Shipment and handling—two terms you’ve probably seen a thousand times while running your eCommerce business, but what do they really mean? And more importantly, why should you care?
Did you know that a staggering 80% of consumers want same-day shipping, and nearly as many say they would switch brands if that meant receiving items faster? Yet, not understanding the dichotomy of shipping and handling can lead to inefficiencies, ballooning costs, and dissatisfied customers.
In this blog, let’s get under the hood of these seemingly straightforward concepts and see how they can make or break your eCommerce game.
What is Shipment?
Shipment is the total of activities encompassing the transportation of products from your business’s storage or warehouse to the customer’s doorstep. Now, this isn’t a simple ‘A to B’ journey. Far from it, it involves several variables, such as:
Size and Weight: The bigger and heavier the item, the higher the shipping charges. This affects how you price your items and could determine whether or not a customer makes a purchase.
Distance: Costs shoot up if you’re shipping a product across state lines or even continents. More distance often equates to longer delivery times, affecting customer satisfaction and brand loyalty.
Mode of Transport: There are different modes of shipping transportation, like ground, air, and sea. While air shipments are faster, they are also significantly more expensive than alternatives like ground and ocean shipping.
Insurance: The value of your product also impacts shipping costs. High-value items require insurance, adding another layer to the total cost.
What is Handling?
Handling, on the other hand, is the backstage action before the grand performance of shipping. It involves all the steps taken to prepare an item for its voyage. This includes picking the item from inventory, packaging it safely, and ensuring it’s ready for dispatch. Here’s a bit more details:
Packaging: You might think a box is just a box, but it’s so much more. Is the item fragile? Does it require bubble wrap, Styrofoam, or a double box? Or is it perishable and requires special temperature-controlled packaging?
Time: Time is money, quite literally in this context. How many man-hours are needed to prepare a shipment? This involves the packaging and any additional steps, such as gift-wrapping or attaching special instructions.
Extra Services: If you offer features like gift-wrapping or maybe include a personalised thank-you note, those are handling activities that add both time and material costs to the overall equation.
Shipment vs Handling: The Difference You Need to Know
In eCommerce and logistics, “shipping” and “handling” are often mentioned together so frequently that many people think they’re interchangeable. However, there are two logistics functions, and understanding the distinct roles of shipping and handling is critical.
Handling is where it all begins. It involves picking the items and moving them to a central area for packaging, followed by the other steps of the process that require meticulous attention to detail.
The shipping phase commences after the handling process puts the final touches on your order. This is where your packaged products are transported to their final destination.
Unlike handling, which is more of a backstage operation, shipping is the ‘performance’ itself. It’s the manifestation of all the backstage preparation, subjected to public scrutiny in the form of tracking numbers and estimated delivery times.
At the most basic level, shipping refers to the cost of the package’s transportation—often dictated by factors like weight, size, and destination. On the other hand, handling is the collective cost of the labour and materials needed to prepare that package for its journey.
When you see a ‘Shipping and Handling’ fee, it’s a bundled cost covering these two distinct but interconnected services.
Step-by-Step Process of How Shipping and Handling Works
The initiation of shipping and handling unfolds when a customer orders a product online. When an order is placed, sophisticated order processing systems kick in. These technologies can include an Order Management System (OMS) that syncs with the inventory to confirm item availability and a Payment Gateway to secure the financial transaction.
Inventory Management and Picking
After an order is placed and processed, an IMS keeps real-time tabs on stock levels and locations, turning the potentially chaotic task of finding items into a smooth operation. Then comes the ‘picking’ process, where employees, often equipped with handheld devices synced to the IMS, locate and gather the items from their storage locations.
Material selection plays an integral role in packaging as it must provide adequate protection while also complying with sustainability practices and branding aesthetics.
Labeling and Documentation
Don’t underestimate the power of a label. Beyond basic information like the recipient’s address, labels may contain barcodes or QR codes for tracking, not to mention essential documentation for customs clearance in the case of international shipping.
Transfer to Shipping Carrier
This phase includes the last leg of warehouse activities like palletizing bulk orders and ensuring all documentation is in order. It’s crucial to choose a reputable shipping carrier, as they will be the ones taking your precious cargo over the finish line. Leverage advanced platforms like NimbusPost to choose the best shipping carrier in India from the pool of 27+ courier partners.
After the carrier takes possession, your goods are now in transit. The carrier’s reliability and service quality are significant factors here, influencing whether the items will arrive in the promised time frame and condition.
Delivery and Confirmation
Finally, we arrive at the ‘Last Mile,’ which involves the final delivery of the product to the customer’s doorstep and is rife with its own set of challenges, including navigating remote locations and ensuring secure delivery. Once the package is delivered, obtaining proof of delivery—be it a signature or a photo confirmation—is essential for resolving any subsequent disputes.
Factors Influencing Shipping and Handling Costs
Type of Business
In a B2C model, businesses often deal with a higher frequency of orders, but usually in smaller quantities. This means the packaging needs to be consumer-friendly and marketing-centric, adding a layer of complexity and cost. Conversely, B2B shipments are typically bulk orders, which might reduce per-unit shipping costs but can necessitate specialised shipping solutions like pallets or freight services.
