Reveel Resources

Know Your Market: How Your Location Impacts Shipping Rates

Understanding Shipping Rates

The shipping industry has been woven into the growth of American companies for centuries. Without mail and parcel carriers, of course, manufacturers and retailers would be limited to local markets.

Now that nationwide, if not global, sales are core to many companies’ business models, shipping across long distances has become part of every budget. And regional competition has become a major driver of shipping pricing in the U.S. — which means you can leverage knowledge of that pricing in your next contract negotiation.

The country’s major carriers offer fairly competitive pricing plans for regions in the U.S. and abroad, depending on their market share in those regions. For example, say FedEx has a much larger share of Colorado’s market than UPS does. UPS might start making inroads there by offering lower introductory rates to businesses headquartered in that market or who frequently ship there.

While this is a fictional example, the dynamic plays out every year in markets across the country. Better rates start with knowing your company’s shipping profile and your market’s data as well as you can. If you understand what carriers’ markets look like and where they’re pushing to grow — and how that aligns with your company’s needs — you can position your company for significant savings on shipping.

Related: Comparing Shipping Rates in 2018: FedEx vs. UPS vs. DHL vs. USPS

Shipping From The East Coast vs. West Coast

Intuitively, it’s cheaper to send packages shorter distances, and ground shipping is almost always cheaper than air. In the past, the difference was simple: Customers who wanted packages faster paid more to cover the cost of air travel, and customers who were willing to wait 10 to 14 days paid much less for ground shipping.

However, as free two-day shipping has become the norm, companies who routinely ship long distances have absorbed many of those costs.

Today, East Coast shipping is the U.S.’s cheapest. Many large metro areas within driving distance mean companies can use ground shipping to reach many of their customers in a matter of hours. In the less dense Midwest and on the West Coast, companies are much more reliant on costly air service.

In our experience, West Coast companies send more shipments that are zones 7 and 8 than most. Many have to develop fulfillment centers or hire third-party logistics companies to meet shipment demand.

Related: Shipping Industry Trends: Exploring the Consumer Side of the Equation

Cutthroat Shipping Markets vs. Relationship-Driven Markets

Though this isn’t as clear a distinction as your company’s shipping distances, our consultants continue to find that a market’s culture of competitiveness affects rates for companies there. For example, in Los Angeles, carriers compete aggressively for business from thousands of companies. San Diego, however, is more relationship-driven, where carriers focus more on building longstanding relationships with local manufacturers and retailers.

While a good relationship with your carrier is valuable, there’s a fine line between friendliness and advantage-taking. One of our clients had seen 5% rate increases every year for eight years before Reveel consultants joined their team. In competitive markets, most contracts are renegotiated every year, but they were headquartered in Arizona, where carriers had largely stopped competing for business.

Related: How Greater Transparency Helps You Reduce Shipping Costs

How You Can Use Your Location to Your Advantage

In shipping negotiations, almost anything your company offers can be framed as an advantage — and if you can convince carriers to see it that way, you can significantly reduce your shipping spend. At Reveel, that’s our specialty. Our consulting team is made up of former pricing executives at UPS, FedEx and other major carriers who can lift the veil on carrier pricing and suggest possible savings.

KC HiLiTES, a manufacturer of specialty lighting for off-road and industrial vehicles, is one such example. The company had relationships of more than 40 years with UPS and FedEx, but their headquarters in rural Williams, Arizona seemed like a disadvantage.

What Reveel’s team pointed out, however, was that KC HiLiTES’ carriers could see its off-the-beaten-path location as a plus. UPS and FedEx both had to make deliveries in that area, but KC HiLiTES was one of their only pick-ups. Their business gave carriers value they wouldn’t have otherwise had on their drives outside of Flagstaff.

With Reveel’s support, KC HiLiTES was able to negotiate 18% savings on their annual shipping costs. They preserved their decades-long relationships with both carriers and continued providing the level of service their customers expected.

Companies located in competitive markets on the East Coast are well positioned to negotiate better rates based on location. But businesses in West Coast and relationship-focused markets who understand these dynamics can benefit too — and by better understanding carriers’ needs, turn their locations into advantages.