Instead of eating into profits using expensive air delivery services, how can retailers send cargo more cost effectively?
Online retail sales in the United States are expected to reach $523 billion by 2020, up 56 percent from $335 billion in 2015. But, while this active market offers great opportunities for small businesses and independent online retailers, increased competition is making it harder for small- to medium-sized businesses to stay competitive with online giants. One of the main areas in which small businesses are losing money is in shipping costs.
The fact that homes are approximately three times as expensive to deliver to as business addresses leaves retailers struggling to make ends meet, as most consumers now expect free shipping in line with the services offered by global eretail giants like Amazon and AliBaba who can afford to do so. In a recent Financial Times article, Alan Blackford, COO for an online outdoor furniture retailer, states that shipping is his company’s second largest expense after marketing, even ahead of labor costs, and that costs are growing year over year.
So, instead of eating into profits using expensive air delivery services like UPS and FedEx, how can retailers send cargo more cost effectively? Here are three tips to saving money shipping with ground transportation:
1. Use online load boards.
While basic, online load boards such as directfreight.com and truckstop.com are a step in the right direction in terms of "sharing economy" freight services.
Put simply, these platforms allow brokers and individual transport owners to post their routes online in advance to fill up any extra space available for the journey. While these boards won’t help retailers with the home delivery dilemma, they can help reduce costs by shipping inter-state in a shared transport, and then paying a local delivery service to make the home delivery in the final leg of the journey.
Using a load board allows shippers -- those needing goods transported -- to move overflow freight. Using the boards, shippers can match their load with empty carriers travelling from their base area to a desired destination. Using this type of service is particularly useful for companies that do not have a consistent group of carriers to choose from, or that don’t need to ship frequently, such as a mom-and-pop store that does the majority of business in-store but also offers online retail options.
On well traveled routes, load boards allow retailers to shop around for the best price by contacting a number of carriers at once. However, be aware that 90 percent of freight brokers also use these services, which means retailers will most likely receive offers from brokers, too.
However, shippers should note that not all load boards are free; many require paying a membership fee. Also, in the world of shipping, you get what you pay for, so while sourcing transports on online load board is cheaper, retailers will have to accept slower delivery times and added risks in terms of security and insurance than are offered with leading air freighters.
2. Keep an eye on "off peak delivery" projects.
Despite traffic congestion and fuel consumption -- and thus transportation costs -- being higher during peak hours, most land carriers still only haul during the day. According to a recent study, 95 percent of deliveries in New York are made between 6 a.m. and 7 p.m., while only 5 percent are made between 7 p.m. and 6 a.m. While prices are lower when the amount demanded is equal to the amount supplied, demand is higher in peak hours early in the morning when most retail supply occurs. Although daytime shipping options are cheaper now than in the past, this method is still a financial hit for retailers.
Off-peak deliveries (OPD) have been trialed in cities like Chicago, New York and Toronto, and the results are extremely promising. Not only did these programs reduce congestion in cities, they showed considerable savings both in travel time and in the overall price of the journey due to fuel consumption. A study of OPD in New York showed that implementing various OPD policies would generate total savings of between $100 and $200 million per year in travel time savings and pollution reduction:
Travel time savings to all highway users were estimated at approximately 3-5 minutes per trip.
Off-peak delivery is estimated to be 30 percent to 40 percent cheaper for carriers (and thus shippers, too) than regular daytime deliveries.
Carriers that switch to off-hours would save about 48 minutes in travel time per delivery tour and 1 to 3 hours in total service time per delivery tour.
Considering the success of the projects in leading cities, local business owners should consider petitioning their local authorities to trial similar policies. Until that point, when contracting carriers for individual trips, companies should ask about the carrier’s policy on OPD, and try to negotiate lower prices for trips that will be made in off-peak hours. For companies with regular land deliveries to make, it may be worth privately contracting a driver, or using on-demand shipping services, that make deliveries in OPD hours.
3. Use auction-like websites that auction freight.
Made famous by the popular A&E show Shipping Wars in 2012, Uship is effectively the eBay of the freight industry. The platform features a network of more than 100,000 trucking companies and owner operators, who will bid for any ground shipping jobs posted. The “winner” is the lowest bidder, and who wins the contract to haul the freight. Similar platforms such as Cargo Trax exist in Europe, but Uship dominates the market in the U.S.
The benefit for retailers is that they can post a job, and wait for carriers to bid each other down to get the best deal. However, like using online load boards, this method means sending freight with unknown drivers, which in turn increases risk. However, compared to the prices of sending with services like FedEx, the risk might just be worth it.
As the eretail market continues to grow, pumped up by mobile shopping, shipping is only going to become more of a cost for small businesses using traditional channels. For the time being, it is up to thrifty business owners to assess all of the options available to them, to make sure their goods arrive to their destination on time and in perfect condition, without having to break the bank for the privilege.
Originally published June 28, 2017 on Entrepreneur.com