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Shipping is a huge aspect of any seller’s ecommerce fulfillment strategy. It’s also likely one of the most costly.
Direct-to-consumer shipping can make up as much as 70% of a company’s total fulfillment costs and can be a material percent of their average order value. Now more than ever sellers are highly incentivized to find ways to optimize their shipping to be faster and more affordable.
This comprehensive guide is a resource for sellers new to ecommerce fulfillment, as well as experienced sellers looking to reduce costs, ship into new channels, or take their products abroad.
“The fact that we can scale with DCL is really important to us. In the long term, being able to ship out of the center of the country as opposed to one of the coasts is going to be more cost effective overall for us.”
The Basic Components of a Shipping Strategy
- Volume, speed, and distance are among the first considerations you’ll need to weigh. Understanding these aspects of your products and business will be crucial in shaping your shipping strategy.
- Set your shipping rates and methods. You need to determine what fees you’ll ask your customers to take on and what you’re willing to absorb. The big options are: flat rate shipping, charge real-time carrier rates, or offering free shipping. Among these there are many nuances that you can change depending on the season, cost of your goods, and specific products customers are buying.
- Calculating shipping costs. You’ll want to choose a carrier to work with. Each offers slightly different services depending on the areas you want to ship, the size and weight of your packages, plus how quickly you want to get products to customers. Each carrier has a shipping calculator that might be a good place to start.
- Figure out packaging and packing materials. First calculate your DIM weight then work from there to optimize your products for the best rates.
- Insurance and tracking. One of the secondary aspects to consider is what insurance and tracking you’ll want to offer customers. This is to help improve the level of security of your parcels, but it is also more costly.
Read more in our Complete Guide to Shipping for more detailed information.
What is Dropshipping and is it Right for my Business?
Dropshipping makes it incredibly easy for sellers to launch ecommerce stores because it relieves them from many hassles of the supply chain, like inventory management or shipping logistics. The accessibility and simplicity of a dropshipping business model enables anyone to start an ecommerce business quickly. Even if you only dropship some of your products, you’ll be freeing up resources for the items that require more of your attention.
Dropshipping might be a good fit for these types of products and businesses:
- Perishable goods (such as beverages)
- Goods that aren’t updated often (tools, for example)
- Relatively low value, high demand goods (personal care products)
- High turnover products (no deadstock!)
- Smaller items (lower shipping)
- Distinct products that can’t be found locally (like specialty cereals)
Read our full guide to the pros and cons of dropshipping (including how to dropship with Amazon, and work with a 3PL to dropship.
“Anything we can turn around more quickly, reduces or eliminates the need to bring things in by air. So if we’re talking about bringing in a pallet of units by ocean versus bringing in a pallet of units by air, you’re talking about an order of magnitude difference in cost. The speed of dropshipping ends up being a tremendous cash savings.”
How dropshipping helped triple Aura Frame’s year-over-year growth, lower their freight costs, and provided a more flexible inventory planning method.
Factoring In Transit Times
The Amazon Effect
In recent years Amazon has created a huge disruption in the ecommerce market by offering two-day, one-day, and now same-day shipping for Prime members in almost any area of the US. This has put pressure on other retailers, large and small, to follow suit and offer competitive transit times. Fast shipping is now an industry standard and means consumers now expect it. Shopping patterns now reflect consumers’ preference for fast-as-possible shipping and companies really need to match that in order to stay competitive.
“Customer satisfaction is one of the most important parts of any company. You have to look at it as if you’re the consumer: ‘Do I want to buy products from this brand, even though it always takes two weeks for it to get to me?’ Some companies are okay with that. But some companies really need faster times to stay relevant.”
At its most basic meaning, expedited shipping is any shipping or delivery method guaranteed to get an order to a customer faster than the standard delivery method would. Expedited services apply to orders placed by customers who need them fulfilled as soon as possible.
Depending on which standard shipping services are available (depending on shipping zone, size and weight, or other factors), the exact turnaround for expedited orders can vary. If five-day shipping is the standard for a seller, and one of their customers selects expedited shipping, the order will be guaranteed to arrive at some point sooner than five days after the order is confirmed.
Read more about expedited shipping and how to implement it into your shipping strategy.
“When we opened up the aperture to a wider delivery window, it put us into a different category of postage services. We ended up switching carriers to better fit our new strategy.”
What is the Difference Between FTL and LTL Freight Shipping?
LTL refers to less-than-truckload. LTL is when multiple shippers’ freight is on the same trailer rather than having a single company’s freight exclusively on an individual trailer. Several LTL shipments are combined into one truck to fill it as near to capacity as possible. This is a great option for shipments that are between one and six pallets or any shipment that is less than 14 linear feet because it makes the most out of the available shipping space on a given truck. This is beneficial for the shipping needs of small businesses.
FTL refers to full truckload freight. FTL shipping is commonly used for large shipments that require taking up the entire truck, or at least close to it. With FTL, your freight is the only freight moving on an individual truck so you have exclusivity to the entire truck and theoretically are filling the truckload. You can reserve the truck with its full capacity even if you don’t require filling up the entire available space. Doing so would ensure that you won’t have to worry about your goods changing hands at any time or your goods being stuck with other products.
Read more about LTL and FTL and if either makes sense for your brand.
Small Parcel Shipping: Comparing UPS, FedEx, and DHL Services
Companies who sell smaller items, anything under 10lbs—consumer electronics, health & beauty supplies, or consumer packaged goods—have a few options for their small parcel shipping strategy.
The most used services for small parcel shipping are UPS SurePost, FedEx Ground Economy (previously SmartPost), and DHL eCommerce. All three have many similarities, yet some distinct differences, yet many companies may not know which one is truly right for their products and brand.
