How To Reduce Freight Charges, Optimize Cost, and Increase Profit Margins
One of the most common issues faced by traders all over the world is excessive shipping costs. The freight charges might not seem like a huge expense at first, but you might observe that the costs you incur on shipping are rather substantial when you delve into the details. If you’re one of those who have identified the issue, then you’re still better off than most traders who don’t even realize where their money is lost. It is the freight cost that is slowly chipping away at your profits.
However, to remain profitable, you’ll have to figure out a way to control these expenses. You can’t afford to keep losing money on shipping charges, money that can easily be saved with some optimizations. Today, we’re going to look at some of the neat tricks and pointers you should remember while shipping your goods. These suggestions might seem inconsequential at first, but if you implement them consistently and properly, you’ll see a cumulative effect that’ll positively surprise you.
1. Rules and Regulations
This might seem to be unrelated to optimizing the shipping costs but if we understand the consequences of not following these rules and regulations, the picture will be clearer. If you don’t comply with the rules of your nation or the nation where your goods are headed, you risk your goods being seized by the customs department of the respective nation. This can lead to a very quick downfall for your business as you’ll lose your clients, time, and money. Therefore, it’s best to stick to the established rules and procedures as the risk of not following them is way too much. Familiarize yourself with the rules and have proper knowledge of everything to stay on the side of caution.
2. Loyalty Matters
The one thing that all businesses operate on, is trust and loyalty. If you can establish a level of trust and loyalty with your carrier, you’ll get many benefits that you wouldn't normally get to see. The carrier will try to make special arrangements for your goods even if space is an issue and they’ll even give you some discounts due to the recurring nature of your dealings. This isn’t only beneficial for you, but it’s an equally appealing prospect for the carrier as well. The carrier will not have to worry about getting new clients and they’ll know the estimated volume of goods that you’ll be sending. This makes their jobs a whole lot easier and this mutually beneficial relationship might save you a significant sum from your pocket.
3. Peak Days and Off-Peak Days
As a businessman, you must be aware of the concept of demand and supply. If the demand for something is higher than the supply, then the prices tend to go up. However, if the demand is lower than the supply, then the prices will fall in favor of the consumer. This can also be applied to your case where you are the consumer, the carrier is the supplier, and the services they provide are influenced by the rules of demand and supply. If you ship on the off-peak days when the carrier has lesser goods to carry, you can easily get a lucrative discount of as much as 10%. The most common off-peak day is usually Monday; however, it can change depending on the nature of your business. If you can delay or advance the transportation of your goods by a day or two, you can easily save some money by being opportunistic. If you deal in non-consumer-type products, then you can easily adjust the shipping date without any worries about the expiration window.
4. Weigh Your Options
The most common mistake that most people make is to settle on the first carrier that they find. As a buyer of the services provided by carriers, you should do what every sensible buyer does- compare. If you don’t compare your options, then you might have to settle on disproportionately higher prices. So do what every buyer does and find a carrier who can provide you with the best prices and the best support in terms of documentation and regulatory requirements. Also, if a carrier can place your goods on the backhaul, you can save a significant amount of money. Therefore, you should try to explore as many options as possible before you settle on one final carrier.
5. Don’t Cheap Out
This suggestion might seem exactly opposite to the one given before but it’s complementary to it. You must make sure that you don’t go for a carrier, based solely on how cheap they are. If you make cost-effectiveness your sole criteria, then it will lead to disappointment in the future. In trading, you get what you pay for and a carrier who charges more must be offering some additional benefits. The higher-priced carriers might be more careful with loading and unloading your goods or they might help you with export documentation. Whereas a cheaper carrier will only offer you the bare minimum to cut corners. So, try to achieve a balance between this point and the previous one to find the best deal that falls within your budget.
6. Proper Documentation
You must remember to document all your goods properly and include every important detail like invoice number, bill number, quantity, conversion rates, total weight, etc. so that you don’t face any hassles during the later stages. If you miss out on any of this information or mention the wrong details, then it might lead to your goods being classified under the wrong category. If your goods are moved into the category where more duty rate is charged, it could lead to higher costs incurred by you or even a delay in the shipment which should be avoided.
7. Learn the Incoterms
Incoterms are very important in any international trade and help avoid any ambiguity about the transaction. The main purpose of these terms is to determine who is responsible for the risks associated with the shipment at different stages. There are multiple Incoterms that every exporter and importer should be familiar with. Knowing the correct interpretation of each Incoterm will help you to determine when the risks are transferred from the seller to the buyer. Many exporters accept whatever Incoterm is proposed to them and this results in increased costs by the end of the trade. The Incoterms are released by the International Chamber of Commerce and you can easily understand the differences in each of them by doing a simple read-up. Initially, you’ll face difficulties in memorizing these terms but after a few transactions, you’ll easily be able to remember them from memory. Here’s a quick guide on Incoterms from one of our previous articles, check it out: Click Here
8. Proper Packaging
Many new exporters try to package everything with so much caution and care that they end up using more packaging material than necessary. You must understand that any packaging in the form of bubble wraps, envelopes, pallets, or even padding takes up space and increases the weight of your shipment. You should try to minimize the packaging to a bare minimum and not waste any packaging materials either. This will ensure that the packaging used by you doesn’t add up to make up a large chunk of your expense and it’ll also make ensure that your shipment doesn’t take up more space than it needs to. Space is at a premium in any carrier vessel and the more efficiently you pack, the lesser costs you incur.
9. Shipping Methods
Choosing the proper method of shipping your goods is as essential as any other tips listed here, if not more so. The method you choose for shipping your goods should depend on the number of goods you wish to transport and the amount of time you have on hand. If you want a cheap and cost-effective solution, then the sea freights will be suitable for you. However, the sea route is slower than air freight and can only be used when the shipment isn’t a time-sensitive one. Also, air freight should be chosen only if you want to deliver the goods faster in a tight deadline. Airfreight will cost you significantly more as compared to transporting your goods over sea or land and should be avoided if you want to save the maximum amount of money.
10. Understand the Customs
One of the most significant costs that you incur on exporting your product is charged by the customs department of the receiving nation. If you take some time to properly study and understand the various charges that might be incurred in the future, you’ll be able to compensate for them beforehand. There are various fees and taxes involved in an international transaction and they usually accumulate in small increments to become rather significant. Your country might have some sort of an agreement with the receiving party’s nation and that might help you save some costs, but this isn’t always the case. You can also avoid some additional fees by proper inspection, verification, and certification from the point of departure. However, you must be aware of all these charges before you can try to manipulate them in your favor.
These were some of the basic methods you can use to reduce the cost of shipping. The suggestions mentioned in this article aren’t exhaustive and numerous other ways may be beneficial to reduce your shipping costs and increase your profitability. However, these tips are some of the most widely applicable ones and if you are new to trading, these tips will help you get a good start. As your trade and export activities continue, you’ll discover some insights into the shipping business yourself. The knowledge you gain from your own experience will help you to further reduce costs and eventually cut down on your expenses being incurred while boosting profit margins. Just remember to be cautious about your decisions and tinker with the unnoticed aspects of transportation. In due time, you’ll observe that you’re saving large amounts of money just by optimizing the pre-existing shipping methods.