What are the Characteristics That Make up Parcel Pricing?
Standard parcel shipping is evolving. Today, it has become one of the largest sectors within the shipping industry, and shippers are looking for ways to squeeze better profit margins from carriers and the consumers. Unfortunately, finding savings in parcel shipping costs can be difficult at best, especially considering the major carriers’ constant changes to parcel service guides. But, shippers who understand the top factors influencing parcel pricing, such as dimensional (DIM) pricing models, they can locate additional savings by eliminating unnecessary costs and maintaining better control over shipping practices.
Shippers need to understand the basic differences between published versus private carrier rates. Carriers have detailed published rates, counter rates and negotiated rates with various shippers, smaller carriers and even destination types. In other words, commercial recipients of parcels may not be charged as much as residential recipients. Destinations and distance also impact rate types. Shipments crossing multiple zones may have additional charges added in, or local taxes and surcharges may apply. Shippers need to consider where a package is going and what type of rate will apply to the shipment.
Package or Volume Discounts.
A shipper’s volume of business with a given carrier may open the doors to unpublished, discounted rates. This can be an excellent pool of credits and additional services that would otherwise be unavailable to someone sending a package using internet shipping tools or entering a shipping center, like a UPS store. Moreover, carriers may offer to set up contracts with high-volume shippers to define their requirements for such discounts.
Contracts bring up another shipping influencing factor, negotiated shipping rates. Parcels are no longer bound by weight or size dimensions, and parcels can easily entail a multi-carrier shipping strategy. As a result, shippers need to understand the value and cost-saving opportunities when negotiating terms within a carrier-shipper contract. This may also when negotiating a contract with a third-party logistics provider (3PL).
Surcharges have become commonplace in shipping after rising costs, notably the sudden spike in gas prices over recent years. Surcharges are not part of a company’s published or negotiated rates and may be subject to change frequently. For example, a carrier’s fuel surcharge may vary from week to the next. As a result, it is important for shippers to watch surcharges and ask questions when something does not seem right.
Weight and Dimensional Pricing.
The weight of a package is an obvious factor in parcel pricing. However, weight is taking on new a new definition following implementation of dimension (DIM) pricing models. DIM pricing is similar to determining the density of a package.
For example, if a package exceeds a given volume, assuming it is a low-weight package, it may be subject to additional surcharges to ship. In other words, shippers need to multiply a package’s height by width by length. This results in volume, but it is then divided by the DIM Factor Rate. Unlike the package’s actual weight, this is a number, such as 166, set by the carrier.
The simplest way to compare this example to real-world applications is a company shipping low-weight items, like a package of undergarments, weighing less than one pound, in a box filled with peanut packaging. The carrier is assessing the surcharge and shipping rate based on the amount of space wasted or underutilized by a shipper’s inefficient packaging processes.
Also, some carriers are still using weight-based classification, regardless of industry standards using DIM pricing. So, knowing your carrier’s stance on DIM pricing is key to getting the most savings.
Service charges are often overlooked as well. Shippers that have contracted work through carriers may see service charges on their account statements. These charges may reflect additional auditing and service level-based benefits, like guaranteed delivery or Saturday delivery, which are only available to contracted shippers. But, since these charges are not part of the negotiated rates, they may appear out of nowhere.
Carrier competition may impact parcel shipping prices too. When carriers are actively engaged in price wars or promotional events, they make discounted rates more available to the public. So, if carriers have been running discounted shipping campaigns, it may be worth it to avoid entering a contract for the interim.
Minimum Rate Requirements.
Similarly, carriers can have strict standards for dimensions or weight of a shipment when using parcel shipping. Yet, the minimum rate can result in carrier’s charging more than negotiated contract rates. Therefore, shippers should always verify their shipments are of the minimum weight set forth by carriers, or they should work to consolidate shipments wherever possible.
Changing Regulations or Taxes.
Changing regulations in shipping and manufacturing will impact parcel pricing in the coming years. As government oversight changes, the shipping industry will face one of two possibilities. Regulations will increase or decrease, resulting in shifting parcel price points. Furthermore, regulations affecting the insurance and fiscal responsibility market will further redefine how carriers protect shippers’ products.
For example, the stipulations on when a carrier is not liable for shipment damage may change. So, shippers may be forced to pay higher premiums for insurance coverage, or companies offering shipping insurance may change.
The Big Picture.
Parcel pricing, although made up of more than 25 million daily shipments, is highly volatile, meaning it could scale up or down overnight. Rather than simply waiting to find out what your parcel costs will be, your organization needs to review its parcel shipping costs today. You should also check your billing statements for surcharges and fees that do not align to published or negotiated rates. Of course, you can always simplify the process and eliminate stress by working with a 3PL, like Cerasis, who understands what characteristics can shape your parcel pricing costs and how to manage them proactively with a modern transportation management system.