Shipping carriers raise their rates every year, and consumer demand for faster delivery times and lower shipping costs isn’t slowing down, either. All of this can leave a business scrambling to accurately fulfill orders in a manner that doesn’t leave them in a net negative at the end of the quarter.
Fortunately, third-party logistics (3PL) is all about optimizing information, orders, and demand while simplifying the supply chain process. In this blog, we’ll explore how to reduce shipping costs by partnering with a 3PL, and how doing so helps make the supply chain process — from order fulfillment to order tracking and delivery — more manageable.
The Benefits of a 3PL in Supply Chain Management
The role of a 3PL in supply chain management ranges from order fulfillment to reverse logistics and quality control services. Due to the wide-ranging nature of a 3PL, outsourcing your order fulfillment to a logistics company can take a lot off your plate and allow you to focus on running your business.
To help you get a better understanding of the importance of a 3PL in supply chain management and help you understand how logistics can help you reduce shipping costs, we’ve compiled a list of some of the top benefits below.
Decreased Shipping Distance
For domestic shipments in the United States, shipping zones span from Zone 1 to Zone 8, with Zone 1 encompassing a 50-mile radius (and no more) from the fulfillment location. In general, the farther away from the shipping destination, the higher the shipping zone and the slower and more expensive a package is to ship.
By eliminating shipping to higher zones, you can benefit from better shipping options at a lower rate. One way to do this is to partner with a 3PL with multiple, strategically based locations.
More Accurate Packaging and Shipping Strategies
Shipping heavy items costs more if you’re not using flat-rate shipping. A 3PL can help predict and reduce packaging costs by utilizing a technique known as right-size packaging. A 3PL can also offer their brands reduced shipping costs as their rates are driven by the huge order volume they consistently place with carriers.
If you’re wondering how to reduce shipping costs but aren’t yet ready to partner with a 3PL, here are a few tips to help you save on order fulfillment in the immediate future:
- Design custom packaging with smaller dimensions that are tailored to your product to minimize dimensional weight (i.e., make it a snug fit rather than having items rattle around in a box, which essentially means you are paying for the air in the box).
- SIOC packaging (ships in its own container) means that your product packaging is what you add a shipping label to so that you don’t stack boxes on top of each other.
In short, do what you can to calculate the dimensions of the packages you’re shipping and avoid paying for air as much as possible.
Up-to-Date Information on Shipping Carrier’s Price Changes
As part of the annual general rate increase (GRI), the major shipping carriers raise their shipping rates every year. Although these increases vary by carrier, service level, weight, and other variables, they tend to equate to about a 5% increase on average.
Carriers may also apply surcharges during peak times (such as the holidays and Q4) when there is an increase in packages being shipped. They also implement other surcharges annually, ranging from large package surcharges to signature required surcharges.
The only way to reduce shipping costs for these rate increases and surcharges is to bake them into the shipping fee you charge your customers, eat the costs, or offset them in some other way. Partnering with a 3PL that stays up-to-date on carrier price changes can help you get a better idea of how much to charge for shipping or how to work those costs into your product’s listed price.
Discounted Shipping Rates
An experienced 3PL will offer discounts based on shipping volume, and you don’t have to ship hundreds of thousands of orders per month to qualify. Due to a history of loyalty, a 3PL can often negotiate volume discounts with carriers that pass on to their clients.
Discounted Supplies
In addition to discounted packaging and shipping, a 3PL will often have access to discounted packaging supplies. On average, businesses spend 10-40% of the product’s retail price on the packaging, eating up a lot of a company’s net profit. Partnering with a 3PL can save a company a lot of money on bulk packing supplies like boxes, dunnage, bubble wrap, airfill, and poly mailers.
Third-Party Insurance
Partnering with a 3PL can allow you to reduce shipping costs by cutting extra services such as shipping insurance, depending on the value of the product you’re shipping. A 3PL provider’s shipping insurance can be cheaper than having your own, and in some cases by nearly half the price. High-value items are the most likely to benefit from this.
