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What is shipping cost and how to calculate it?

Shipping costs are the total expenses of shipping products internationally. In this blog post, learn how to calculate and reduce shipping cost, along with tips to ship internationally.

Export logistics involves various costs that exporters must carefully consider. Taxes, bills, inventory management, handling fees, insurance, and transportation costs impact an exporter’s overall shipping expenses. It is important for exporters to understand and manage these costs to maintain profitability and efficiency in their operations. In this blog post, we will cover what shipping cost is, key factors to consider, the process for calculating it, and more.

What is shipping cost?

Shipping cost is the total fee of transporting goods from the seller’s location to the buyer. These costs may fluctuate depending on elements like the weight and size of the product, specific transport type, distance between the shipping origin and destination, as well as additional features like insurance or tracking services.¹

Importance of calculating shipping cost

Exporters must understand how to calculate shipping costs for several important reasons. First, shipping costs directly impact a business's profits; without knowing these costs, exporters may struggle to accurately determine their profit margins. Additionally, knowing the exact shipping costs allows exporters to provide precise quotes to importers, as factors like delivery distance and package weight can significantly affect the final cost.

Reasons for accurate estimations of shipping cost

The following are some reasons for exporters to accurately estimate shipping costs:

1. Find affordable shipping services

Accurate cost estimation allows exporters to assess whether shipping charges are fair, enabling them to choose affordable, reputable services that meet their budget and timeline.

2. Boost sales and profits

Understanding shipping costs helps exporters analyze overall expenses, optimize operations, and calculate profit margins, which enhances sales and profitability.²

What information is required to calculate shipping costs?

Some factors to consider while calculating shipping costs are:

1. Shipping origin and destination

Knowing the origin of the package and its destination will help exporters calculate shipping costs. The longer the distance, the higher may be the shipping price.

2. Shipment weight

Shipping cost usually increases with the weight of the shipment, including dimension weight, which is the volumetric weight of a package.

3. Package dimensions

The dimensions of a product or shipment determine what kind of packaging is required and how much it will cost.

4. Delivery time

Express or expedited delivery typically costs more than standard shipping. When cargo needs to reach its destination faster than usual, shipping services often charge higher rates.³

What factors affect shipping cost calculation?

Here are some key factors that affect shipping cost calculations:

1. Maritime freight charges

These charges apply when transporting goods by sea. Costs can differ based on shipping routes, vessel type, and the load size and weight. Maritime transport can be more cost-effective than air transport for carrying large volumes over long distances.

2. Carrier-related fees

Carrier fees are charged by the carrier party to transport or handle shipments. These include core shipping prices, fuel fee, and extra charges for services like pick-up, delivery, and insurance. Different carriers offer different tariffs and services.⁴

3. Zone-specific charges

Destination charges vary by region, as carriers divide areas into zones with different costs. Longer distances generally incur higher fees. Following are some zone-specific charges:

● SUE (Suez Canal Surcharge)
● LSC (Low Sulfur Charge)
● PCC (Panama Canal Charge)
● ADE (Aden Gulf Surcharge) / GAS (Gulf of Aden Surcharge)
● LWS (Low Water Surcharge)
● Piracy Risk
● RPT (River Plate Toll)
● SMD (Security Manifest Documentation Fee)⁵

4. Delay fees

Detention fees, or delay fees, are imposed when shipments aren't collected on time, often due to customs, weather, or logistical issues. To avoid these fees, companies should choose reliable carriers and plan for potential delays.

5. Taxes and duties

Taxes and duties are governmental fees on exported and imported goods. These costs vary depending on the laws in the destination country and the cargo value.

6. Customs clearance fee

Customs tariffs are fees for processing goods through customs, including inspection, paperwork, and administrative costs.

How to calculate shipping costs?

There is no ‘one-size-fits-all’ solution to calculate shipping costs since every export business is different. The following are a few methods to determine or estimate shipping costs:

1. Calculated shipping

Calculated shipping rates, determined at checkout by a third-party service, ensure customers are charged the exact amount for shipping based on package dimensions, weight, and delivery location. This method provides an accurate estimate of shipping costs.⁶

2. Flat rate shipping

Flat rate shipping includes one price for all packages regardless of weight, dimensions or shape. The flat rate may differ according to the location a package has to be shipped to.

3. Free shipping

To understand how shipping costs are calculated, let's take a simple example of shipping 100 kg of textiles from Mumbai to New York by sea. Several factors like weight, size, transport mode, and carrier rates affect the cost.

In this scenario, let's assume:

● The basic sea freight cost is Rs. 1,000.
● Surcharges, including fuel and customs clearance, adds up to Rs. 500.
Adding these costs together, the total shipping cost is Rs. 1,500.

