Companies must understand the factors influencing shipping costs to assess logistics costs accurately. Navigating this intricate landscape and understanding how to calculate shipping costs is an indispensable task for businesses aiming to fine-tune their financial strategies. Several factors affect shipping costs, and understanding each element assists companies with cutting costs. The following factors influence shipping rates. Each of them sways the pricing, and bringing down costs should be paramount for any company to increase margins.
How Do I Calculate Shipping Costs?
The larger the parcel, the more it costs to ship to a destination. Most logistics companies utilize the dimensional weight method when calculating shipping prices. To get the dimensional weight of the parcel, the logistics partner multiples its length, width, and height.
The logistics partner then uses the standard divisor to finalize the dimensional weight. Companies like UPS, DHL, and FedEx provide quotes based on actual or dimensional weight, and they usually go with the larger number.
The shipping cost also depends on the distance between the collection and delivery point. For instance, if you’re shipping from Texas to New York, it’s going to cost less than shipping internationally from Texas to the UK.
To ensure standardization of rates, logistics companies, like FedEx, utilize shipping zones. This strategy allows the logistics company to measure the economic feasibility of shipping the parcel. For instance, the United States has eight shipping zones.
This means that two parcels shipped to the same destination in the country from two different origin points may be shipping to different destination zones. Typically, the parcel is more expensive to ship if the destination shipping zone is higher on a scale of 1 through 8.
Insurance also affects shipping costs, especially in the case of high-value goods. For instance, if a gold coin broker is shipping 20 x 1oz Gold Eagle bullion coins to a client, they must insure the goods to prevent economic loss in the event of theft or missing cargo.
If the goods are lost, stolen, or damaged in transit, the insurance company pays out the customer to ensure they don’t bear the financial burden of the logistics partner’s errors. Shipping insurance can considerably add to shipping costs.
Most logistics partners offer customers a range of shipping options to suit their requirements. For instance, online retailers like Amazon offer fast shipping times to customers anywhere in the United States. To achieve this, they have fulfillment centers spread across the country, allowing for quick delivery times to consumers.
However, many e-commerce businesses can only ship from a single location, delaying delivery times. The type of freight also plays a role in assessing costs. For instance, air freight will be significantly more expensive than sea freight.
Calculating Shipping Costs
There are several strategies companies can use to reduce shipping costs to the consumer. By understanding the factors in calculating shipping costs, companies can bring these costs down by optimizing efficiencies.
Offering customers the choice between delivery methods can offset costs. For instance, customers can choose between overnight delivery, three to five-day express delivery, or regular delivery, where they must wait a week to receive their order.
In some cases, the customer might not require immediate delivery. Therefore, delivering overnight might not be necessary, allowing companies to reduce shipping costs.
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