May 8, 2014

Shipping Woes: How to Reduce and Budget for Shipping Issues

Filed under: Uncategorized — Meredith @ 7:28 am


If you sell products online you’ve probably had your share of aggravation when it comes to lost or damaged packages. Who eats the cost when shipping goes awry? You do, of course. You certainly can’t tell your customers it’s their problem, the loss of customer good will simply isn’t worth it. So how can you take the pain out of lost and damaged shipments? Here’s some suggestions:

1. Shipping Insurance: DIY or Buy
There are lots of services out there that offer shipping insurance, some of them are even quite affordable. My issue with paying for shipping insurance (most of the time) is that it’s a guaranteed money loser. Let’s look at the math:

Imagine your average shipment has a $30 retail value and a $10 cost to you, for easy math let’s say you ship around 1,000 packages per month. If you paid for insurance on each shipment you might add roughly another $1 in cost to each shipment (which you can of course pass on to customers). If your average package loss rate is 2% then you will lose maybe 20 packages per month. The cost to you to replace those packages is $200.00. If you paid for insurance you’d have spent $1,000 to cover the cost of replacing $200 in goods.

This doesn’t mean you should expect to eat the $200 in lost goods. Guarding against shipping loss is part of the cost of shipping and you should pass this expense on in your shipping fees. If you just added $1.00 to your shipping charges for every single shipment you’d have that $1000.00 at the end of the month in reserves to pay for the $200 in lost/damaged packages plus some money left over.

When deciding whether to build in your own shipping insurance fund that you handle in-house or paying for outside insurance be sure to do the math and determine what it will cost you to pay for insurance, what your average replacement cost is and what your average package loss/damage rate is. You may find it’s cheaper and even more profitable to go DIY than to pay for outside insurance.

There’s also nothing preventing you from applying insurance to shipments on a case-by-case basis. If your average shipment has a $30 retail value, but a few times per month you get a shipment with a $300 retail value, you might want to just ship those packages using outside insurance.

2. Signature Confirmation
Signature confirmation can be almost as good as insurance but cheaper (depending on the value of your shipment). If you have a product that can’t easily be broken or damaged, shipping high value packages with signature confirmation required is a great way to guard against packages being lost or stolen.

We’ve all heard the stories of a mail carrier leaving a shipment on a customer’s doorstep and the package being stolen minutes later. It’s a problem particularly in urban areas. When you ship with signature confirmation required, this eliminates the shipper’s option to leave your shipments unattended. It also makes it nearly impossible for a customer to claim they didn’t get the package.

3. Premium Shipping Services
For high value shipments, sometimes it pays to go with a premium shipper like FedEx. For heavy shipments they are often less expensive than USPS. You can insure parcels with premium couriers like FedEx and UPS on an individual package basis and if your package IS lost or stolen, filing a claim with these services is usually much easier than dealing with USPS. It’s worth noting that premium shippers usually have a much lower rate of package loss or damage. In all the years of working with FedEx, they’ve delayed/misplaced a total of TWO shipments. Both shipments were eventually found and delivered a couple of weeks late.

We use USPS daily since they are more affordable for light weight packages, but they lose anywhere from 2-5% of our shipments. I build this into my shipping costs, so it still makes sense to use USPS for light parcels. I ship my heavy and high value parcels with FedEx since they are more cost effective for shipments over 2 pounds and they’re much more trustworthy for high value packages.

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