by Greg Marone
Everybody loves a pleasant surprise, but an unpleasant surprise – not so much. Without a doubt, unexpected carrier back charges fall into the unpleasant category. A shipping back charge is a supplemental fee charged to you by the carrier after delivery is completed – in addition to the freight charges you expected to pay for the shipment.
For e-commerce companies, back charges are especially problematic because they typically can’t be collected, once the transaction is completed. Most consignees are unwilling to be billed any additional fees once the order has been delivered. Merchants typically learn of the additional charges on their monthly carrier bill, long after the transaction is completed? It’s not realistic for the merchant to go back and ask the customer for more money to cover the unexpected shipping charges. Unfortunately, the merchant has no choice but to pay the fees, and their profit margin takes the hit
However, there are ways to minimize unexpected back charges. Following are five of the most common reasons for back charges and recommendations that can be easily implemented in your fulfillment operations to prevent them from occurring.
Classify Your Shipments Correctly
Residential delivery charges are at the top of the list in common back-charges. Shipping to residences rather than businesses usually costs more — roughly $3 per package depending on the carrier and service. If the shipment isn’t designated as a residential delivery when the carrier accepts it, you’ll be quoted the cheaper commercial rate, which gets added to your customer’s order. However, once the carrier makes delivery and determines that the address is residential rather than commercial, your account will be assessed for residential surcharges you didn’t pay upfront.
You can prevent this, by using multi-carrier shipping software that is capable of using address validation tools and automatically detecting residential addresses when the customer enters the address on their order.
Another common and expensive back charge is a bad-address penalty. Packages that are returned because they are undeliverable, are problematic on several levels. First, your customer is disappointed because they did not receive their order as expected. Second, you the merchant, paid to have the shipment delivered to an invalid address, and will pay again to have the order shipped to the correct address. Additionally, you will incur further charges, roughly $10 per package, for each undeliverable package.
Charges due to invalid addresses can be eliminated by adding address-validation software into your fulfillment system. Ideally, address validation software should be installed so that it can be accessed early in the order process, order entry (interfaced to your web order screen for example) to catch and fix errors before they enter the fulfillment workflow. If this is not an option, address validation software can also be integrated into your shipping system, as a validation check before it is finalized for actual shipping.
Check for Remote Area Addresses
Carriers also assess a surcharge for deliveries made to unusually remote areas. Such places range from, for example, Islands off the coast of the US or in large bodies of water, remote mountainous area, distant desert areas and areas more than 2 hours from a carrier delivery hub. Probably most unusually, there are areas in Alaska that can be reached only by dog sleds. Extended area surcharges usually range from $20 to $25 per shipment or package.
You can eliminate these surprise charges being incurred after delivery by either interfacing to the carriers API to check for Remote or Extended Area Surcharges or us a Shipping System that can add these charges to your transaction.
Most extended area situations can be anticipated upfront, if your shipping system is configured to flag them.
If you know in advance that you’ll incur an extended area surcharge, you can decide if you want to pass that fee on to your customer.
Verify Third-Party Account Numbers
Third-party billing errors represent one of the most common back-charges assessed to the shipper. It is very common, for a consignee with a carrier account to ask the shipper to bill the freight to their account number so the consignee can apply their own negotiated freight discounts to the shipment.
If an address error is made when it is keyed into the system or the shipper provides an invalid number, the carrier will bill the freight charge to your account — and also add a surcharge for the occurrence of the invalid account number. This results in an additional freight charge that is difficult to pass on to the customer, as well as roughly a $13 per package invalid account fee from the carrier.
Third-party billing error surcharges such as this can be avoided by verifying third-party account numbers.
And storing them in your host or shipping system database and validating them on a regular basis.
Also, Consider Package Size and Dimensional Weight
If a package’s length plus its girth ([width x 2] + [height x 2]) combined exceeds 130 inches, it will be subject to a large package surcharge. If you’re not entering dimensions into your system or your system isn’t programmed to detect and flag large packages, you’ll be back-charged. This charge can amount to as much as $70 a package? – a very costly oversight. Many companies offer free shipping, but forget to exempt large, lite, packages with big dim-charges (Coolers, Lamp Shades, Hats, Fishing Rods, etc.) are just a few examples of products hit with big Dim Charges.
The package’s dimensional weight creates an additional potential cost issue. For example, let’s assume you’re shipping a king-size down comforter. You’ll need a large box for a large, but lightweight product.
A shipment of a down comforter may weigh only four pounds, but due to the dimensions of the box it’s packed in, its billable weight may be 12 pounds. The carrier will charge you for the greater of those numbers. The billable weight rule isn’t a back charge, but the result is the same: When the carrier bill comes you pay more for a shipment than you expected to.
Another note on dimensional rating – the dim factor can change from year to year – so don’t expect that once you’ve audited your products and packaging you’ll be all set for years.
UPS and FedEx have reduced their standard dim weight factor in the past few years, be aware that it could change again and also be aware that this dim factor is negotiable.
Final Thought: Check Your Carrier Bills Regularly
Preventing carrier back-charges may or may not need to be a top priority for your business. If your back-charges are sporadic, it may not be cost-effective to invest in software or change procedures to prevent them. If they’re common, however, that new software or procedure change could pay for itself quickly.
The bottom line? Check your carrier bills regularly for back-charges. If you discover a recurring problem, take steps to correct it through technology, new procedures, improved employee training, or all of the above.
Most back-charges can be prevented, even mid-sized shippers can easily spend $2 million-$4 million per year in shipping with the small package shippers. Just 2% in unexpected back charges can be costing you $40,000 to $80,000 per year or more. Most business owners and managers would rather save that $200,00 – $400,000 over the next five years.
Contact us to find out more.
CLS has worked with many companies to streamline workflow and improve productivity in the warehouse through the combination of streamlined workflows integrated with multi-carrier shipping software, integrated pack/ship stations, data collection solutions and more.
Greg Marone is a transportation management expert with 30 years of experience in shipping and supply chain operations and technology. CLS has worked with many companies to streamline workflow and improve productivity in the warehouse through the combination of streamlined workflows integrated with multi-carrier shipping software, integrated pack/ship stations, data collection solutions and more.