More Seamless Returns Management
In the U.S. alone, over $761 billion of merchandise were returned to eCommerce businesses in 2021. Returns cost a business a lot of money and stress, especially for high-volume brands. Through efficient and accurate order picking and packing, partnering with a 3PL experienced in eCommerce fulfillment services can drastically reduce the number of returns. A 3PL can also alleviate the headache associated with returns through a process known as reverse logistics management services.
Prepaid Shipping Labels
Due to the number of orders they handle on a daily basis, a 3PL may purchase a certain number of shipping labels in advance, meaning you could cut your current shipping costs by up to 20%.
Note: this method really only works if you consistently ship orders containing the same weight and dimensions or know this information ahead of time to avoid inaccurate shipping costs.
Strategic Packaging Strategies
An experienced 3PL will know when to ship small, non-fragile items like clothing in a mailer envelope or poly bag. Since this packing strategy takes up less room on delivery trucks and requires fewer packing supplies like tape and bubble wrap, it’s a much more cost-effective option for retailers that offer light, non-fragile items.
eCommerce Integration
During peak seasons for an eCommerce business, it’s a good idea to over-communicate with your customers to let them know what date they need to place their orders by. Each carrier sets its own cutoff times for each service during the holidays to prevent gifts from being delivered late. In order to reduce shipping costs, customers should place orders at the earliest cutoff to avoid paying more for expedited shipping.
In addition to running out of time, there may be other factors that impact cutoff dates, such as labor shortages, weather events that prevent carriers from shipping, federal holidays that shut down operations, and other factors.
When you work with a 3PL, pay attention to their specific carrier cutoffs and their inventory receiving cutoffs. Also, be sure to inquire about holiday turnaround times, any SOT (ship-on-time) extensions, and the general holiday schedule. It’s also important to make sure the 3PL you partner with makes it easy for your customers to place an order on the eCommerce platforms they’re familiar with.
At Jay Group, our easy shopping cart integration seamlessly supports major marketplaces like Amazon, eBay, Etsy, Walmart, and WooCommerce.
Core Competencies to Look for in a 3PL
When you’re looking for how to reduce shipping costs, an experienced 3PL is usually the answer. But not every 3PL is created equal, so it’s important to know what you’re looking for. Below are a few key components a 3PL should have before outsourcing your order fulfillment to them.
Up-to-Date Technology
Partnering with a 3PL using up-to-date technology, especially as it pertains to their warehouse management software, returns management, and eCommerce fulfillment services can have a major impact on profit and customer satisfaction.
At Jay Group, our scheduling, inventory control, slotting and picking, loading, and route schedules are all automated and optimized to ensure proper inventory management and safe and timely delivery.
Optimized Warehousing
With the aid of modern inventory management tools and equipment, logistics companies are able to reduce inventory storage costs by putting products closer to delivery, consolidating mixed loads for greater freight efficiency, minimizing inventory damage and loss, and increasing supply chain efficiency.
By coordinating manufacturer production cycles with end-user demand, the supply chain velocity can increase and costly safety stock inventory levels can be reduced.
Transportation
3PL companies can reduce your transport costs per unit by using the newest, most fuel-efficient vehicles specifically designed for the type of products being transported. A 3PL may also choose to outsource transportation, taking advantage of volume discounts to reduce transport costs even further.
Skilled Labor
Labor management is an integral part of the service provided by a full-service and high-volume 3PL. When you partner with a 3PL, the high cost of hiring, training, and managing employees for logistics is outsourced to the third-party logistics company, meaning you’ll save a lot of money on personnel, training, and equipment.
Strategic Order Fulfillment
Partnering with a 3PL means order fulfillment becomes the sole responsibility of the 3PL company. Their well-trained customer service, warehouse, and delivery staff all help strengthen the end users’ commitment to your products and make sure that all orders are being picked and packed with the utmost efficiency.
At Jay Group, we aim to be your partner, not just another 3PL provider. Contact us today to see if we can help you simplify the supply chain process and reduce shipping costs.