Scale of Operations
Larger businesses often benefit from economies of scale, receiving volume-based discounts from carriers. However, smaller businesses might find it challenging to maintain cost-effectiveness in shipping.
Domestic Shipping: Shipping within your home country might seem straightforward, but nuances like regional pricing variations and fluctuating fuel costs can throw a wrench in your budget.
International Shipping: International shipping invites extra costs, including but not limited to customs duties, import taxes, and specific carrier rates based on international zones.
Remote Locations: Sometimes, the last mile of delivery can be the most expensive, especially if your package is headed to a geographically challenging location like a mountainous region or an island, impacting your overall shipping and handling budget.
Types of Products Sold
Perishable Goods: If you’re shipping perishable goods, be prepared to invest in temperature-controlled packaging and expedited shipping methods, which increase costs considerably.
High-Value Items: Shipping high-value items involves additional layers of security and often necessitates insurance, significantly bumping up your shipping costs.
Costing Components of Shipping and Handling
Types of Packaging Materials: The variety is extensive, from corrugated cardboard boxes to bubble wrap and padded envelopes. It’s crucial to select a material that is cost-effective and suitable for the item you are shipping.
Custom vs. Standard Packaging: Custom packaging, while offering an unforgettable unboxing experience, is often pricier than its standard counterpart. However, the upfront investment might be justified by the brand equity it can build over time.
Types of Shipping Services: Ground shipping is generally cheaper but takes longer. Air shipping is faster but can substantially increase costs. Therefore, choose according to your business needs.
Fuel and Distance: It’s no surprise that fuel costs and geographical distance are directly proportional to shipping costs. The further the package has to go and the higher the fuel prices, the more you can expect to pay.
Carrier Rates: Different carriers offer various rate structures. Thus, it is essential to shop around and negotiate terms when possible.
Labour: Handling costs mainly encompass the labour required to pick the items from inventory, pack them securely, and prepare them for shipment.
Warehouse Overhead: Overhead costs like utilities, rent, and warehouse management systems also contribute to the handling fees.
Special Handling Requirements: For goods that are fragile, perishable, or high-value, special handling is needed, incurring additional costs.
The Shipping and Handling Cost Formula
The shipping and handling formula in its simplest form is P+S+H, where:
- P stands for Packaging Costs
- S represents Shipping Costs
- H is for Handling Costs
Though it seems straightforward, each of these variables has its layers and nuances.
1. Determine Packaging Costs (P)
- Start by calculating the cost of the packaging material.
- Sum up the costs of these materials per package.
- Don’t overlook the labour needed to assemble these packages.
- If you opt for custom packaging to enhance brand value, add the premium you are paying for customisation.
P=Material Costs+Labour Costs+Custom Packaging
2. Compute Shipping Costs (S)
- Obtain quotes from multiple carriers to find the most cost-effective option.
- Your costs here would include the distance to the destination and the current fuel rates.
- Factor in extra costs like tracking, insurance, and any value-added services you opt for.
S=Basic Shipping Costs+Fuel and Distance+Additional Charges
3. Ascertain Handling Costs (H)
- This includes the costs associated with picking, packing, and loading items. Calculate this per package for accuracy.
- Divide your monthly warehouse expenses by the average number of orders shipped in a month to find your per-package overhead.
- If your product requires temperature-controlled storage or other specialised handling, these costs should also be factored in.
H= Labour+Overheads+Special Requirements
4. Sum It All Up
Finally, add all these individual components to find the total shipping and handling cost.
Shipping and Handling Strategy
1. Understanding Your Business Model
Understanding your business model is the cornerstone of crafting an effective shipping and handling strategy. While a Business-to-Business (B2B) model often involves bulk shipments and might require palletized freight services, Business-to-Consumer (B2C) focuses on smaller, more frequent shipments, often to residential addresses. Each model has unique needs.
2. Setting Clear Objectives
Identifying clear objectives will steer your shipping and handling strategy in the right direction. Are you aiming for cost-efficiency, faster deliveries, or perhaps a balance between both?
3. Costing Analysis
Breaking down the costs involved in your shipping and handling processes includes the obvious expenses like fuel and packaging materials and hidden costs such as labour and warehouse overhead. Utilise cost-benefit analysis to optimise spending without compromising on the quality or reliability of your service.
4. Technology and Automation
Failing to employ technology could leave you trailing behind your competitors. Software tools can manage tasks from inventory management to real-time tracking and cost calculation, providing an invaluable support system that can reduce errors, lower costs, and improve overall efficiency.
5. Monitoring and Adjusting
Key Performance Indicators (KPIs) like delivery time, shipping cost per unit, and customer satisfaction rates can offer valuable insights into the performance of your shipping and handling operations. Regularly monitor these KPIs to make data-driven adjustments to your strategy.
6. Compliance and Regulations
Adhering to shipping regulations, particularly for international shipping, is non-negotiable. The legal landscape includes a host of rules and guidelines that, if violated, can result in hefty fines or even legal action.
The importance of shipment and handling cannot be overstated. They directly impact customer satisfaction, your brand’s reputation, and the bottom line. But as the logistics industry continually evolves, leveraging technology and expert partners becomes vital. In that case, NimbusPost will be a game-changer for your business with its impressive range of features and an array of courier partners. From inventory management to one-day delivery, NimbusPost can streamline your operations and lead you to eCommerce excellence.