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May 19, 2020

How To Calculate Shipping Costs

Knowing how to calculate shipping costs is essential to staying profitable and competitive in e-commerce. That’s why I’m offering you this overview of how carriers determine shipping rates.

Parcel Shipping Costs

Zones and Transit Time

USPS, UPS, and FedEx divide up a map of the United States into shipping zones. They calculate rates by the distance of these zones from your zip code.

Of course, how fast you want your goods to get to the destination will affect how much you pay as well:

  • Ground shipping
  • 2nd Day Air
  • Next Day Air

Dimensional Weight

Your parcel shipping costs will depend on the package’s weight and the amount of space it takes up in the truck. Parcel carriers charge according to the actual weight or dimensional weight, whichever is greater.

To calculate dimensional weight, you first measure the package volume in inches. Multiply the width, length, and height of the package. Round fractions up to the next whole number.

Let’s say, for example, your package measures 10 3/8 “ X 10 ⅞” X 8 ½”

You will round these dimensions up to the next integer:

11” X 11” X 9”

After you determine the package’s volume, divide it by the carrier’s divisor:

  • UPS - divide by 139 for daily rates (when UPS picks up on a daily basis), 166 for retail (shipping from a UPS Store).
  • FedEx - divide by 139.
  • USPS - divide by 166.

You'll round any fractions up to the next whole pound.

Insurance And Declared Value

When you’re shipping high-value goods, you may want to hedge your risk of loss. Some carriers offer insurance, sometimes from a third-party vendor.

Declared value is different from insurance. You pay a higher rate for a declared value above the carrier’s standard liability limits. The carrier in return raises liability limits for damage or loss.

For example, UPS covers damage or loss of up to $100 with their standard rate. But if you declare a value of $500, you’ll pay a higher rate. UPS will pay $500 if it’s lost or damaged.

Accessorial Charges

Parcel carriers may charge extra for special services. For example, if you sell perishable goods that need to be packed with dry ice, you’ll be charged a dangerous goods fee.

Some common accessorial charges include:

  • Additional handling
  • Address correction
  • Oversize package
  • HAZMAT/dangerous goods
  • Missing or invalid account number
  • On-call pickup
  • Scheduled pickup
  • Third-party billing
  • Address correction

Taxes and Duties For International Shipping

Foreign governments may tax international shipments.

If you’re shipping abroad, see the websites for the destination country and The World Customs Organization.

Less-Than-Truckload (LTL) Shipping Costs

If you fill orders that are too large for parcel shipping, LTL shipping may be a cost-effective option.

In an LTL Shipment, your freight travels with freight from other shippers on the same trailer. The LTL carrier may unload and reload your product to different trailers at each leg of the trip.

Weight

LTL carriers quote rates per 100 lbs weight. You can usually get better rates for heavier cargo. 

Density

As a rule, you’ll pay lower rates for heavier, more compact cargo. Density is the chief factor that determines a shipment’s freight class.

Freight Class

Most LTL shipping determines rates according to The National Motor Freight Classification® (NMFC) system.

The product’s “transportability” determines its freight class. It’s based upon these four traits:

Density. Expressed as weight per cubic foot, density is the key factor the NMFC uses to determine freight class.

  • Multiply width X length X-height
  • If measuring in inches divide the total by 1728 (the cube of12) - this is the volume in cubic feet
  • Divide weight of the shipment by volume

Handling. Goods that need special handling are assigned to a higher freight class:

  • Fragile items
  • Needs a lift gate for delivery
  • Temperature controlled

Stowability. This has to do with how well your freight travels with others. Some features of your cargo can move it into a higher, more expensive freight class:

  • Unusual dimensions
  • Protrusions that would make it difficult to stow with other freight 
  • Government regulations or carrier policies that don’t allow it to share a trailer or dock with other kinds of freight
  • Pallets aren’t stackable - takes up more floor space

Liability. The value of the item and the risk of damage during the freight handling process get factored in. A higher risk of damage or theft can move the freight to a higher freight class.

You can learn more about the LTL freight class in this post.

Accessorial Charges

LTL carriers offer several added services that may increase shipping costs.

  • Inside pickup or delivery
  • Residential pickup or delivery
  • Liftgate service
  • Delivery to limited access locations
  • Hazardous materials (HAZMAT).

Distance

How far the freight travels is a key factor in shipping costs. Most carriers also add a surcharge for the cost of fuel.

Truckload (FTL) and Consolidated Shipping Costs

Full truckload (FTL) is often just called truckload (TL). With FTL shipping, you don’t share trailer space with other shippers.

Consolidated freight is like LTL in that you share trailer space, but there are a couple of differences:

  • It’s treated like FTL so you don’t have to calculate freight class.
  • The freight remains on the same trailer until it reaches its destination.

Distance

FTL and consolidated carriers quote a rate per mile for each shipment. However, the rate varies with market supply and demand. 

Freight Lanes

Freight lanes are routes that carriers run regularly. Because established lanes increase efficiency for the carrier, they offer lower rates for these routes.

Final Thoughts

Did you know you can get quick and accurate shipping quotes on your e-commerce platform for about 55 cents a day? Be sure to check out our freight quote plugins and apps for Woocommerce, Shopify, Magento, and more.

About Eniture Technology

Eniture Technology specializes in helping e-Commerce merchants grow by providing useful information, digital marketing services, off-the-shelf apps that solve common problems, and custom programming services. Please contact us if you need help growing your online business or implementing the concepts presented in this blog post.

Interested in learning more? Check out our free guide, A Beginner's Guide To E-Commerce Shipping and subscribe to our blog!

A Beginner's Guide To E-Commerce Shipping

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