Why Is Shipping So Expensive? 10 Key Factors Explained
Let's face it, shipping represents a significant cost in a business's supply chain. Many people lack an understanding of the factors contributing to the expense of shipping. Why should businesses be aware of these factors? First, understanding them helps manage expectations, minimizing surprises when rates are quoted. Second, this knowledge informs decision-making; businesses that grasp how these factors specifically impact their shipments can confidently choose cost-effective options, such as opting for longer transit times to reduce rates. Third, it empowers businesses to ask informed questions and engage in meaningful conversations with carriers and shipping companies, facilitating more effective negotiations. Let's explore 10 key factors that may influence your shipping costs.
Distance and Destination
Of course the longer the distances the more expensive, due to more fuel, wear and tear of the vehicles, and operators’ hours. Some remote destinations are much more not only because of distance but because once there, the return trip is usually non-revenue miles so the rate will cover that return trip costs (fuel, driver wage, etc.).
Weight and Size
Carriers often use dimensional weight pricing, considering both the weight and dimensions of packages. Oversized or heavy items require more space and specialized handling equipment, contributing to elevated shipping costs.
Speed of Delivery
Expedited shipping options, such as next-day or two-day delivery, come at a premium compared to standard shipping. Faster delivery necessitates additional resources and efficient handling, leading to increased costs. On the flip side, choosing a slower mode of transport, such as ocean freight instead of air freight for international shipments, can yield cost savings at the expense of longer transit times.
Fuel Costs
As we all know fuel prices are always changing and are fairly unpredictable. Changing fuel costs are reflected in FSC or fuel surcharges in most cases. In some cases, FSC may not be separated and carriers may adjust flat shipping rates to offset increased fuel expenses.
Labor and Handling
Beyond driver wages, labor costs encompass sorting, loading, transporting, and hand-delivering packages. Specialized or high-value items incur additional handling and operational expenses, including equipment maintenance and overhead costs.
Infrastructure and Technology
Maintaining an extensive network of vehicles, warehouses, and distribution centers requires significant investment. Additionally, technology investments for tracking, route optimization, and efficiency enhancement add to operational costs.
Regulations and Compliance
Shipping requires compliance with various regulations, including (but not limited to) safety standards, certifications, and training requirements. International shipments introduce additional complexities, including customs documentation, inspections, and import/export regulations, thereby increasing shipping costs and administrative burdens.
Insurance and Liability
Shipping insurance provides protection against potential risks such as damage or loss of goods. While some carriers include insurance in their rates, specialized coverage may be necessary for high-value items, resulting in increased shipping costs.
Peak Seasons and Demand
During peak shopping seasons, such as the December holidays, shipping demand surges. As a result, carriers often impose peak season surcharges (often listed as PSS on invoices) or adjust flat rates to manage capacity constraints and meet customer expectations.
Competition and Market Dynamics
The shipping industry is highly competitive, with multiple carriers competing for market share. This competition, coupled with seasonal and weather-related challenges, can lead to cost pressures and operational complexities, resulting in higher shipping rates.
To Summarize
Understanding these 10 key factors empowers businesses, both small and large, to make informed decisions when selecting shipping partners. By recognizing the complexities associated with these factors businesses can optimize their shipping strategies and manage costs effectively.
