How to Reduce Shipping Costs? Top 5 Proven Ways

How to Reduce Shipping Costs? Top 5 Proven Ways

Mark Anderson
Mark Anderson
May 14, 2024
Last updated on:

May 14, 2024


Read time: 7 mins

Shipping costs are the expenses incurred in transporting goods from one location to another, typically from the seller to the buyer. This cost includes various factors such as transportation fees, cost of packaging, handling charges, and any additional services like tracking or insurance. 

Companies worldwide are struggling with inflationary freight costs due to the interplay of global conflicts and economic uncertainties. As a result, companies are obligated to pass on increased freight rates to their customers. Even though the hike is gradual, it receives pushback from customers seeking fast and affordable shipping options. Higher shipping costs deter customers from completing purchases or lead to negative reviews and reduced repeat business. 

A study by Baymard Institute found that 48% of shoppers with actual purchase intent abandoned shopping carts because the shipping costs were too high.

Therefore, companies must strategize their approaches to minimize such costs. Keeping shipping costs at the optimal level helps businesses to increase their bottom line and allocate those savings to other key areas of their operations or investments in growth. 

This blog aims to help businesses know how to reduce shipping costs through valuable insights, strategies, and practical tips. 

5 Best Ways to Reduce Shipping Costs

Here are the five best ways to reduce shipping costs in businesses: 

1. Negotiate with Carriers

Negotiating with carriers that offer shipping and transportation services is crucial for businesses aiming to curtail shipping expenses. They can secure preferential rates and terms that align with their shipping needs and budget constraints through adept negotiation tactics. It also helps businesses often negotiate lower per-unit costs, capitalizing on economies of scale. However, the negotiation strategy hinges on a proper understanding of the intricacies of carrier pricing structures. A deep comprehension of the same allows companies to identify avenues for cost savings like consolidating shipments to minimize expenses or suggesting better shipping routes. 

By forging strong partnerships with carriers, companies can also negotiate effective contracts tailored to their requirements, securing discounts, waivers on surcharges, or flexible payment options. Such agreements not only drive immediate cost reductions but also establish a foundation for long-term collaboration. This also motivates carriers to offer value-added services or innovative solutions that further streamline shipping processes and cut costs. 

According to Pitney Bowes, businesses that negotiate contracts with carriers save between 10% and 30% on shipping costs compared to retail rates.

Tips to Negotiate with Carriers

  • Leverage Volume: Highlight your shipping volume to negotiate better rates. Carriers often offer discounts for higher shipping volumes as it ensures consistent business for them.
  • Explore Alternatives: Research and compare rates from different carriers. Presenting competitive offers can encourage your current carrier to match or beat them to retain your business.
  • Negotiate Terms: Discuss flexible payment terms or longer contracts in exchange for discounted rates. Long-term commitments can benefit both parties and may result in lower shipping costs.

2. Consolidate Shipments

Combining multiple smaller shipments into smaller or larger ones enables businesses to work on economies of scale and optimize available transportation capacity. This consolidation also reduces the overall number of shipments, lowering handling, administrative, and documentation expenses associated with each delivery. Additionally, consolidating shipments enables businesses to negotiate better freight rates with carriers, as larger, more consolidated loads are often more cost-effective to transport per unit. 

Moreover, by reducing the frequency of shipments, companies can minimize the impact of surcharges and access bulk discounts offered by carriers. Beyond cost savings, consolidating shipments also enhances supply chain efficiency by streamlining logistics operations and reducing transit times. It represents a strategic approach to shipping management that drives down costs, enhances operational efficiency, and supports sustainable practices. 

Case Study

An exemplary illustration of how consolidating shipments aids in reducing shipping costs is demonstrated by Walmart. Instead of dispatching individual shipments for each product from suppliers to its numerous retail locations, Walmart consolidates multiple products into one shipment whenever possible. By doing so, the retail giant optimizes transportation routes and maximizes the capacity of its delivery trucks.

For instance, rather than sending separate trucks for groceries, electronics, and apparel to a particular store, Walmart combines these items into a single shipment. This consolidation minimizes the number of trucks needed for transportation, reduces fuel consumption, and decreases overall shipping costs. Moreover, Walmart's advanced inventory management systems and distribution centers allow for efficient consolidation of shipments. By strategically storing and bundling products in its warehouses, Walmart can fulfill orders from multiple locations with fewer shipments.

