As e-commerce continues to grow, so do the volumes of parcels flooding the networks of parcel carriers and delivery companies.
Shipping is one of the biggest single operating costs for online merchants, and it’s crucial to get parcel shipping and delivery strategies right from both the brand and customer perspectives.
Retailers are taking shipping seriously and working toward making shipping more transparent to their customers. Shipping costs and shipping delays were among the top three supply chain concerns noted by brands in the 2021 Shopify eCommerce Market Credibility Study, conducted by Forrester Consulting.1
It doesn’t just make good economic sense for a merchant to optimize their shipping strategy; from the customer’s perspective, shipping-related experiences are everything.
Ever-ratcheting expectations for speedy delivery times, or at least having a fast delivery option available, are a cornerstone of a seamless e-commerce experience that enhances customer loyalty.
Being transparent about shipping costs makes the customer experience the most valuable when they are searching for and buying products online, according to the Shopify eCommerce Market Credibility Study, noted by 74% of consumers. Free returns and the estimated arrival of their order were the next leading features that consumers find most valuable in their online purchasing experiences.2
The consumer doesn’t want surprises. In fact, encountering unexpected or high extra costs from shipping, taxes or fees are the top reason that shoppers abandon their cart during checkout—after those consumers which are simply “just browsing” without an intention to buy are removed from the equation, according to web UX research firm Baymard. In the firm’s recent survey that asked U.S. adults if they had abandoned an online purchase in the last three months and the reason for doing so, 48% cited extra costs.3
From small startups to the largest online merchants, the optimization of outbound shipping goes hand in hand with inventory and fulfillment strategies. The process is ongoing and requires the balancing of many variables in the trade-offs between shipping cost, delivery transit times, and service levels. If you outsource to a 3PL or fulfillment center, the provider should be able to offer a cost-effective shipping strategy that meets your customers’ expectations.
Here’s a look at a few top customer-shipping considerations:
Parcel carriers offer an array of options like ground, express, and overnight services, in addition to flat-rate shipping methods. Online merchants can tap into the synergies of using multiple parcel carriers to balance costs with consumer delivery expectations.
Parcel networks use a combination of air and ground transport to meet the designated service level. Even with one inventory storage facility, many merchants can reach the majority of their U.S. customer base within a few days or less via more economical ground delivery versus more expensive express services which involve air freight.
E-commerce fulfillment typically relies on the zone pricing of USPS and the major parcel carriers such as FedEx and UPS that charge rates for packages based on geographical zones (based on the distance between origin and destination). Rates are dynamically calculated according to where your package is shipped from, with the U.S. being divided up into multiple zones categorized by zip codes.
As a merchant grows, they can periodically analyze customer order data, including zip code information, to optimize their shipping offerings against cost and transit times.
It goes without saying that placing inventory at multiple distribution points can speed up transit times and reduce shipping costs for the merchant. Redistributing inventory at locations closer to your customers reduces costs by keeping merchandise within the shipping zone (or avoids going into more distant zones) and increases resilience against regional supply chain disruptions.4
By positioning inventory at two or more U.S. points, for example, savvy merchants can provide two-day shipping, or within a few days, to keep shipping costs low. Reducing delivery distances by using multiple fulfillment points also contributes to reduced carbon emissions.
While positioning stock closer to the customer sounds good, e-commerce shipping and inventory positioning strategies require a big-picture view to get the most bang for your buck. In addition to where your customers are located, considerations for determining fulfillment locations include general population concentrations, the likelihood of weather delays (such as when facilities are located in storm-prone regions), and traffic congestion found in urban areas.5
However, it may not always make the best economic sense to spread out your inventory just to save on shipping. Whether the merchant keeps fulfillment in-house, rents warehouse space or outsources fulfillment, costs around inventory carrying and fulfillment, including storage, pick and pack, account management fees, etc. must be taken into consideration.
For startup online merchants, shipping from the same distribution point to your customer base is often the most affordable option. If you use a 3PL with e-commerce fulfillment expertise, they can help you determine the best stock positioning strategies.
By avoiding a single-carrier approach, merchants can help guard against service delays during the peak season and offer their customers more shipping options.
As they grow and scale, online retailers have more latitude and resources to incorporate a mix of national, regional, and last-mile carriers for cost-effectiveness and service levels. Whether you have a concentrated customer base in one metro area, a particular state or region, or are branching out into offering hybrid shopping options, or next-day or same-day service, using one or more regional parcel carriers may be a viable option.
Balancing delivery speeds preferred by your customers with carrier service levels and costs requires constant vigilance. Regularly assessing your shipping and inventory data, with assistance from your 3PL partner, allows you to adjust offerings by testing out carriers and alternate scenarios. For example, merchants can adjust the mix of national, regional, and last-mile carriers, adding or moving fulfillment center locations, or using 3PLs versus direct service for certain zones.6
Getting insights into DIM weight, shipment size, and volume patterns by zone can reveal the areas of potential leverage in carrier rate negotiations, particularly if you’re not benefitting from volume discounts from your fulfillment provider. More advanced analysis may entail layering in historic shipment data and using analytics and modeling tools to identify important patterns in areas like carrier time in transit, package status, or exceptions and surcharges over time, for comparison and benchmarking.7
If you don’t offer free shipping, use your shipping data to try out scenarios with promotions like free shipping with a minimum purchase on select items, for a limited time, or on orders at certain price thresholds.8
Whether or not you outsource fulfillment, there are several multi-carrier shipping platforms available that give merchants the ability to compare carriers and service levels in one place while easily integrating with e-commerce platforms, order management, and warehouse management systems. Using a 3PL with expertise in fulfillment can net even more efficiencies from access to multiple parcel carriers, automated rate shopping services, and flexible carrier rate selection.
1 “The Future of Commerce Trend Report 2022,” Shopify. https://www.shopify.com/research/future-of-commerce
2 “The Future of Commerce Trend Report 2022,” Shopify. https://www.shopify.com/research/future-of-commerce
3 “46 Cart Abandonment Rate Statistics,” Baymard, 2022. https://baymard.com/lists/cart-abandonment-rate
4 “The Future of Commerce Trend Report 2022,” Shopify. https://www.shopify.com/research/future-of-commerce
5 “4 Ways To Optimize Parcel Spend During Challenging Times,” Christine Basile, Kenco. https://blog.kencogroup.com/4-ways-to-optimize-parcel-spend-during-challenging-times
6 “Five Challenges in Parcel Shipping Optimization,” Supply Chain Brain, May 5, 2022. https://www.supplychainbrain.com/articles/34969-five-challenges-in-parcel-shipping-optimization
7 “Five Challenges in Parcel Shipping Optimization,” Supply Chain Brain, May 5, 2022. https://www.supplychainbrain.com/articles/34969-five-challenges-in-parcel-shipping-optimization
8 “Shipping Strategy: Get Packages to Customers Without Cutting Into Your Bottom Line,” Giovanna Fariello, Shopify, Sept. 22, 2020. https://www.shopify.com/blog/shipping-strategy