The most important thing to remember about shipping is that every time someone touches the package, they will add a fee. This is true whether it’s a bike messenger delivering around the corner, or all the links in international, multimodal logistics. Shipping costs aren’t just transport costs. Small businesses must identify all of the costs before calculating the total shipping costs.
Calculating Shipping Costs for Small Business
Shipping cost breakdown
Businesses incur the first batch of costs before the parcel goes through the front door if you are running a business from home or a small office. Apart from the packaging costs, there are also insurance costs to consider. Depending on the nature of your product, cross-border shipping may be subject to export duties and tariffs. This is true even if those costs will be recovered from the purchaser after delivering.
Incoterms are a set of internationally agreed shipping instructions that clearly define what the shipper (consignor) and the buyer (consignee) are responsible for. Some of the charges may be payable upfront. For major international shipping, it’s best to get a quote from a freight forwarding and clearing agent. In a case where a client insists that you use their shippers, even though you are paying, it is best to get an estimate from them upfront.
Calculating shipping costs
Key factors when calculating shipping costs are packaging, weight, shipping mode, and the carrier.
Packaging Material
When choosing a packing material, consider how the package will be shipped and how far it is going. If you are shipping the product locally it would be okay to ship the product in the box it came in with plastic wrapped around it. Dispensing with extra wrappings or using cheap materials can lead to damaged products and replacement costs. More importantly, this can possibly cost you repeat business from a customer. The challenge is to find a cost-effective, lightweight solution that offers maximum protection.
Weight
Shipping costs depend on the greater of two weights. There is weight measured by density (Kilograms or pounds) and volumetric weight or dimensional weight. Volumetric weight is calculated as length x width x height. In other words, the cubic measurement. A small lightweight object may have little mass, however, it can take up space in a shipping container, a rail car, or on a plane or truck.
Shipping method
The speed of delivery is what will determine the shipping mode, speed, and package weight. The urgency of the delivery, as well as who is paying for it, will impact the transportation mode choice. Internationally there is the choice of either air cargo or container ship. Domestically, small businesses can choose from air, road, and rail shipping. Shipping by road is sub-divided into freight and courier. Courier is subdivided into same-day delivery, overnight, next afternoon, and a 48 -72 hour economy service.
Many years ago, a certain Swedish truck manufacturer would send spare parts to 18 wheelers broken down in the mountains by DHL helicopter. Although this was terribly expensive, it was more cost-effective than having a stranded truck wait for a road crew to appear a few days later. This was part of the warranty commitment on new trucks.
Shipping Carrier
It pays to understand the difference in price between local, regional, and national carriers when it comes to road freight. Companies tend to specialize in routes in order to be cost-effective. National carriers will control the process from pick up to delivery, even if they use a combination of regional subcontractors. With a national carrier, peace of mind is included in the shipping rates. Meanwhile, local carriers may have alliances and hand-off agreements with next county local outfits or regional carriers. Being part of such a network means that local carriers can broaden their service offering and keep prices low.
Insurance
Perhaps a grudge purchase, insurance is always advisable. Most carriers offer insurance options as part of a shipping solution. When it comes to small business shipping, do a price check with third-party insurers before checking the insurance option box. In some cases, checking with third-party shipping insurers can help your business save money.
Additional Reading: Know Your Incoterms (Trade.gov)
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