Reduce Shipping Expenses Using ABA Discount Shipping Program

September 12, 2006

Shipping costs are an often-overlooked contributor to rising business expenses. With annual carrier rate increases, skyrocketing fuel costs, and accessorial charges that may increase 30 percent or more year-over-year, finding ways to reduce shipping expenses can significantly affect a bookstore's overall balance sheet.

Retailers feel a constant strain on their businesses in the form of ever-increasing expenses. Day-to-day business costs such as rent, utilities, and insurance all continue to climb, while competitive pressures deter merchants from raising prices to cover any shortfall. Businesses must find a way to cut operating expenses. Cutting expenses allows retailers to protect their margins without raising prices, a move that can certainly erode customer loyalty. One key area that a retailer can examine in an effort to trim expenses is freight costs. But how does a retailer know if he or she is spending too much on shipping?

One way is to determine shipping expenses as a percentage of total sales. Freight expenses vary by the type of store and the size of the company, both in the number of stores and total company sales volume. However, stores, on average, indicate they spend 1.5 percent of total sales on shipping.

With that in mind, a retailer should conduct an analysis. If more than 1.5 percent of a store's total sales goes to shipping expenses, the retailer should find ways to lower those costs.

Here are four key strategies booksellers can use to help them get shipping costs in line. Storeowners can implement one, two, three, or all four strategies, and, hopefully, watch their shipping costs go down and their profits rise.

Key Strategy #1: Obtain Discounts With Carriers

Booksellers who think they have to be the size of Wal-Mart or Home Depot to obtain discounts with carriers, think again. Many larger businesses have the volume and favorable shipping characteristics to negotiate directly with carriers -- and, obviously, any bookseller who has successfully navigated this process is on the right track. However, for those booksellers who have not been successful, or who simply don't have enough volume to negotiate such discounts, there are still opportunities available to obtain them. One of the many benefits of ABA membership is that it provides members the opportunity to participate in the free ABA Discount Shipping Program through PartnerShip, which provides the sizeable discounts that much larger companies negotiate for themselves.

Key Strategy #2: Develop an Inbound Shipping Program

Reducing inbound shipping costs is one of the easiest, yet most overlooked, ways to reduce overall transportation expenses. Vendors typically receive volume discounts from carriers -- but do the vendors pass those discounts along to the retailer? When retailers control and route inbound shipments, they have an excellent opportunity to significantly lower their costs. If retailers allow suppliers to route their freight and invoice them for shipping charges, their transportation costs are probably higher than they should be. Being the buyer allows retailers to not only determine what they purchase from a particular vendor, but also how it is shipped to them.

As the buyer and receiver of the goods, retailers can -- and should -- designate the carrier and arrange for shipping charges to be billed directly to them at their discounted rate. This is called routing freight "Inbound Collect." Collect is a billing option where the retailer is invoiced by the carrier. It does not mean paying the driver at the time of delivery. Routing shipments Inbound Collect can save a retailer significant dollars. If retailers continue to allow vendors to prepay for shipping, and add it to their merchandise invoice, in most instances they will continue to pay more than they should for incoming product.

For booksellers using the option, the first step in reducing inbound shipping costs is to notify their vendors that they want their shipments routed Inbound Collect. A "Routing Instruction Letter" specifically states to their vendors how they want their merchandise shipped to their store. In the Routing Instructions Letter, booksellers should indicate to the vendor that, if they do not follow their shipping instructions, they will not pay for shipping charges on merchandise invoices, and should allow no exceptions to these instructions. Booksellers should make sure to send the Routing Instructions Letter to their sales representative, customer service manager, or to the accounts payable department. They should not send their instructions directly to the shipping department.

Key Strategy #3: Use The Correct Mode & Service Level

Booksellers should examine where they spend their transportation dollars. Is their spending concentrated in LTL (Less-Than-Truckload) rather than small package, or air instead of ground? These distinctions are called modes of transportation. Ground shipping and air shipping are the two most common transportation modes that businesses use on a day-to-day basis. An example here helps illustrate the impact of using the correct mode: For two-day guaranteed service, a retailer can send a 35-pound package from Cleveland to Boston and pay a ground rate of $8.50. Sending the same package second-day air would cost approximately $33. That's a difference of 74 percent to ship air versus ground for the same two-day level of service.

Service level refers to the time frame in which the carrier will ship the package from origin to destination, such as same-day service, next-day, two-day, three-day, etc. Why pay for next-day service if next-day delivery is not necessary?

Key Strategy #4: Audit All Invoices

It is estimated that between five percent and 10 percent of freight invoices contain some sort of error. By regularly auditing their freight invoices, booksellers can catch and receive credit for costly mistakes. Booksellers should audit several line items on a carrier invoice, most notably, checking for the correct discount, making sure they are billed for the service they requested, verifying product classification (freight shipments only), and monitoring extra service charges. Also, if booksellers have an inbound shipping program in place, they should be aware of double billing for shipments. If they're routing inbound shipments from vendors, shipping charges should never be on the merchandise invoice from the vendor.

For more on ABA's Discount Shipping Program and how it can help cut shipping costs, click here.

Keith Korhely is program manager for ABA affinity partner PartnerShip. Through PartnerShip, ABA members can participate in the association's Discount Shipping Program.

Topics: News - Bookselling, Affinity Programs,