How to Decrease Shipping Costs

What if you could transform shipping costs from a financial headache into your next competitive advantage? As logistics operators face record-high operational expenses and increasingly demanding customers, the pressure to deliver faster and cheaper has never been greater. 

According to the UN Trade & Development (UNCTAD), shipping costs have grown worldwide in the first half of 2024 due to unpredicted disruptions in maritime routes and increasing operational expenses, such as higher fuel prices.

Here are 10 strategies to decrease shipping costs while navigating this complex logistics landscape:

1. Analyze and audit your current costs

To reduce shipping costs, you need a comprehensive understanding of your expenses. Conducting a financial audit will help you pinpoint inefficiencies and identify savings opportunities. Follow these steps:

• Map your current shipping spend and patterns: Understand your shipping volume, average costs, and geographic distribution.
• Focus on key areas to audit: Analyze your spending in the main areas that factor into your shipping prices, such as carrier rates and agreements, fulfillment network costs, and packaging.
• Identify cost drivers and inefficiencies: Pinpoint factors like high dimensional weight (DIM) charges, unnecessary surcharges, or suboptimal routes.
• Establish KPIs for measuring improvements: Define key performance indicators (KPIs) such as cost-per-shipment, on-time delivery rates, or customer satisfaction scores to track your progress.

2. Optimize fulfillment locations

Shipping from the wrong location inflates costs and delays deliveries. Strategically placed fulfillment centers reduce the distance your products travel to reach customers. Amazon, for example, has restructured its distribution networks into regional models to place goods closer to consumers, increasing the number of same-day and next-day deliveries while cutting transportation expenses.

To optimize fulfillment center locations and minimize shipping costs:

• Calculate optimal warehouse locations: Use data analytics to identify the best places for fulfillment centers based on customer demand patterns and shipping volumes.

• Balance inventory across locations: Distribute stock efficiently to ensure availability while minimizing storage and transportation costs.

• Reduce zones and transit times: Minimize the number of shipping zones a package must cross to reduce transit while ensuring delivery time is met.

• Zone skipping opportunities: Consolidate shipments into a single bulk delivery to a fulfillment center in a low-cost zone before shipping packages to customers.

Keep reading: How to reduce shipping costs early in the parcel fulfillment process with Shipium

3. Select optimal carriers for each order

Every carrier has a different profile, shaped by factors such as their geographic coverage, pricing structures, speed of delivery, and the types of packages they handle most efficiently. Selecting the most cost-effective for each order helps you get overall low shipping rates. You can:

• Compare carrier performance metrics: Evaluate carriers based on delivery speed, reliability, and cost-effectiveness to identify the best-performing options for low cost shipping.
• Match shipment profiles to carriers: Align the characteristics of each shipment — such as weight, dimensions, and destination — with the carrier that offers the best rates for that profile.
• Automate selection based on cost/service: Compare carriers according to the best shipping delivery dates for your parcels. With a platform like Shipium, you automatically assign carriers based on real-time cost and service-level comparisons, eliminating manual guesswork. 

4. Negotiate discounted shipping rates

Most businesses settle for standard carrier agreements, leaving money on the table. Negotiating rates can lead to discounted shipping rates to save on transportation costs. Here’s how:

• Review historical shipping volumes: Analyze past shipping data to understand patterns and demonstrate your business's value to carriers, helping you access better discount shipping rates.

• Compare competitive rate structures: Benchmark rates from multiple carriers to identify opportunities for securing discounted rates that align with your shipping needs.

• Build volume-based discount tiers: Consolidate your parcel volumes with a smaller number of carriers to qualify for bulk discounts and secure more favorable rates.

Learn how to negotiate carrier rates with our guide for enterprise shippers.

5. Improve your carrier management

After reaching a service level agreement, tracking your carrier’s performance is equally important to maintain a lower shipping cost. Carriers often have variable performance metrics, such as delivery speed, reliability, and accuracy, which can directly impact costs and customer satisfaction. By consistently monitoring this data, you can identify inefficiencies, negotiate better terms, and even switch carriers if needed. See how:

• Track carrier performance data: Frequently check your carrier’s performance data to avoid missed SLAs (service-level agreements) and refund claims.

• Implement real-time tracking: Enable proactive issue resolution, such as rerouting delayed shipments or prioritizing high-value orders, by using live transit data. For example, if a carrier reports a delay, you can immediately reassign the shipment to another carrier to meet customer expectations.

• Standardize carrier communications: Use consistent communication protocols across carriers to ensure reliable updates, quicker resolutions, and uniform service quality. For instance, standardize shipment updates like “in transit” or “delivered,” establish SLA tracking dashboards to monitor on-time performance, and set up alerts for issues such as delays or damaged packages.

