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3PL Margin Management for Parcel Shipping: 4 Signs to Re-Evaluate Your Process

By June 20, 2024July 23rd, 2024No Comments

Streamlined 3PL margin management for parcel shipping is not just a business optimization strategy — it’s a necessity to be competitive. We’re navigating a complex logistics landscape where fluctuating shipping rates, the intricacies of transportation contracts, and the demands of last-mile delivery optimization play critical roles in your bottom line.

What is 3PL Margin Management for Parcel Shipping About?

Margin management for parcel shipping costs has become a key focus point for 3PLs to ensure businesses remain competitive while delivering unparalleled service. It’s about more than just monitoring margins; it’s about strategically enhancing them through data-driven technology, informed decision-making, and streamlined processes.

This blog will dive into four key signs indicating the need to reassess and refine your margin management strategies for parcel shipping. We’ll explore the challenges of managing fluctuating parcel delivery rates, the impact of strategic parcel shipping pricing models, the pitfalls of unfavorable carrier contract negotiations, and the importance of real-time visibility into carrier performance and associated costs.

We’ll also highlight the importance of embracing automation in shipping processes, the crucial role of real-time visibility into shipping data and metrics, and how a proactive approach will significantly improve your margin management processes.

Understanding Your Current Margin Management Process

Margin Management in Parcel Shipping

By understanding and addressing these key aspects, 3PLs can not only preserve but also enhance their profitability in the challenging domain of parcel shipping:

Core Importance of Margins

Margins on parcel transportation charges are the difference between the revenue earned and the costs incurred from your carriers. Visibility into margins are essential for determining profitability and ensuring long-term sustainability. Managing these effectively can mean the difference between thriving and merely surviving in a highly competitive parcel shipping market.

Strategies for Optimizing Margins

Optimizing margins involves several strategies, such as modifying your parcel shipping pricing strategy, leveraging data-driven technology with robust business rules, and negotiating better parcel carrier contracts based on your shipping trends, all which can significantly reduce costs and improve profitability.

Technology Integration for Efficiency

By integrating parcel transportation margin application with 3PL billing management through a single technology platform with robust integrations to your business systems and carriers, 3PLs can streamline the entire order-to-cash cycle, improve cash flow, and maximize margins. Comprehensive systems integration allows for greater efficiency, accuracy, and transparency in financial operations, ensuring operations run smoothly.

Challenges in Margin Management

Despite the importance of parcel shipping margins, many 3PLs struggle with effective margin application and management, often using hopeful estimates rather than precise data to manage parcel costs. This lack of precise management can lead to profits being eroded by unexpected costs or shifts in carrier rates.

For 3PLs looking to enhance their margin management processes for parcel shipping costs, exploring comprehensive solutions that offer robust analytics, systems integration, and dynamic business rules is a game-changer. Learn more about how data-driven technology can streamline your margin management by visiting Enveyo’s 3PL Solutions.

4 Signs to Re-Evaluate 3PL Margin Management for Parcel Shipping

1. Parcel Shipping Pricing Strategies That May Erode Margin

There are a variety of methods to charge clients for parcel shipping costs your 3PL organization incurs, and it’s critical to the profitability of your business that you understand how fluctuations in carrier rates and customer shipping trends can both grow and erode your margin.

Cost Plus

A cost plus pricing model for parcel carrier charges is just as is sounds; you charge your clients a simple percentage markup of the parcel costs you incur from each of your carriers.

For 3PLs just getting started with parcel fulfillment, or low-volume parcel shipping 3PLs, this is a good place to start. However, as your organization grows and you bring more carriers into your network and onboard more parcel fulfillment clients with a variety of products, the cost plus pricing model can quickly erode your margin.

For example, let’s say you’ve negotiated a $1.00 per package rate for a particular service with one of your parcel carriers and you charge your clients a simple markup of 15% (it’s generally in the 7-13% range, but for the sake of math, we’ll go with 15%), making your margin per package $0.15. Fast-forward to contract renegotiation time with this parcel carrier, and you were able to secure a lower per package rate of $0.85… congratulations? Not quite.

