Three Steps to Control Your Parcel Spend

Suppose you're the head of logistics at an e-commerce company, and it’s your quarterly review. Tension fills the boardroom, with ground parcel delivery costs soaring 29.5% since January 2018. Eye-watering numbers flash on the screen, amplifying pressure to keep shipping affordable while pleasing customers. Carrier discounts provide some relief, but they only soften the underlying issue. Eyes turn to you, expecting answers.

Welcome to the complex world of parcel spend management, where effective control is not just about cutting costs but ensuring survival. With shifting logistics trends and carrier rate increases, it's more than a task; it's a strategic approach that can save 5-8% in total costs. This article offers insights into making this achievable.

Negotiate Favorable Carrier Contracts

Carrier contracts are vital to optimizing shipping costs in complex parcel networks. Through careful negotiation, shippers can achieve significant savings and maintain operational control.

The Significance of Carrier Contracts in Parcel Spend Management

Carrier contracts are vital in parcel spend management, enabling the careful negotiation of costs and promoting savings and compliance. With the rise of regional and local carriers, these agreements ensure a strategic approach to managing hundreds or even thousands of origin points, enhancing efficiency and visibility.

Tips for Negotiating Favorable Contract Terms

Negotiating carrier contracts takes blending insight with strategy. Here are some tips:

  • Monitor Market Trends and Insights: Understanding market trends equips shippers with an edge in negotiations, enabling contracts that align with real-time market conditions.
  • Benchmark Rates: Benchmarking against similar-sized shippers provides a reference point and helps ensure your rates are competitive and aligned with industry standards.
  • Consider Dynamic Pricing Mechanisms: Static pricing can limit flexibility in a fluctuating market. Dynamic pricing, including surcharge thresholds, allows shippers to adapt seamlessly, providing a buffer against market fluctuations.
  • Stay Flexible: Logistics contracts' volatility and long-term nature make predicting transport costs challenging. Consider employing strategies like annually indexing labor and rental costs to stay agile and flexible. 
  • Leverage Long-Term Carrier Relationships: Maintaining stable relationships between shippers and carriers benefits both parties. Ensuring these relationships stay stable even during downturns is in everyone’s best interest. 

The Benefits of Volume Discounts, Service-Level Agreements, and Rate Benchmarking

Specific mechanisms such as volume discounts, service-level agreements (SLAs), and rate benchmarking can help control parcel spend. Here's how:

  • Volume Discounts: Volume discounts offer reduced prices for bulk purchases, incentivizing larger orders. It's a win-win for sellers and buyers by increasing sales and lowering the cost per unit.
  • Service-Level Agreements (SLAs): SLAs outline roles and expectations, fostering trust between shippers and carriers. This clarity enhances customer experience, reliability, and cost control.
  • Rate Benchmarking: Rate benchmarking compares transportation costs with market standards and industry norms, offering insights into potential optimizations and cost efficiency.

Optimize Packaging and Dimensional Weight

Packaging isn’t just a way to protect goods during transport; it's a crucial determinant of parcel costs. Both the packaging's physical attributes and dimensional weight play a role in shaping those costs.

The Impact of Packaging on Parcel Costs

Packaging is a vital part of cost management, akin to choosing the right vehicle size for freight. Using a large box for a small item wastes space and money, while compact packaging allows more parcels to fit, reducing costs. Additionally, lightweight and eco-friendly packaging can align with sustainability goals and even earn discounts from carriers.

Dimensional Weight and Its Effect on Pricing

Dimensional weight (DIM weight) is a pricing strategy considering a package's weight and volume. Using a formula like 24 × 12 × 6/166 = 10.4 for a 2-pound box measuring 24" x 12" x 6", carriers like USPS, UPS, and FedEx would charge for an 11-pound DIM weight, not the 2-pound actual weight. This approach ensures that large but light parcels reflect the transport resources needed to optimize space and control fuel costs.

Tips for Optimizing Packaging to Minimize Dimensional Weight Charges

Remember- in shipping, every cubic inch and ounce counts. So consider some of these effective strategies:

  • Selecting the Right Carton Size: Match the box size to the item being shipped to eliminate unnecessary space and lower the dimensional weight. Having a variety of box sizes available ensures the best fit.
  • Using Effective Dunnage: Using efficient materials like kraft paper or bubble wrap as dunnage minimizes empty space in packages, reducing dimensional weight charges.
  • Efficient Item Arrangement: You can reduce the dimensional weight by organizing items within the package to minimize empty space.
  • Considering a 3PL Fulfillment Service: 3PL fulfillment services provide a wide range of packaging sizes, enabling more efficient packing and further opportunities to lower dimensional weight charges. 

Streamline Shipping Processes and Automation

Efficiency equals success in logistics. Let's explore why streamlining shipping processes and integrating automation is necessary for more effective and economical shipping.

The Importance of Streamlined Shipping Processes

Streamlining shipping through logistics network optimization and management systems cuts costs and leads to timely deliveries, enhancing customer loyalty and encouraging repeat purchases. Companies also create a responsive approach by emphasizing precision in ground-level management and routing, driving sales, and reducing expenses, creating a win-win for businesses and consumers. 

The Benefits of Automation in Shipping

Automation in shipping enhances accuracy and speed while reducing costly errors. Consider the following benefits:

  • Increased Efficiency: Automation allows quicker order processing, reducing lead times. Diminishing manual tasks ensures a faster and more agile response to customer demands.
  • Enhanced Accuracy: Automated systems in shipping minimize human errors, ensuring that parcels reach the correct recipients with accurate labels and documentation. It's a reliable approach that guarantees consistency in every delivery.
  • Cost Reduction: Automation in shipping minimizes errors like mispricing and processing mishaps, translating to cost savings and preventing unnecessary expenses that can quickly escalate.
  • Improved Customer Experience: Automation enhances both business operations and customer experience. Ensuring accurate and timely deliveries fosters trust and encourages repeat business.

How Shipping Software and Automation Tools Lead to Cost Savings

Shipping software and automation tools are revolutionizing logistics and driving significant cost savings. McKinsey reports that well-executed automation could cut port expenses by 25-55% and increase productivity by 10-35%. Freight audit specialists like Intelligent Audit bring this to life, enhancing freight audit and payment efficiency and enabling data-driven decision-making.

Control Parcel Spend with Intelligent Audit

The mounting complexities of the shipping world call for strategies to control costs without compromising efficiency. Businesses can accomplish this and control parcel spend by focusing on three key strategies — negotiating favorable carrier contracts, optimizing packaging and dimensional weights, and streamlining shipping through automation.

However, it takes a strong partner with robust solutions to make this happen. Utilizing parcel audit software from top freight audit companies, Intelligent Audit can make this happen and turn shipping challenges into growth opportunities. Reach out today to see for yourself. 

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