The cost of shipping goods to your store is a major factor in determining the profitability of each line of merchandise. Unless you can take greater than keystone markup, you may actually lose money on goods that come with a high freight cost. It’s a worthwhile procedure to look at every invoice and calculate the ratio between the wholesale value of the goods and the cost of shipping and handling. You may be surprised to find that a small order racks up shipping fees of up to 50% or more.

There are two reasons for this. The first is that small orders, especially back orders, are likely to be subject to a disproportionately high cost in freight. We state on our purchase order form that we won’t accept back orders of under $50 unless the vendor pays shipping cost, but some suppliers can’t seem to set this up in their computer system. It’s hard to believe that companies don’t realize that a store can’t pay $15 in shipping on a $20 back order and still remain profitable.

The second reason that costs may be higher than you assumed they’d be is that they are not always based on weight. The cubic volume may in fact be the key factor, since this determines how much space the shipment will occupy on a truck or ship. To calculate the cubic volume of a shipment, multiply a box or pallet’s length by its width by its height.

UPS uses billable weight to determine it shipping rate. “For domestic and international services, the billable weight will be the greater of the dimensional weight compared to the actual weight.” This is a bit complicated – but it means that if the merchandise is big but not heavy, the weight doesn’t matter. You take the cubic size of the package and divide it by a divisor such as 139 (see the UPS website for an explanation of this). When you compare the rate for the package’s actual weight and its dimensional weight, you’ll pay whichever is greater. FedEx uses a similar system.

A freight company, or LTL (less-than-truckload) carrier, is also going to base its rates on the density of the shipment. Density is the total weight divided by the cubic volume, and this factor is used to determine the freight class. Some freight classes have a higher cost than others, although in most cases the more you ship at any one time, the lower the cost will be per pound.

Take advantage whenever you can of free freight offers from your vendors. Even a freight cap, which sets the maximum percentage you will be charge for shipping costs, no matter what the actual amount comes to, can be worthwhile – especially if the merchandise you have on order is large but light.

Happy Retailing,
Carol “Orange” Schroeder

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