Tips to Consolidate Shipments

  • Batch Orders Combine multiple orders from the same location or region into a single shipment. This reduces per-unit shipping costs and minimizes the number of packages handled by carriers.
  • Optimal Packaging: Use efficient packaging techniques to maximize space utilization and minimize wasted volume. Smaller and lighter packages are often more cost-effective to ship.
  • Coordinate Shipments: Coordinate with suppliers and vendors to synchronize shipment schedules. By consolidating orders, you can create larger and more economical shipments.
  • Centralized Distribution: Establish centralized distribution centers strategically located to serve multiple regions. This reduces the distance and number of shipments required to reach customers, lowering shipping costs.

Factors Affecting Shipping Costs in %
Image 1 - Factors Affecting Shipping Costs in %

3. Implement Order Fulfillment Strategies

Implementing order fulfillment strategies is a crucial avenue for businesses to substantially cut down on shipping costs. The process involves receiving, processing, and delivering customer orders and often includes returns handling. By optimizing these processes, businesses minimize the time and resources needed to pick, pack, and ship orders, thus reducing labor and operational expenses. Likewise, employing advanced inventory management systems and warehouse optimization techniques enables businesses to streamline order processing, ensuring efficient product allocation and reducing the need for expedited shipping methods. 

Furthermore, strategically locating fulfillment centers closer to key markets or implementing multi-warehouse distribution networks reduce shipping distances and transit times. The result is a significant reduction in shipping costs and increase in customer satisfaction through quicker delivery times. Implementing order aggregation methods, such as batch processing or order bundling, allows companies to consolidate multiple orders into fewer shipments, optimizing transportation efficiency.

According to a study by McKinsey & Company, companies that effectively manage their order fulfillment operations experience a 15% decrease in overall logistics costs.

Tips to Implement Order Fulfillment Strategies

  • Batch Processing: Process orders in batches rather than individually to minimize the number of shipments. This reduces handling costs and allows for more efficient use of shipping resources.
  • Zone Skipping: Utilize zone-skipping techniques to bypass intermediate distribution centers and ship directly to regional hubs or end customers. This can reduce transit times and lower shipping expenses.
  • Optimized Inventory Placement: Strategically position inventory closer to high-demand areas to minimize shipping distances. This minimizes transportation costs and improves delivery times.
  • Dynamic Routing: Implement dynamic routing algorithms to optimize delivery routes based on real-time factors including traffic conditions and package destinations. This minimizes fuel consumption and transportation expenses.

4. Implement Dimensional Weight Pricing Strategies

Traditional shipping pricing models rely solely on weight, often leading to higher costs for lightweight yet bulky packages. On the other hand, dimensional weight pricing counts on both the weight and dimensions of a package, ensuring fairer pricing based on the space occupied in the carrier's vehicles. Businesses can decrease shipping costs by optimizing packaging designs to minimize dimensional weight. This involves using smaller or more efficient packaging materials that do not compromise product protection and eliminate excess void fillers and unnecessary packaging layers. 

Educating staff and customers on efficient packaging practices helps ensure packages are consistently sized appropriately, reducing dimensional weight and associated shipping expenses. Furthermore, by strategically selecting packaging sizes and configurations that align with dimensional weight pricing structures, businesses can capitalize on potential cost savings and discounts offered by carriers for efficiently packed shipments.

Tips to Implement Dimensional Weight Pricing Strategies

  • Dimensional Weight Calculations: Understand how carriers calculate dimensional weight and optimize your packaging accordingly. Businesses can reduce shipping costs by minimizing the package dimensions relative to its actual weight.
  • Weight vs. Size Analysis: Analyze your shipments to determine whether weight or size has a greater impact on shipping costs for each carrier. Adjust your packaging strategy accordingly to minimize dimensional weight charges.
  • Negotiate Dimensional Factors: Negotiate dimensional factors with carriers to better align with your packaging strategy. Carriers may be willing to adjust dimensional factors for specific agreements, resulting in lower shipping costs for your business.
  • Regular Review and Optimization: Regularly review your dimensional weight pricing strategy and shipping patterns to identify areas for optimization. By staying proactive and making adjustments as required, businesses can continue to minimize shipping costs over time.