Due to the cost plus pricing model, you just eroded your margin per package to $0.12. Multiply that by the number of packages you ship per day, per month, and per year, and that’s quickly a negotiation that did not actually benefit your bottom line.

Published Minus

A published minus pricing model of parcel transportation charges is a standard discount off of your parcel carrier’s published rates. This ensures that when carrier rates shift, or you negotiate lower rates, your margin on parcel charges stays in tact.

3PLs can implement a published minus pricing model with technology that enables you to manage pricing to the nuance through robust business rules.

Dynamic Pricing

A dynamic parcel pricing model is a strong strategy for 3PLs with a high-volume of parcel shipments in a multi-carrier parcel shipping environment.

Dynamic pricing enables you to charge your fulfillment clients variably based on their shipping trends, service types, and common accessorial fees. Through robust integrations with carriers, WMS, and OMS systems, you can create an infinite number of billing rules to charge clients in the way that best serves your organization to maximize parcel margin on every shipment.

Chat with our team and learn how strategic parcel pricing models can maximize your margin on every package.

2. Fluctuating Parcel Delivery Charges

Evaluating Market Trends

Understanding the dynamics of fluctuating parcel delivery charges begins with evaluating market trends. We’ve observed that global economic shifts, changes in fuel prices, and variations in consumer demand significantly impact shipping rates. These factors lead to unpredictable costs, making it challenging to maintain consistent margins in parcel shipping operations.

Impact of Carrier Rate Adjustments

Carrier rate adjustments are critical factor influencing parcel delivery costs. Carriers frequently update their rates based on operational costs, which can include everything from fuel charges to labor rates. These adjustments can either be seasonal or a response to changes in market conditions, directly affecting your shipping expenses. To manage these fluctuations effectively, it’s essential to not only stay informed about the latest rate changes and understand their implications on your shipping strategies, but also leverage data-driven technology that enables quick shifts ensuring you don’t erode margin on shipping costs when parcel rates shift.

3. The Impact of Carrier Contract Negotiations

Leveraging Volume for Better Rates

Negotiating carrier contracts effectively is crucial for maintaining healthy margins in parcel shipping. A common strategy is leveraging your parcel shipping volume to negotiate better rates for common service types. By consolidating shipments and presenting a substantial volume to carriers, you position your organization as a valuable client, often leading to more favorable terms. This approach not only helps in reducing per-unit shipping costs but also enhances your bargaining power during negotiations.

Importance of Regular Contract Reviews

Regularly reviewing carrier contracts is essential to ensure they still meet your operational needs and cost-efficiency goals. The logistics landscape is dynamic, with frequent changes in shipping rates and carrier services. By conducting periodic reviews, you can identify any discrepancies or opportunities for renegotiation that align with current market conditions and your clients’ parcel shipping trends. This proactive approach allows you to adjust strategies in real-time, ensuring that your carrier contracts are always aligned with your parcel margin management objectives.

Understanding the Impact of New Contract Terms

While regular carrier contract reviews and renegotiations are critical to maintaining and reducing parcel shipping costs, it’s imperative that you understand how the new terms of your contract will impact parcel margins based on your clients’ shipping trends.

For example, if the majority of your clients’ shipments are under one pound shipping via UPS  Surepost, negotiations for more favorable rates on that particular service type is a good area to focus on. However, if you’re charging your clients with a simple percentage markup of your cost for that service type, and you have significant volume in that category, it’s crucial you shift your pricing model to a discount off of your newly negotiated rate to ensure your new terms don’t erode your margin.

