in / lb for all services, and USPS and DHL will use 166 in / lb with 1 cubic ft or greater.
Can I avoid using DIM weight?
DIM weight comes is useful for heavy products that are small, or light items that are very large. For products that don’t fit either of these categories, DIM can become a liability and higher cost. Some carriers will use actual weight (the basic scale weight of a package) instead of DIM weight.
How Shipping Surcharges are Determined
Throughout the year carriers will add fees on top of their regular shipping costs. These are usually referred to as surcharges, because they are an additional charge on top of the usual cost.
Surcharges are applied in various amounts, ways, and times. Here is a breakdown of the more common surcharges and how they can affect your overall freight invoice.
- Peak Season Surcharges — In September or October of each year the major carriers publish surcharges they’ll add for peak season, the time between Black Friday and Christmas, plus a week or so on either side. These surcharges are often for a finite period and added to most services.
- Fuel Surcharge — An additional charge on top of the base fuel rate, most carriers have a fuel surcharge that is added to popular services. Often fuel surcharges are perennial, and are calculated as a percentage of the base fuel rate, but in some instances they are a flat fee.
- Delivery Area Surcharge — To offset costs incurred delivering packages outside of the standard areas, delivery area surcharges usually apply to shipments going to remote areas. Each carrier has different distinctions for which ZIP codes are included.
There are many other extraneous surcharges like Saturday surcharge and oversize package surcharge. Check with your carrier for a list of their surcharges and which services they are applied to.
Curious how to track the undeliverable packages, missed deliveries, and lost parcels? Each carrier should issue a daily delivery exception report with these listed and more. If you work with a 3PL they should provide a tailored list for you to use to optimize your shipping communication for customers.
How Fuel Rates are Calculated
Fuel can be a costly part of shipping and transportation. Because the market value of fuel fluctuates frequently, shipping companies change their fuel rates to match the market rate. That means the fuel charge you see on your shipping invoice is rarely a fixed fee or flat rate.
What many ecommerce companies may not know is that fuel rates vary between carriers. They determine a fuel rate based on the average industry prices or the market cost of fuel. This is so that they don’t lose money on shipments when the cost of fuel goes up and they might even profit if the cost of fuel dips. For example, FedEx and UPS are constantly changing their fuel tables and the price difference year-over-year can be quite drastic.
Here is how each major carrier calculates their base fuel rate:
- UPS — fuel rate changes weekly, effective every Monday. UPS takes the average cost of fuel from the two-weeks prior to the Monday the rate goes into effect.
- FedEx — fuel rate changes weekly, effective every Monday. FedEx takes the average cost of fuel from the single week prior to the Monday the rate goes into effect.
- DHL eCommerce – fuel rate changes monthly, effective starting first of each calendar month. DHL takes the monthly rounded average from the two months prior to their effective date.
All three major carriers start with the same market price of fuel (from the national U.S. On-Highway average price for a gallon of diesel fuel as published by the U.S. Department of Energy), but because they take their average from a different period of time their base fuel rates can sometimes look quite different.
Where do Fuel Surcharge Costs Apply?
Different carriers will apply fuel surcharges to different services. Often fuel is applied to services outside of the carrier’s core services—the ones where longer transportation routes or more time driving is required.
Here are a few examples of services where fuel costs are applicable. These are not exhaustive lists for either carrier.
- Delivery or pickup changes
- Remote and extended delivery and pickup charges
- Residential surcharge
- Return services with pickup
- Saturday delivery and pickup
- Signature required
- Additional handling
- Large package
- Over maximum limits
- Additional handling
- Call tag
- Delivery area surcharge
- Delivery signature required
- Home delivery
- On-call pickup
- Residential delivery
- Return on-call pickup
The Pros and Cons of FTL vs. LTL
Choosing the right freight shipping method depends on several variables, but one of the biggest factors is how much product you can ship at once. Another way to look at this is how much of a truck trailer or shipping container can you fill up? For larger items this is easy to do. Smaller or more perishable items it becomes harder.
The two main types of freight are FTL and LTL. Small parcel freight falls under the LTL category. Deciding between the two can be obvious for some brands, but not so obvious for others.
Benefits and drawbacks of FTL and LTL:
- LTL can mean greater cost savings if you can only ship a few pallets at a time. With FTL you would be eating the cost of a partially empty trailer.
- With LTL it’s the carriers’ responsibility to fill the truckload, not yours. With FTL you are responsible for the truckload capacity.
- FTL often has faster transit times because there are no extra stops along the way. This means more predictable delivery windows for end-customers.
- FTL carriers often have a firm pickup window time whereas LTL shipments usually have a broader pickup window which requires more flexibility on your end.
- LTL shipments get loaded and unloaded many times before reaching their destination which can lead to more damage due to more handling and exposure.
Read more about how to optimize your shipments for either FTL or LTL shipping.