Pay attention to packaging!

How you package your small parcel shipments can have a big impact on overall costs.

By Toby B. Gooley, Managing Editor -- Logistics Management, 6/1/2006

When someone asks you about parcel shipping costs, do you only consider how weight and distance affect your rate? If you do, you're not alone. Many shippers focus solely on those factors. But that's just part of the story.

Some shippers are unaware that packaging can significantly affect parcel shipping costs. If you're in that camp, the following tips will help you keep those costs under control.

The major parcel carriers' tariffs include a host of accessorial charges that can pile on additional costs faster than you can say "schedule a pickup." Two common surcharges are those for "oversize" packages that exceed the carrier's maximum standard dimensions, weights, and density (for air express) and for "irregulars," or packages whose shapes are incompatible with automated, high-speed sortation facilitie. "If your package is not a cardboard square, it's probably subject to handling charges," says Brett Febus, president of transportation consultants Insource Logistics. "Many of those packages are hand-carried, put on carts, and pulled around the sorting hubs," he says.

In recent years, parcel carriers have broken down the former surcharge into "Oversize 1," "Oversize 2," and "Oversize 3" categories; the bigger the package, the higher the category—and the greater the surcharge. (For size and weight surcharges, see the table.)

If you're getting hit with oversize or special-handling charges, investigate whether changing your packaging could help you avoid those extra costs, suggests Doug Kahl, director of sales and business development for AFMS, a Portland, Ore., consultancy that specializes in parcel shipping. "Compare the size and dimensions of the item being shipped to the box it's being shipped in," he says. If you're using a large box with a lot of protective dunnage, decide whether the additional oversize costs are worthwhile compared to the risk of damage posed by reduced packaging. In some cases, he adds, the item itself may qualify for Oversize 1 but the packaging converts it to a more expensive Oversize 2 or 3.

For irregularly shaped parcels, it may be possible to switch to packaging that would change them to "conveyorable" format and eliminate the extra handling charge. At $6 a package, those savings can be considerable.

What if the oversize charges are a significant burden but it's impossible to change your packaging? For air express shipments, try negotiating a lower dimensional factor, says Tim Sailor, a principal with transportation specialists Navigo Consulting. The dimensional factor is a parcel's weight-to-size ratio, or its density. The lower the density, the more expensive it is for the carrier to handle and the more you'll pay; carriers bill low-density packages on their "chargeable weight," as if they were heavier.

One of Sailor's clients, for example, was shipping medical specimens in packaging filled with dry ice. "They were getting killed with dimensional charges, but they needed that much packaging to accommodate the dry ice," he says. After negotiating the dimensional factor from 184 to 250, the chargeable weight was reduced from 12 pounds to 9 pounds, for average annual savings of $150,000, he says.

An often-overlooked cost-cutting strategy is to reduce the number of packages you ship to one destination by consolidating many small packages into a few larger ones.

"The rates that are highest on a per-pound basis are those for the lowest-weight packages," notes LM pricing columnist Ray Bohman. "It will cost more for two 10-pound packages than it will for one 20-pound package."

The difference can be striking. Febus cites this example: For UPS Ground, Commercial Zone 5, the base charge for two 10-pound packages is $12.46; for one 20-pound package, it's $8.59.

Febus and Bohman caution against banding or strapping cartons together to create a heavier "package." Some carriers charge extra for such shipments because they tend to catch on conveyors and the strapping can break. Instead, consider shipping them inside a sturdy master carton, they suggest. The added cost for the master carton should be less than the additional freight charges for loose parcels. But proceed with caution: The added weight and larger size could bump you up into a higher weight category or incur an oversize charge.

Making sure packaging adequately protects your shipments will reduce or eliminate costly delays and customer-service problems—not to mention the cost of replacing and reshipping orders and filing claims. Sailor suggests using carrier-provided packaging when feasible; it's often available free of charge and is designed to ensure smooth sailing through their facilities. Some carriers have granted discounts of 2 to 3 percent for using their packaging, he says.

Reusing cartons may save money on materials, but it can end up costing you more in the long run, says Kahl of AFMS. Recycled boxes may have been weakened and won't stand up to another trip through a sortation hub, he says. He's also seen shippers reuse boxes that are too big, so savings are cancelled out by the cost of additional filler and tape, and by oversize charges that would not apply on correctly sized cartons.

Of special concern is the quality of packaging in shipments from China. Febus recommends requiring suppliers to use packages that meet parcel carriers' specs for domestic U.S. shipments. "Many times merchandise is shipped from China to the U.S. in bulk and then is broken out for local or domestic shipment by DHL, FedEx, or UPS," he says. "The box strength and cardboard quality frankly isn't as good … If you're asking the overseas manufacturer to direct-ship to your customers, you should be auditing the package quality."

For shippers that want to attack parcel costs through packaging, two "tools" are indispensable.

First and foremost: the carriers' electronic invoices. "Go over your weekly invoice with a fine-toothed comb to identify where the extra costs are coming from," says Kahl.

Carriers provide a wealth of package- and shipment-level detail that you can't get on paper invoices, says Sailor. They typically include actual and chargeable weights and dimensions that shippers can use to create exception reports that kick out anything that exceeds specified parameters, he says. An electronic invoice audit for one of his clients, for example, found that a broken scanner at one carrier's station had entered erroneous dimensions for some 6,000 shipments—causing overcharges of more than $20,000.

The other "tool" is communication with your carriers. It's in their interest to help you avoid damage and ensure that your packaging facilitates automated handling. Ask for historical claims data that will help identify the causes of damage, and take advantage of support services such as package testing offered by UPS. Ask to visit a local station or a sorting hub to see what goes on behind the scenes.

Seeing for yourself may radically change your thinking about packaging. That's what happened when LM reader Luis Nieto, distribution center manager at Bridge Publications Inc. in Commerce, Calif., toured some sorting hubs. "You can think you know what the process is, but when you actually take a look, it can be a real eye-opener," he told LM. "Seeing how the boxes get manually handled, the conveyor belts, and the speed at which they move gives you a much better sense of reality about what kind of packaging you should use and what size box will be less likely to get damaged … You can achieve a higher level of customer satisfaction and fewer customer complaints."