The benefits of using these specific services for small parcel shipping include:
- Cost savings: It is estimated that the last mile costs as much as 28% of the total transportation costs. UPS and DHL leverage USPS’ existing infrastructure (the post office, mail trucks, postal carriers) instead of their own to save on costs. As a result, they can reduce costs and offer sellers additional savings, all without compromising speed and reliability.
- Saturday deliveries: Sellers get the benefit of deliveries six days a week without incurring additional fees.
- Residential surcharges: It’s common for other ground shipping services to incur residential surcharges, but SurePost, Ground Economy, and eCommerce have limited surcharges.
- Available tracking: Tracking provides the seller and end consumer the ability to track their package throughout the transportation process. However, tracking can be limited when it is handed over to USPS for last mile delivery.
- P.O. Box delivery: Most of the services UPS, FedEx, and DHL offer do not provide P.O. Box delivery, but since they use USPS for these particular services, sellers can send to P.O. boxes.
- Insurance: There is a $100 replacement value service insurance in the event the package is lost or damaged while in the hands of the carrier. None of the carriers’ insurance covers lost or damaged packages once it’s passed to USPS.
Read the full analysis comparing these three small parcel services.
What is Last Mile Delivery?
Last mile delivery is defined as the movement of goods from a transportation hub to the final delivery destination. The final delivery destination is typically a personal residence or a commercial business. The focus of last mile logistics is to deliver items to the end user as fast as possible.
The COVID era increased the use of many new ways to execute the last mile of delivery. The use of robust analytics and real-time data have boosted customer satisfaction for this segment of logistics. Most retailers now connect their customers to real-time tracking so that consumers can see exactly where their package is and when it’s expected to land on their doorstep.
The uptick in micro warehousing, urban fulfillment centers, and crowdsourced delivery systems have all given rise to faster delivery times. Every company is competing with the industry standard (Amazon’s same-day delivery) and striving to accomplish that any way possible.
Thinking about launching into new markets abroad?
While the US is the crown jewel of the ecommerce consumer market today, international markets are growing and you’ll want to narrow your focus on a select few countries as a start and expand from there. The largest ecommerce markets outside of the US are China, the UK, Japan, Germany, France, and Canada, but sellers will need to determine which markets are the most suitable to enter and sustain growth.
While international sales may increase your sales volume, it will also increase your administrative output. There are so many details to get right when bringing your products to new countries and new markets. Here are a few topics you’ll need to figure out.
- Taxes, duties, tariffs, and more—a quick explanation of international shipping costs.
- Commonly overlooked international shipping costs.
- EU VAT rules explained.
- USMCA rules for companies doing business in US, Canada, and Mexico.
- When shipping to Canada companies need a non-resident importer number (NRI) if they do not have an entity set up there.
To plan for great fulfillment and distribution in another country, it’s important to get set up with partners who know that new market very well. If you’re doing DTC sales, that’s one thing. But getting set up with retailers in another country can be very profitable if done right. Read more about getting into the European market, or the Canadian market.
It is highly recommended to hire a customs broker for dedicated support if you have high volume international shipments. Their expertise is invaluable when managing trade compliance and regulatory changes.
At DCL Logistics we partner with some of the top industry experts to ensure our clients have access to the best resources. Our integration with Passport Shipping enables companies to get quality fulfillment with quality international shipping support. With turnkey DDP and compliance solutions, the Passport team offers a high-touch customer relationship seamlessly integrated with DCL’s fulfillment.
Other Considerations That Affect Your Shipping Strategy
If you still feel you are overpaying for shipping, or are just in need of some streamlining, consider a new look at your packaging. Package design and packing materials can really affect your DIM weight, your freight strategy, and your overall shipping costs.
Read about how simplifying package design can lower shipping costs.
Another often overlooked aspect of fulfillment that can help save on shipping costs is kitting and bundling. If your customers are often purchasing more than one item at a time, you may notice that you’re sending out more boxes that you need. By creating product bundles (also known as kitting) you can offer customers the same amount of products in fewer boxes which reduces the cost of shipping.
“Instead of shipping two parcels per order we reduced the size of the primary kit to be able to put other things in that parcel. There is a natural postage reduction when shipping only one and not two.”
It might be time to redesign your packaging to allow products to better fit into a single parcel. There is a natural postage reduction when shipping only one and not two. Read more about kitting and bundling.
Checklist for the Ultimate Shipping Guide
Here is a checklist to get your shipping strategy started:
- Track your order volume over time to get an accurate average.
- Chart where most of your customers are and determine the zones you’ll be shipping to most frequently.
- Decide your optimal transit time. Is expedited shipping needed?
- Consider if FTL or LTL is a good fit for your products and order volume?
- Streamline packing materials and packaging for low cost shipping.
- Rate-check your shipping costs by using the various carrier calculators.
- Once you’ve chosen a carrier and service, pick the tracking option that works best for your product.
- Consider if you’ll want to add insurance or if the standard rate is acceptable.
- Do you need a low cost option? UPS and DHL leverage the USPS last mile infrastructure which helps reduce costs.
- Is Saturday deliveries important? It’s no additional charge with most small parcel services.
- Shipping premium goods? There is a $100 replacement value service insurance that carriers do not pass on to USPS.
- Need tracking? It’s limited with USPS.
- Determine which country and market is the best fit for your product.
- When you’ve determined the market you’re interested in, figure out the taxes, duties, tariffs, and other additional fees you’ll need to include in your overall costs.
- Consider hiring a broker, compliance expert, or other savvy international partners.