A key driver in shopping cart abandonment is the clarity of shipping costs. According to Shopify’s 2021 study, 55% of all customers abandon their checkout process due to excessive extra costs. This is especially the case for ecommerce businesses with global customers where effectively managing the cost of shipping to 180 countries and 250 regions can be a nightmare, yet failure to do so has two pitfalls, shipping estimations too low will eat into your operational margins, and shipping estimates too high will increase your shopping cart abandonment rate and your cost per customer acquisition.
Here at Floship, we’ve put together this checklist to help you identify 8 levers that will impact on your customer’s shipping price and show you how to better calculate the shipping cost from your warehouse to your customers worldwide.
1. PACKAGING DIMENSIONS
Dimensional weight (or denoted as volumetric weight) is determined by calculating the package’s length, width, and height dimensions. The resulting volume is then divided by factor of 5000 (for ecommerce international shipping) or 6000 (for US domestic shipping) to calculate the volumetric weight.Packing dimensions influence the surface area covered by the package, depending on the weight vs dimension attributed of the package, many couriers would rather charge by the space taken up by the item than its actual weight.
Carriers then compare the actual weight vs the volumetric weight and charge you the higher of the 2 values. The weight charged by your carriers is called billable weight.
2. PACKAGE WEIGHT
The weight that couriers compare against volumetric weight to determine the billable weight is package weight, which is the weight of the item when placed on a physical scale. Heavier materials are likely to cost more than lighter materials.
As set by carriers such as DHL, Fedex & UPS, the higher weight between the two takes the day. If the package is lighter but occupies a larger surface and volume area, you are more likely to be charged the volumetric weight. On the other hand, if the package is heavier but occupying a small surface and volume area, you’re billable weight is more likely the actual weight.
The bottom line is, in the carrier space, space and volume is king and given the hold that the top carriers have in cargo movement, it is pivotal to that you work either with your 3PL to formulate a packaging solution balancing safety and cost.
3. WAREHOUSING LOCATION
Does your warehousing strategy factor in where your products are manufactured, the geographic clusters of your main revenue driving customers and the macro economic conditions such as COVID & Q4 shipping? From our experience, successful ecommerce shipping and fulfillment requires a balanced strategy when choosing between a closest to factory, closest to customer fulfillment strategy or a hybrid. Given the current fluctuations in the global logistic logjam, the primary execution process is to remain responsive and flexible, with the main goal of ensuring your customers receive their orders on time.
4. DELIVERY TIME
The courier shipping landscape presents a plethora of shipping options where the cost is inversely proportional to the delivery time. One side of the scale you have ocean freight, in the middle, direct injection and on the other end of the spectrum – air express. Above this, are the macro environments, Q4 2021 presents a unique challenge where the ripple effect of a global shortage in ocean containers has led to 4 -6x increase in air express costs.
How fast do you want your customers to receive the shipped items? This is your delivery period window, and you should be careful when determining it. That being said, fast deliveries will cost you more than slower deliveries.
5. INTERNATIONAL DUTIES & TAXES
Whenever a shipment, either direct to customer or from business to business moves from one country to another, it has to pass through the customs at the destination country. The customs at destination marks the shipment for duties and taxes based on various factors like the import policy of a country, declared value of the shipment, country of origin and the harmonized commodity description (HS-Code). The Incoterms (International commerce terms), which are used for defining the liabilities of the buyer and seller during cross-border shipments offer various ways to tackle duties and taxes out of which the most relatable to the cross border ecommerce are DDP (Delivery duty paid) and DAP (Delivered at Place).
6. SHIPPING RELATED COSTS
Shipping-related charges include handling mistakes, fuel surcharges, and remote area surcharges. Mistake fees can be due to filling in an incorrect address; thus, you pay extra to correct the error.
Fuel surcharges are priced in to hedge against price fluctuations to ensure carriers do not incur losses from constantly changing fuel costs, where in the US, the average price per gallon fluctuates around $ 0.10 per gallon every week.
Remote area surcharge fees arise when delivery and pickup locations are in different places.
SHIPPING COST MINIMIZATION THROUGH 3PLS
When working with 3PLs, we recommend having a clear focus not only on the goals you want to achieve, but also a clear line of communication to ensure both parties are clear on the success. To achieve this, it is always advantageous to work with 3PLs that assign a dedicated account manager to your account that not only knows your business operations but can turn around with actionable responses in a timely manner.
This process not only reduces administration time and cost when dealing with a blank customer service team, but provides you better control on the following:
- Discounted Shipping Rates: 3PLs with established global carrier networks will be able to provide more competitive shipping rates and also greater transportations modes from your factory to the warehouse to the end customer.
- Distributed Inventory through Global Warehousing: Craft a warehousing strategy determined by your order volumes, the core geographic areas of your customers and the geographic reach of your 3PL’s warehouses. The goal here is to create an efficient end to end supply chain that manages your first mile from your factory and your last miles from a warehouse closest to your customers or origin of manufacturing.
- Optimized Picking and Packing: The best packing materials to achieve optimum dimensional and billable weight is a delicate balance between protection vs dimension. The value of a great 3PL is a consulting team that optimizes your SKUs with the frequency of orders and then sources the best fit packaging material for it.
- Reduce Shipping Related Costs: A key shipping cost to avoid is handling mistakes such as incorrect address labels or missing address data. What distinguishes a good 3PL from an average one is their fulfillment platform’s integration with carriers which should provide automatic address validations, hence reducing the chances of address handling mistakes from happening.
HOW FLOSHIP CAN HELP
Cross border fulfillment involves mastering the many levers that contribute to a more competitive shipping cost and quicker delivery time.
Packaging optimization is pivotal to managing your volumetric weight, so is global warehouse locations nearest to your customer and factory, a tech centric fulfillment portal that provides a single source of truth for your inventory and order fulfillment and a dedicated account management to allow you to confidently scale your ecommerce business whilst proactively managing your operational costs.
If you like to find out more, get in touch with a Floship consultant today.