Have you ever booked a hotel room for $150 that cost $190 due to all of the local fees and taxes? Unpleasant surprises like this are a major component of your parcel shipping invoices, as well.
Look closely. A $15 parcel shipment can turn into $37 by the time it shows up on your invoice. The increase comes from accessorial fees and surcharges added by the parcel carriers. On average, 31% of carriers’ invoices are made up of these extra fees and charges tacked onto your packages total landed cost – after the package has arrived.
The best definition of an accessorial is “the extra services ordered for the shipment or extra items necessary to “ensure delivery.” Once upon a time, paying the published rate based on the package weight, zone and the service type was enough to “ensure delivery”
Thirty-one percent (31%) is more than significant. So the question becomes: what can you, as a parcel shipper, do about it?
The First Step Is Admitting You Have a Problem
Surcharges were born out of the seemingly innocuous practice of adding a fuel surcharge during the oil embargo in the 1970’s. Beyond gasoline, the carriers surcharge list has grown to include dimensional weight surcharges for oversized packages and penalizing companies who ship large lightweight products. This year, UPS® and FedEx® are introducing seasonal surcharges! These new surcharges from both UPS and FedEx will only add to the increasing cost of parcel shipping.
Not unlike the cell phone networks, airlines, and banks, parcel carriers are making a lot of money from extra fees. These accessorial charges are like new taxes – they never go away. Unfortunately, their list is only growing.
What Can You Do About It?
It is possible to minimize the impact of these extra charges. The first step is to uncover and quantify each of the different areas where accessorial charges are affecting your budget. After identifying the scope of impact on your business, you’ll be able to identify which accessorial are avoidable and which aren’t. The objective is to control or eliminate the surcharges where possible, and then work with your carrier to negotiate lower rates on the others..
1. Measure the impact. Knowing your total landed cost on a per-package basis is a key performance indicator (KPI) that efficient shippers monitor weekly. In terms of accessorial, here are some things you need to know:
- What percentage of your cost per package is made up of accessorial?
- Is there a trend?
- Which accessorial charges occur most frequently? Which is costing the most?
- Is there a specific class of service that attracts more accessorial charges than others?
2. Adopt operational changes. Start by picking an accessorial or a surcharge significantly impacting your cost per package. Use the current impact per package as your starting point, and set a goal to reduce that figure by X% over the next quarter. Your own shipping data is the best weapon at your disposal to diminish the budget-busting impact of these extra charges:
- Hire a parcel auditing company to recover refunds on the invalid accessorial
- Utilize address verification software
- Use appropriately sized boxes
- Use USPS or similar alternatives for residential deliveries and/or low weight items
Negotiate with your carrier to lower your fees. There will be some of these add-on charges that you can’t avoid. However, you can negotiate discounts on your accessorial in the same manner you negotiate discounts on your service rates. Not unlike those service negotiations, whoever has the most data has a huge advantage. After Step 1 and Step 2, you’ll be well equipped to negotiate controls around parcel spend with the carrier. A parcel intelligence platform providing a data-driven benchmarking solution can result in an optimized contract, including all reduced surcharges and accessorial fees.
Your Path to Continuous Improvement
It’s not enough to simply implement these changes. Monitoring these figures will illustrate your progress toward savings goals and prevent unnecessary extra charges from returning to your budget. That’s why a parcel intelligence platform, with a robust data-driven benchmarking solution, is so important. With these tools, you can identify your weak spots, implement changes to improve them and enjoy a reduced parcel shipping budget.