Case Study

An exemplary case of implementing Dimensional Weight Pricing (DWP) strategies to curtail shipping costs is FedEx, a globally renowned logistics company. Before adopting DWP, FedEx primarily relied on charging by package weight, overlooking the spatial efficiency of shipments. However, they observed that voluminous yet lightweight packages consumed disproportionate space in their delivery vehicles, leading to inefficiencies and increased costs. Upon implementing DWP, FedEx revolutionized its pricing model by factoring in package weight and volume.

This encouraged shippers to utilize packaging more efficiently, prioritizing compactness without compromising product protection. The result was a significant reduction in shipping costs for both FedEx and its clients. With streamlined operations and more efficient space utilization, FedEx enhanced its profitability while offering competitive pricing to customers.

Category Wise Average Shipping Cost in % in USA
Image 2 - Category Wise Average Shipping Cost in % in USA

5. Opt for Prepaid Shipping Labels

Prepaid labels, typically purchased in bulk or through negotiated agreements with carriers, often come at discounted rates compared to standard shipping rates. By purchasing these labels in advance, businesses secure more favorable pricing, especially for high-volume shipments. This not only reduces the per-unit cost of shipping but also provides predictability and control over shipping expenses, allowing businesses to budget more effectively. Moreover, prepaid labels simplify the shipping process by eliminating the need to negotiate rates or calculate shipping costs for each individual package. 

Additionally, prepaid labels often come with added benefits such as tracking services and insurance coverage, enhancing shipment visibility and providing both businesses and customers peace of mind. By leveraging prepaid shipping labels, companies streamline their shipping operations, improve cost efficiency, and ultimately enhance customer satisfaction.

Tips to Use Prepaid Shipping Labels

  • Bulk Purchasing: Purchase prepaid shipping labels in bulk quantities to secure discounted rates from carriers. Bulk buying lowers the cost per label and saves on shipping expenses.
  • Batch Shipments: Consolidate multiple orders into a single shipment whenever possible. To reduce overall shipping expenses.
  • Leverage Carrier Discounts: Take advantage of discounts offered by prepaid label providers to access lower shipping rates than standard retail prices.
  • Negotiated Rates: When purchasing prepaid shipping labels in large volumes, negotiate discounted rates with carriers. Carriers may offer preferential pricing for prepaid labels, especially for regular or high-volume shippers.

According to a survey made by the National Retail Federation (NRF) , 87% of retailers consider prepaid shipping labels a cost-saving strategy for their e-commerce operations.


Shipping costs and customer requirements are intimately connected, as the shipping process plays a crucial role in meeting customer expectations and fulfilling their specific needs. Customers often have diverse requirements regarding shipping speed, reliability, and flexibility. While some customers prioritize fast delivery, requiring expedited shipping options to receive their orders promptly, others may prioritize cost-effectiveness and are willing to wait longer for standard shipping. Moreover, shipping costs directly impact a product or service's affordability and value proposition for customers. High shipping costs can restrict customers from making a purchase, particularly if they perceive the shipping fees as excessive relative to the product's value. Conversely, offering free or discounted shipping can attract customers and increase conversion rates. Therefore, aligning shipping costs with customer requirements for affordability is crucial for driving sales and maintaining competitiveness in the market. 

At Invensis, we help businesses across the globe reduce shipping costs through various strategic solutions. Our tailored supply chain management services optimize logistics processes, including route planning, inventory management, and carrier selection. By leveraging data analytics and automation, our experts streamline operations, minimize transportation inefficiencies, and negotiate favorable contracts with shipping providers to lower overall costs. Additionally, we offer freight audit and payment services, ensuring accurate billing and identifying opportunities for cost recovery and optimization. Furthermore, Invensis offers value-added services such as order fulfillment, warehousing, and reverse logistics to enable businesses to consolidate shipments, reduce storage costs, and improve overall supply chain efficiency. 

Contact us to enhance cost-effectiveness in shipping operations and achieve greater competitiveness with our logistics BPO support services

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