When COVID-19 started leading to closures across the U.S. in 2020, shippers couldn’t have predicted the long term effects. On one hand, during that time many change-resistant Americans were forced to grow comfortable with the idea of residential deliveries. On the other hand, capacity didn’t keep up with demand, and every industry was plagued with supply chain issues. For nearly three years, shipping rate inflation has made many shippers feel helpless at the hands of a “carrier’s market.” That may finally be changing, though, with slowing demand, overcapacity, and new shipping options putting shippers back in control. The trick lies in knowing how to take advantage of these new developments.
How Do Carriers Set Shipping Rates?
The cost of fuel is arguably both the most impactful and obvious factor in shipping expenses. While prices no longer set records, considering diesel’s average 2020 cost per gallon was $2.55, they remain relatively high. Drivers and carriers pass the expense to customers as fuel surcharges that are figured into standard shipping rates.
One of the most surprising drivers of price increases among carriers has been the rise of B2C e-commerce. E-commerce growth has created more competition for the finite amount of space available to carry cargo at any given time. Hiring difficulties across the supply chain, from distribution center workers to truck drivers, have complicated capacity issues even further.
Another contributor to increased shipping rates over the last years has been a change in “delivery density” for carriers. Before COVID, most shipments were delivered to businesses, which often received 10 or more packages at a time. With more now destined for private residences only receiving one or two packages, emptying a truck requires more stops. As a result, carriers’ average per-delivery expenses have risen, which has been taken into account as rates have increased.
Why Are Rates Expected to Fall?
According to a FreightWaves article published at the end of 2022, there are three main reasons to expect rate decreases.
Slowing shipping demand
Now that the pandemic seems to be behind us, some of the related B2C market growth seems to be receding. While online shopping was normalized during the pandemic, a post-COVID e-commerce reset was always an inevitability. With many now permanently working remotely, the social aspect of shopping in person has grown more appealing. Online shopping also lacks the tactile experience and immediate gratification of in-store purchases. And now that everything is already more expensive due to inflation, paying unnecessary shipping costs is understandably not particularly appealing.
Carrier overcapacity
COVID-related capacity shortages caught most carriers off guard, and many were even forced to turn business away as a consequence. No one likes leaving money on the table, especially when there’s a risk that customers will never return. To minimize the fallout, carriers took remedial capacity-increasing actions, some of which are just beginning to bear fruit. And now, the supply of capacity is beginning to overtake waning demand.
A U.S. Postal Service (USPS) expansion, for instance, has increased its daily processing capacity to 60 million packages. They only average 30-38 million parcels a day, however, so they’ll need to bring in a lot of new customers. To a lesser extent, many carriers similarly now find that they have more capacity than they can fill.
Availability of new and improved shipping options
While shippers can passively benefit from the first two factors behind falling shipping rates, the third driver requires their action. Via third-party websites, over the last few years, shippers have gained access to rates previously only offered to huge companies. By combining the shipping volume of small- and medium-sized businesses, these websites can offer heavily discounted commercial rates.
The sites also provide free or low-cost access to tools that help shippers make their operations more efficient. Depending on the service, these may include label-making, reporting, cost comparison tools, easy integrations with existing technologies, etc. With so many capabilities, service tiers and billing models available, shippers must do some legwork to find the perfect fit. The cost savings is worth the trouble, though, with shipping costs often equaling a fraction of carriers’ rack rates.
How to Access Lower Shipping Rates
There are many options available to shippers seeking volume discounts that have long benefitted large corporations. In fact, at this point there are so many to choose from that the selection process is potentially overwhelming. That’s why it’s important to know which services are non-negotiable, and how much you’re willing to compromise for free services. Here are a few highly-rated options to help you get started.
Pirate Ship
Carriers compared: USPS and UPS
Services offered: Batch label printing from spreadsheets, tracking email scheduling, searchable shipment reports
Costs: Free. Pirate Ship says they make their money through “official partnerships with USPS and UPS.” Essentially they keep the difference between discounts negotiated with USPS and UPS and the marked up rates offered to users.
Pros: Free to use; offers up to nearly 90% off USPS and UPS rates; handles international shipments, including customs form integration
Cons: Only offers USPS and UPS shipping
Easyship
Carriers compared: Around 250 carriers worldwide, including FedEx, USPS, DHL, UPS, etc.
Example services offered: International cost comparisons, custom branding, shipping insurance, deep discounts, international fulfillment, label printing
Costs: Up to 50 shipments a month at no charge. Up to 500 shipments for $29/month, up to 1500 shipments for $69/month. Custom enterprise quotes upon request.
Pros: Free for fewer than 50 shipments monthly; carrier diversity; offers rates from international origin and destination points; technological partnerships with wide range of marketplace, storefront, ERP, and warehouse management platform vendors
Cons: Potentially intimidating range of capabilities
ShippingEasy
Carriers compared: USPS, UPS, FedEx, DHL, international consolidators
Example services offered: Label and packing list printing, return management, customer marketing capabilities, user and product management, integration with diverse platforms
Costs: Up to 25 shipments a month at no charge. Up to 200 shipments for $20/month with additional plans up to 10,000 shipments for $160/month.
Pros: Free up to 25 shipments/month; technological partnerships with wide range of marketplace, storefront, ERP, and warehouse management platform vendors
Cons: Potentially intimidating range of capabilities, limited number of carriers
FreightPOP
Carriers compared: Hundreds of providers via expedia-like freight “ratehacker” search engine
Example services offered: Transportation management, AI-enabled prescriptive analytics, EDI invoicing, freight auditing, batch shipping, robust integration capabilities
Costs: Available on request
Pros: Good for multimodal manufacturers, distributors, retailers and 3PLs that ship via FTL, LTL, parcel, ocean and air
Cons: Not for small e-commerce shippers
Don’t Pay More for Shipping Than Necessary
You may notice your shipping costs falling regardless of whether you do anything differently going forward. This doesn’t mean you shouldn’t take active measures to bring your rates down even further, though. If you don’t take advantage of discounts offered by sites that want your shipping volume, you’re giving profits away. Research the new shipping services available, and find the one that best fits your budget and specific business needs.
To learn about more ways to keep shipping prices down, read Business Shipping Tools You Should Be Using.
FAQ
It depends on the services needed and what you want to pay. Some only offer rates from a few carriers, while others offer rates from any carrier they can find. Depending on the site, services range from simple cost estimates up to label-making, database reporting and even storefront capabilities. A few are free, while others offer tiered monthly plans based on volume and service requirements. It’s important to find out what’s available before making an informed decision based on your budget and specific business needs.
There are three main reasons behind a decrease in shipping rates following years of all-time highs. First is slowing shipping demand now that most people have returned to their normal, pre-COVID activities. Secondly, following a flurry of capacity-increasing measures to accommodate COVID-related demand, carriers are operating with excess capacity. Finally, several free or low-cost online shipping services now combine small-and medium-sized shippers’ volumes to offer them steep discounts.
Labor issues, intermittent transport capacity shortages and a jump in fuel costs contributed to shipping rate increases. Also, carriers have higher average per-delivery costs following COVID-19 due to an increased percentage of residentially-destined shipments.
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