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3 Ways a Transportation Management System for Parcel Shipping Reduces Transportation Costs

Transportation Management Systems (TMS) for parcel shipping have been implemented within the enterprise order fulfillment process for the last 25 years.  However, over the last couple of years (and especially over the last couple of months), demand for these systems from mid-size companies, e-commerce retailers, and omnichannel retailers has increased.

With the cost of transportation rising steadily over the years and in particular during the COVID-19 pandemic, leveraging a TMS for parcel shipping is an excellent way to reduce transportation and fulfillment costs.  Cost savings from a TMS for parcel shipping are realized from the moment the customer order is placed and continue through the pick, pack, and ship processes.

Typical, quantitative ROI calculations demonstrate an investment payback well within 12 months of implementing the system.  Three common factors contributing to the transportation cost savings include:

1. Carrier Costs

Rate shopping across multiple carriers within the enterprise’s transportation network is usually the most pronounced and quickest way to reduce transportation spend. At Logistyx, we have observed that moving from a single carrier to rate shopping across multiple carrier services to optimize spend for each shipment can reduce carrier costs by up to 30%.

2. Shipment Planning and Execution

The cost of the shipment will be directly related to the level of shipping automation in place. A TMS for parcel shipping will increase efficiencies in planning, optimize carrier selection, reduce handling, automatically select transportation mode, integrate the shipping workflow into the fulfillment process, and more.  Leveraging a single system for multiple distribution locations (warehouse, distribution center, store, etc.) will also contribute to cost reductions.

3. Transportation Audit

Incorrect billing or incorrect service level charges by the carrier can amount to as much as three to five percent of total transportation spend. Did the carrier live up to the original agreement by providing the proper service at the correct cost?  The TMS for parcel shipping’s audit functionality finds these mistakes and files claims to reconcile the payment process.  Additionally, audit functionality will effectively run analytics on shipping data and provide business intelligence.  Benefits include finding the true cost of carriers, deciphering trends and uncovering additional savings opportunities, and evaluating carrier performance to assist in rate negotiations.

Streamline Shipping & Integrate Capabilities to Reduce Parcel Transportation Costs

Companies not using a TMS for parcel shipping probably manage “transportation” functions that are distributed between systems, spreadsheets, websites, and manual (read: error-prone) processes.  By streamlining shipping and integrating capabilities, additional benefits can be realized:

1. Improved Performance

Even shipping systems purchased 10 years ago are probably using older technology, which may be slowing the shipping process just by waiting for a label to print or for a manifest to close. With higher processing speeds, wait times have been eliminated and throughput increased.

2. International Shipping Documents

Given significant increases in e-commerce, more companies are expanding their businesses into global markets. However, shipping internationally requires more documentation and greater care when doing final preparations.  A TMS for parcel shipping can automatically provide all of the necessary documentation by carrier, resulting in shipment error reductions.

3. Shipment Consolidations

Often, the same customer can place multiple orders within minutes of each other. Without adequate planning, companies lose the opportunity to pack those orders into the same container to save on shipping costs.  A TMS for parcel shipping can perform these consolidations to reduce transportation cost.

4. Address Validation and Verification

If the address printed on the label isn’t correct, the carrier will re-bill the shipper an address correction charge anywhere from four to six dollars per package. On average, 22% of an average company’s shipments are incorrect.  In addition to the address, certain carriers require a Residential Delivery Indicator (RDI) be used when shipping to a residential address.  If the shipper doesn’t include this information, the carrier will bill the shipper an additional charge.  The TMS for parcel shipping can provide address correction, usually using the USPS CASS database, to assure that the shipper won’t incur unforeseen and expensive charges.

5. Omnichannel and E-Commerce Value

E-commerce shippers are always looking for a marketing edge to keep their customers and acquire new ones. A TMS for parcel shipping can provide “what if” shipping scenarios to shoppers prior to their final purchase.  In most cases, the retailer using this approach will consistently present a lower shipping cost than its competitors and ultimately attract more business.

Best-in-Class Shippers Use a TMS for Parcel Shipping to Reduce Parcel Transportation Costs

A TMS for parcel shipping enables companies to execute shipments in the most cost-effective manner possible.  To learn more about how you can decrease transportation spend with a TMS for parcel shipping, download our Quick Guide: Critical Capabilities of a TMS for Parcel Shipping.