Explore how carrier management impacts your overall ecommerce efficiency.

6. Partner with regional carriers  

National carriers like FedEx and UPS dominate the market but often charge premiums for remote deliveries. Partnering with regional carriers provides flexibility and many other benefits, such as:

• Access to specialized regional advantages: Regional carriers often have expertise in local delivery nuances, helping ensure timely and cost-effective deliveries.

• Matching small carriers to zone coverage: Use carriers that specialize in specific zones to optimize coverage and reduce transit times.

• Leveraging regional rate benefits: Local carriers typically offer lower rates for last-mile delivery compared to national providers.

7. Right-size your packaging strategy

Packaging is often overlooked but plays a massive role in shipping costs. According to The Logistics Trend Report, packaging is often 40% too large for its contents, requiring extra room and more vehicles than necessary for transportation. To avoid mismanagement and inflated packaging prices:

• Reduce dimensional weight charges: An item’s dimensional weight (DIM) factors in a package's size and weight. Selecting boxes that match the dimensions required for your typical shipments helps minimize excess volume and avoid unnecessary DIM surcharges.
• Minimize void fill usage: Reducing the use of filler materials, such as bubble wrap or packing paper, not only cuts costs but is also a great eco-friendly practice.
• Standardize sizes: Create a range of box sizes tailored to your common shipment dimensions. Standardization simplifies warehouse operations, speeds up packing processes, and ensures your inventory of packaging materials is cost-efficient.
• Choose appropriate packing materials: Use lightweight yet durable materials to protect items without adding unnecessary weight. Consider alternatives like corrugated cardboard or compostable mailers, which balance cost-effectiveness with sustainability.

See how our Package Planner API can help you optimize your cartonization strategy.

8. Enhance your consolidation strategy

Consolidated shipments are one of the best tactics to decrease shipping costs because it helps to minimize the underutilization of truckloads. To leverage the practice, you can:

• Group multiple orders when possible: Combine several orders from the same customer or destination into a single shipment. This procedure reduces the number of packages and lowers overall shipping expenses.

• Balance speed versus consolidation: While consolidation saves costs, it might lead to greater delivery times. To maximize both savings and customer satisfaction, you should evaluate when speed is critical versus when slower, consolidated shipping is acceptable.

• Set smart consolidation thresholds: Define rules for when to consolidate orders based on their value, weight, or shipping destination. For instance, you can group parcels that are under a certain weight or value to minimize excess costs.

9. Refine your delivery promises

While customers demand fast delivery, it’s important to align promises with operational capabilities for your ecommerce business sustainability. Here’s how to ensure you meet customer expectations while avoiding unnecessary expenses and disruptions:

• Match promises to carrier service levels: Align the delivery dates you offer with the actual capabilities of your carriers to avoid missed service-level agreements (SLAs) and penalties.
• Monitor promise performance: Regularly track how well your delivery timelines are being met. Use this data to identify and address discrepancies that might harm customer satisfaction and be costly to your business.

Shipium, for example, integrates real-time data from your inventory, carriers, and fulfillment network to calculate precise estimated delivery dates (EDDs). By leveraging these insights, our platform ensures your delivery promises are both achievable and optimized for cost-efficiency. 

10. Offer customers low-cost shipping options

Customer-centric fulfillment isn’t just about speed. Offering low-cost shipping options helps you keep expenses in check. Here’s how to reduce shipping costs by giving your buyers the possibility of choice:

• Structure tiered options: Provide multiple choices such as free standard, economy shipping methods, flat-rate shipping, or expedited paid options. This tactic allows customers to select based on their priorities — speed or cost.

• Balance cost with delivery speed: Optimize how you ship parcels to offer affordable options. For example, leverage ground shipping for standard deliveries and reserve premium carriers for time-sensitive orders. Encourage customers to choose cost-effective shipping methods by offering perks, such as discounts or loyalty points.

Reduce shipping costs with the Shipium platform

Legacy systems often lack the agility to support cost-saving shipping strategies. Modern, end-to-end platforms like Shipium integrate seamlessly into your existing ecosystem, driving efficiency and reducing costs. Drive savings with:

• Dynamic carrier selection: Automatically choose the best carrier for each shipment based on cost, delivery speed, and customer preferences.
• Simulation tools: Predict the impact of network changes, including carrier or route adjustments, on overall shipping costs before implementation.
• Inventory placement optimization: Our software works with your existing forecasting tools to recommend allocation optimized for delivery cost.
• Data-driven insights: Use proprietary machine learning and AI to continuously optimize logistics operations, providing predictive analytics that empower intelligent supply chain decision-making.

Book a demo today and discover how to save on shipping costs with Shipium.