If you run an e-commerce business you will already be aware of just how problematic deliveries can be, and if you intend to set one up, you will almost definitely have heard talk about some of those problems. E-commerce inevitably relies, in part, on delivery costs, but problems arise when additional surcharges are added to those costs. Transport companies are sometimes less than clear on the subject (and their calculations), often leaving e-commerce unable to predict when and where surcharges will be applied, and unsure how to contest them when they are. In this post, we’re going to discuss some of the more commonly applied surcharges: what do they mean, how to avoid them, and how to contest them with your transport company.
What are delivery surcharges?
When a delivery is requested, the price quoted for that delivery is not definitive; it is an estimation based on the size, weight, and destination of the package. This means that should any of those three factors change or be incorrect, the transport company will add an additional charge to the original estimated price after the delivery has been made.
This practice is a result of the significant increase in delivery volume brought about by growth in the e-commerce sector. Transport companies levy these surcharges in anticipation of demand to ensure, ahead of time, that they can cope with delivery volumes. The surcharges, therefore, remain in a constant state of fluctuation and can also vary from one transport company to another.
For example, at the beginning of 2018 UPS and FedEX increased their most commonly applied additional charges; some by more than 20%. The cost of ground deliveries was increased by 4.9% in order to cope with demand, particularly during the holiday period. But even so, with such an increase in volume, they were unable to maintain their delivery rate, and profits fell by 5.5% in the last quarter of the year.
According to Charles Cushing, founder of Galleon, a transport-analytics platform for e-commerce, surcharges represent between 10% and 30% of total delivery costs. He claims that the main culprit for these unpredictable charges is delivery times. Late deliveries account for more than 90% of all refunds made to clients, and today’s quick delivery times mean that any delay can be very damaging for transport companies. The good news for e-commerce is that when a late-delivery case is contested and won, both delivery costs and surcharges are refunded. Even so, transport company auditors are building ever more complex systems based on trends and historical data to anticipate and predict incorrect surcharges.
The second most commonly applied surcharge is for incorrect delivery addresses. These make up 4.7% of all the addresses entered by users, so it’s worthwhile investing in address verification software to avoid those charges.
How to reduce and contest surcharges
Transport companies calculate their fees according to their growth predictions and the percentage of profit they think they can make from each account (client). This means the slightest modification can cause the final invoice to vary. They normally update fees and surcharges annually, so it’s a good idea to regularly renegotiate contracts. For example, if a business frequently ships to residential addresses or sends large packages, the surcharges associated with those formats may be reduced or removed completely, as a result of that frequency.
It’s important for e-commerce to revise their delivery invoices regularly. Through doing so, they can gain a better understanding of the impact of surcharges and identify any patterns between those that are levied frequently and those that aren’t. When the reason behind a surcharge is not apparent, the quickest way to deal with it is to call the transport agency’s representative to contest or question it.
Another option for reducing delivery costs is to use third-party logistics (3PL). They tend to offer competitive transport contracts and usually minimize the impact of surcharges, but they do not absorb them entirely. Another disadvantage of using 3PL is that, as a rule, they don’t allow businesses to arrange any of their own deliveries, and surcharges cannot be contested directly because the account is held in the name of the 3PL provider.
In general, it doesn’t usually pay to use a 3PL, so the preferable option is to negotiate delivery prices in the most efficient and forward-thinking way possible.
Use packaging specifically sized for the product
Transport companies charge according to weight and size so a great way to save on deliveries is to minimize packaging as much as possible. This will provide better protection for your product, as well as saving you money on deliveries. A large box, not specifically designed for the product, allows the contents to move around during transit. A package will be moved many times, from the moment you send it through to final delivery, so packaging not tailor-made for the product has a high probability of arriving damaged.
Lastly, it’s worth remembering that surcharges are constantly changing. They fluctuate in line with the growth in volume from e-commerce. So, if your business continues to grow, there will always be opportunities to revise and improve your delivery conditions with transport companies.