How to improve the profitability of an e-commerce business? Negotiate courier rates!

One of the key factors that impacts e-commerce cost is courier service. Not only is it about the price of the delivery itself, but also about the speed of parcel delivery and the quality of return and complaint-handling. All of them influence the overall delivery cost. Even the level of personal culture of couriers can be “monetized”, that is, converted into quantifiable profits or losses. That is why it is worth negotiating not only prices, but also the scope and the terms and conditions of courier services.

Negotiating rates for courier services is a common practice that shouldn’t come as a surprise. Before you start the negotiations, you’d better prepare for them, i.e. by analysing your own needs.

Your basis for negotiations, i.e. assessment of your real needs

Before you start negotiating prices or choosing a specific courier company, you need to define your own needs. Here are the most important questions to be answered before starting negotiations:

  • how many orders per month are you able to declare – you cannot significantly overestimate your monthly volume to get lower rates, because if your actual orders are a lot below the stated number, you will pay for the difference; however, you should analyse the potential consequences of not meeting the declared volume, as it may turn out that the risk may be profitable for you,
  • what are the weight and dimensions of the packages you are going to ship – it is not about all the dimensions of all the packages you are going to ship, but about the marginal values, i.e. the lowest and highest weight of the package and the dimensions of the smallest and largest package,
  • how many small, medium and large parcels you are going to ship – you should try to determine the structure of your future orders in terms of the number of parcels in specific weight and dimension categories; then you should check with the specific courier whether they handle such parcels and which parcels will be treated as standard ones,
  • how many non-standard parcels are you going to ship – this means oversized parcels, containing particularly valuable and sensitive goods (e.g. musical instruments), loads requiring special transport conditions (e.g. goods transported in cold stores), same-day delivery shipments and other packages that do not fit the standards of a sortable shipment; you should try to estimate what percentage of your parcels will require special packaging and additional payments for ensuring non-standard transport conditions or covering the costs of additional insurance,
  • time limit for pick-up – it is necessary to establish specific time by which, for example, all goods that have been ordered before a specific time on the same day will be shipped.

The answer to each of the questions above should contain red lines, i.e. upper and lower thresholds for the performance of a given service. This, instead of rigidly set requirements, will facilitate you in the analysis of the offers of individual couriers. You will also obtain greater flexibility when negotiating the terms of the contract with the selected company.

The big ones negotiate the parcel prices, the small ones go to the broker 

Of course, negotiations are easier for sellers who ship tens or hundreds of thousands of packages a month. Such customers are real jewels in the crown of every courier company. As a result, the giants receive gigantic discounts which are completely out of reach for small or new start-up stores. This does not mean, however, that they are in a fruitless position. In the case of small and medium-sized enterprises, using intermediaries, i.e. parcel brokers, is the best solution. Online brokerage platforms can offer you those very favorable rates which were unavailable to you in direct negotiations. This is possible as the brokers create large volumes from many small orders from various customers. The broker takes over all the trouble of negotiating with the carrier.

The packing algorithm speeds up and optimizes packing 

The method of packaging significantly affects the final cost of delivering goods in the e-commerce industry. If you do not exceed the weight and dimensions of standard packages, you may save on extra surcharges for non-standard packages. For example, instead of 100 oversized parcels, you can send 120 sortable parcels and thus realistically reduce the average cost of shipping. Another way of saving on shipping costs is the maximum use of space in collective packaging and on pallets. Very often, it is only a change in the way the orders are packed that may reduce the overall number of shipments. All operations of changing the packing method (different selection of dimensions and number of packages, e.g. in collective cardboard boxes) can be performed with the use of appropriately selected packing planning algorithms. In this  case, the algorithm for packing a single container will be the most useful. The use of algorithms can also shorten significantly the duration of the packing process. In this way you may save money (lower labor costs) and gain more customers (thanks to faster deliveries).