4. Underutilization of Automation in Parcel Shipping Processes

Enhancing Efficiency Through Technology

In your ongoing efforts to optimize operations, we recognize that underutilizing automation in shipping processes often holds back potential gains in efficiency and parcel margin management. By implementing advanced automation technologies, you can streamline workflows, reduce manual errors, and enhance overall operational speed. For instance, integrating your WMS, OMS, carrier systems, and a robust parcel margin management system, you can significantly decrease manual and time-consuming parcel billing processes to analyze individual carrier invoices, allocate charges to each client, apply margin, and deliver invoices, eliminating costly errors and improving cost efficiency and customer satisfaction.

Examples of Successful Automation Implementation

Many leading 3PLs have demonstrated substantial improvements in shipment performance data visibility and parcel margin management by adopting automation in parcel billing processes. One notable example is Saddle Creek Logistics Services’ implementation of logistics analytics, business intelligence, and parcel margin management solution.

When the parcel transportation team at Saddle Creek reached out to Enveyo, they were looking to solve three primary challenges:

  • Visibility into real-time carrier performance and cost data
  • Faster and more accurate invoice analysis and margin application for customer billing
  • Increasing time to value with business intelligence technology and reducing business risk

After implementing Enveyo’s solutions for 3PLs, Saddle Creek saw solved their primary challenges. With Enveyo, Saddle Creek:

  • Fully automated parcel analytics & billing processes, eliminating complex, manual touchpoints
  • Provided clients with greater visibility into parcel carrier performance data and associated costs
  • Gained new value add for clients & prospects
  • Decreased the amount of time from carrier bill received to client invoiced and payment received, resulting in increased cash flow
  • Reduced business risk through efficient & accurate client invoicing
  • Improved internal parcel analytics & billing management by 77%

Read the full case study to learn how Saddle Creek streamlined their parcel margin management and billing, speeding up internal processes by 77%.

4. Lack of Visibility into Shipping Data and Metrics

Key Metrics to Monitor

In the realm of parcel shipping, keeping an eye on performance metrics and associated costs is crucial for effective parcel margin management. Key performance indicators (KPIs) such as delivery times, shipping costs per parcel, and percentage of on-time deliveries, provide invaluable insights into operational efficiency. Additionally, monitoring accessorial charges and rate compliance can prevent unexpected expenses that erode margins. By regularly reviewing these metrics, you can identify trends and areas for improvement in your shipping processes.

Utilizing Data for Strategic Decision Making

Harnessing the power of shipping data goes beyond simply monitoring; it involves using the insights gained to make strategic decisions that enhance your parcel margin. For instance, having real-time visibility into package level detail (PLD) data, reviewing and analyzing performance on a regular cadence can help in negotiating better rates, selecting the most efficient routes, and maximizing margin on every package. Additionally, integrating advanced analytics into your  logistics tech stack allows you to predict future trends in shipping costs and demand, enabling proactive adjustments to your strategies.

Power-Up Your 3PL Parcel Margin Management

Throughout this exploration of 3PL margin management in parcel shipping, we’ve uncovered the layers of complexity and opportunity that define the current landscape. From the challenge of fluctuating delivery charges and the intricacies of strategic parcel pricing models, to the impact of carrier contracts and the underutilized power of automation, our journey reveals the critical need for a nuanced approach to maintaining and enhancing margins. By addressing these factors, 3PLs can maximize their profitability, ensuring resilience in the face of a dynamically evolving market.

As more companies turn to 3PLs to optimize order fulfillment and improve the customer delivery experience, enabling end-to-end visibility for you and your customers is crucial. Coupled with a strategic parcel pricing model and advanced data + technology tools to streamline processes, your 3PL will be primed for gaining a competitive edge.

Take Your 3PL Margin Management To The Next Level

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Nate Endicott

Author Nate Endicott

Since 2001, Nate has been helping shippers and 3PLs automate, reduce costs, get better results, and outperform goals by leveraging data-driven logistics solutions. He spends his free time golfing and relaxing with his wife and four kids in Scottsdale, Arizona.

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