This blog first appeared on the Shipware website. Shipware is a division of SIB that specializes in cost reduction for small parcels and 3PL shipping and logistics.
Rising interest rates and concerns about a possible recession are putting new pressures on CFOs to reduce fixed costs and better manage spend with their operating vendors. With 52% of CEOs and CFOs predicting inflation will stay at the same level or higher in 2023, it’s no wonder that nearly six in 10 CFOs polled by Grant Thornton cite cost optimization as their most urgent concern.
One place to optimize costs you may be overlooking is parcel shipping. Shipping more packages is a positive sign of growing sales, of course, but without careful monitoring, shipping costs can quickly eat into your bottom line. In fact, nine in 10 companies overspend on shipping by an average of 20%. With FedEx and UPS both announcing record-high rate increases for 2023, there’s never been a more crucial time to examine your organization’s shipping costs.
Why Organizations Struggle With Shipping Spend
Optimizing shipping spend poses special challenges for CFOs, including:
Lack of data: Shipping carriers don’t standardize pricing or offer transparency. Instead, they negotiate independent contracts with every client, keeping you in the dark about what your competitors are spending. Relying on your own operational KPIs and expense data isn’t enough when you don’t fully understand the complexity of your contracts, how pricing is set, or where there’s room for improvement. Negotiating lower rates based on your last contract may seem like a win, but if your rates were too high, to begin with, you aren’t getting best-in-class pricing.
Lack of resources: You may be hit with accessorial surcharge fees or be eligible for refunds you’re unaware of. When your company ships hundreds or thousands of small parcels per day, manually auditing parcels is unrealistic. Most organizations lack the time or staff to manually monitor invoices, audit fees, and surcharges and pinpoint errors or overcharges.
Lack of expertise: Do you know how to analyze a proposed shipping contract effectively, or which elements are (and are not) negotiable? Unless you’re well-versed in shipping contract negotiation best practices and how to incorporate enforceable SLAs, chances are you’re leaving money on the table. If you’re looking for regional carriers, such as third-party logistics (3PLs), to enhance your organizational agility, you may be choosing from hundreds or even thousands of options.
How an Independent Advocate Can Help
An independent partner specializing in shipping can help you optimize your shipping budget by:
- Monitoring invoices for overcharges and errors. Small billing errors gradually add up to significant amounts if they aren’t caught. Handoff contract compliance monitoring to a partner that uses automated technology to comb your invoices for service level failures and money-back guarantee opportunities and automatically claim your refunds.
- Negotiating better contracts — even without changing carriers. Switching carriers can cause operational pain. An experienced partner can show you how to save without making that change. Look for a partner with the data and deep industry experience to analyze carriers’ proposals, compare them to best-in-class market pricing, and provide the leverage you need to negotiate effectively.
- Diversifying your shipping carriers to maximize agility. These days, you need an optimized mix of providers to maintain operational efficiency. For instance, contracting with DCs or 3PLs in different locations can overcome regional challenges, such as supply chain difficulties, labor shortages, and severe weather events. An expert partner can help you optimize spend with your current 3PL or third-party fulfillment (3PF) provider or find a new provider and negotiate best-in-class contracts and pricing.
- Delivering insights to make data-driven decisions. A partner that provides data and analytics tools gives you detailed, real-time visibility into your shipping spend. Spot trends and monitor KPIs to find areas for further savings or zoom out to analyze the big picture and make data-driven decisions.
A Partner That Delivers
In an uncertain economy, optimizing shipping costs is key to keeping costs down and customers happy. A third-party consultant can help. Look for a provider that uses data gleaned from decades of industry experience to compare contract offerings and the expertise of shipping industry veterans to negotiate the best terms for your needs.