How Are Shipping Costs Typically Calculated?

How Are Shipping Costs Typically Calculated?

  • Best Inc. by Best Inc.
  • May 3, 2020

Shipping rates vary widely depending on various factors, making it sometimes difficult to estimate shipping costs. In this article, we will break down the factors that contribute to the shipping costs, and hopefully demystify the process of shipping rate calculation for you. Let us look at the factors involved in the calculation of shipping rates:

How-Are-Shipping-Costs-Typically-Calculated

DIM Weight

DIM weight is shipping jargon for dimensional weight, which is also known as volumetric weight. It is a theoretical figure that shipping carriers use to optimize the shipping process, ensuring that larger, lower weight packages that take up precious space in carriers’ trucks and planes are ‘penalized’ by being charged a higher fee. For example, a container full of smartphones would be much more profitable to ship than a container of pillows; the smartphones are much smaller and can be shipped at a higher volume, plus they are able to be sold at a much higher price than pillows.

If your products cost you more to ship them than they would be able to make in revenue, don’t abandon the products immediately! There may be other carriers or shipping methods that can offer you a rate which would make more sense for your business.

Shipping Zones

The confusing thing about shipping zones is that every carrier seems to have their own zone charts. USPS, DHL, FedEx and UPS all have their own ideas of what is considered in which zone. Another problem is that as shipping zones are counted by point of origin, if a customer is purchasing two items in one cart, and they are shipped from two different locations, there may be two different shipping zones involved in the calculations. The more shipping zones your package crosses, the higher the shipping costs and the longer its journey. If your package will be crossing borders, pick a service that specializes in cross-border transportation.

Shipping Methods

With a variety of carriers out there offering a range of services, your business can enjoy options. Premium shipping may come with a premium price tag, but it doesn’t mean you cannot find value for money service as well. Some shipping companies offer value added services which you may find extremely beneficial. You may also wish to consider outsourcing your shipping to a fulfillment center, which may be more cost effective for you depending on your business model.

Surcharges

Surcharges are like hidden costs – they are tagged on to your delivery fees due to special circumstances. Some common surcharges include:

  • Oversized items
  • Delivery area surcharge for remote areas
  • Residential surcharge for businesses operating out of a home address
  • Weekend delivery surcharge
  • Fuel surcharges

Handling & Labor Costs

In-house fulfillment can also get pricey due to handling and labor costs. You can figure out how much labor is costing your business. For example:

Let’s say it takes 5 minutes for your employee to pack an item. Divide 5 by 60, you get 0.08. Multiply by the hourly wage, say $15/hour. You get a handling cost of $1.20 per package.

By this number, you can assess the feasibility of outsourcing to a fulfillment center to potentially reduce costs.