4 Ways to Profitably Manage Freight Pricing in a Volatile Market
Container shipping rates from China to the US are skyrocketing, with rates four to ten times higher than normal expected to persist into 2022. Sustained high levels of ecommerce activity through the holiday shopping season are likely to put continued pressure on an already clogged global supply chain. FedEx and the USPS have announced delivery surcharges to compensate for increased demand through the holidays and, in some cases, beyond.
The rising cost of freight impacts your business twice – affecting how much it costs for you to get products from vendors but also to ship products to customers – and trying to figure out how to best react to these changes can be overwhelming. And while the volatile market appears here to stay for some time, here are four ways your business can use freight pricing to your advantage and stay profitable.
1. Incorporate the Cost of Inbound Freight into Product Pricing
We’re not talking about a pass-through. Rather than think, ‘My inbound freight costs are rising X%, so I need to raise my prices X% across the board to recoup those increased costs,’ try this instead: ‘My inbound freight costs are rising X%, so maybe it’s time to reconsider the value we offer our customers and adjust our prices accordingly.’
If you position a freight pricing increase as a reaction to shifting market conditions, your customers will seek an adjustment when the pricing environment normalizes. If, instead, you employ differentiated product price increases that reflect the value your company and its products provide to customers, you’ve unlocked a key profit driver for years to come.
2. Address Ancillary Charges through Fee-based Programs
The first step here is to understand what constitutes a standard or average shipment to a customer from your business. Next, think through all the factors that could make that shipment outside of the norm because of an added cost to your business and/or added value for your customer – charges related to seasonality, additional handing, layovers, customs, oversized dimensions or weight, rush orders, etc.
Update your freight pricing programs so that the extras cost extra, and your business can maintain its profitability while providing additional benefits to your customers.
3. Review Current Freight Policies
Take a look at your existing freight policies with an eye on their impact on your bottom line:
- Do you book freight at the time of order or at the time of shipment? Do you know how much that approach is costing (or saving) you?
- If you offer pre-paid freight included, do you know which customers are operating at a loss to your business? Where do you need to realign policies to ensure you’re at least breaking even on freight?
- When was the last time you spoke to your vendors about the freight pricing policies you’re on the receiving end of?
For any policy adjustments you make, have a communication plan in place so your team feels competent and confident when they begin to introduce these changes to your customers.
4. Track the Impact of Freight Pricing on Profitability at the Transaction Level
Make sure your data works for you by building measurement views that track profitability at the customer or order level by:
- Parceling out batch freight charges from vendors onto individual orders
- Flagging any sales that are out of compliance
- Identifying trends that indicate a new freight pricing policy should be put in place
Having insight into the margins you’re earning – or losing – on each transaction can help you institute freight pricing policies that protect your bottom line, even in this volatile market.