Additional expenses often include handling, shipping, and packing charges. Accurate cost calculation and effective transport management depend on controlling these elements.

The figures quoted in the example are strictly illustrative, and are not intended as assumptions or suggestions regarding real-world pricing.

How to reduce shipping cost when exporting from India?

Here are some tips to reduce shipping costs when exporting from India:

1. Consolidate shipments:

Consolidating multiple consignments into one shipment can help exporters take advantage of bulk transportation rates.

2. Negotiate with carriers:

Building relationships with multiple providers and negotiating prices can lead to better offers and reduced costs.

3. Optimize packaging:

Using the best package dimensions can lower dimensional weight charges.

4. Use shipping software:

Shipping software can automate rate comparisons, helping exporters find the most cost-effective shipping option.⁷

How do 3PLs helps reduce shipping cost?

Third party logistics companies provide outsourcing solutions that help businesses reduce shipping costs. Here are some ways in which 3PLs can be beneficial:

1. Bulk shipping discounts:

Third-party logistics suppliers leverage their carrier relationships to negotiate bulk discounts, reducing shipping cost.

2. Optimized shipping routes:

With their expertise and advanced tools, 3PLs can optimize shipping routes, minimizing both time and cost.

3. Inventory management:

Through proper inventory management, 3PL providers reduce storage overheads and improve order delivery.

4. Advanced technology:

Third-party logistics companies use advanced technology to handle operations, increase visibility, and make data-driven decisions to lower shipping costs.⁸

While 3PL logistics providers offer several benefits, Indian exporters looking for a hassle-free shipping solution can opt for Fulfillment by Amazon (FBA). With FBA, you can store your products in Amazon global fulfillment centers while we pick, pack, ship your customer orders and provide customer service.

Learn more about FBA here

Amazon Global Selling: Easy e-commerce exports and hassle-free shipping

If you are a business owner and want to sell your products to the world, Amazon Global Selling
enables you to list and sell ‘Made in India’ products on 18 Amazon global marketplaces. As an
e-commerce exports program, Amazon Global Selling provides support and guidance at every
step of your exports journey – documents and licenses, logistics, payments, advertising, and
more.

Registered sellers can choose to ship their products by themselves through Merchant Fulfilled Network (MFN) or they can opt for Fulfillment by Amazon (FBA) and outsource order
fulfillment to Amazon including packing, storage, delivery, and returns. Amazon Global Selling
simplifies the process of international shipping to the world, helping businesses navigate customs
and reach a vast audience.

Frequently Asked Questions

Can I ship at a flat rate?

Yes, you can ship flat rate if your products fit in pre-measured boxes of your preferred shipping carrier.

Can I calculate shipping rates for anywhere in the world from India?

You can use export shipping cost calculators provided on the websites of various shipping providers to calculate shipping rates for anywhere in the world from India.

What is the best method of shipping when selling internationally?

Navigating international shipping can be complex for exporters due to the many steps, costs, and fees involved. Partnering with a reliable and cost-effective logistics service provider can simplify the process. Solutions like Fulfillment by Amazon (FBA) offer exporters a hassle-free shipping experience, making international trade more manageable.

What is the average shipping cost for e-commerce in India?

Specific parameters like package dimensions, weight, destination and shipping type influence e-commerce shipping charges in India. Accurate shipping costs could be ascertained by using reliable shipping calculators and comparing rates offered by carriers.

What is the formula for shipping costs?

Total shipping costs can consist of a base rate of shipping, weight charges, dimensional weight charges, if necessary, fuel surcharges, and add-on fees for services such as insurance or tracking. A form of the equation may appear as: Total Shipping Cost = Base Rate + Weight × Rate per Pound + Additional Fees.

Who pays shipping costs, the buyer or the seller?

Shipping costs can be covered by either the buyer or the seller, depending on the sale terms. Some vendors include shipping in the product price, while others charge it at checkout. Clearly marking these arrangements prevents confusion.

What is the total shipping cost?

The total shipping charge includes all costs from consignor to consignee: base shipping rates, weight charges, dimensional weight charges, fuel surcharges, additional service charges, taxes, duties, customs clearance fees, etc. Accurate calculation ensures transparent pricing and no surprises.

Published on November 30, 2022.

Sources:

1. https://www.smartcapitalmind.com/what-are-shipping-charges.htm

2. https://www.smartcapitalmind.com/what-are-shipping-charges.htm

3. https://www.easyship.com/blog/how-to-calculate-shipping-costs#ecommerce-businesses-can-save-money-with-easyships-3pl-services

4. https://linkercloud.com/blog/shipment/5-top-factors-that-affect-shipping-cost-and-how-to-reduce-them

5. https://www.speedcommerce.com/what-is/zone-price/

6. https://help.shopify.com/en/manual/fulfillment/setup/shipping-rates/carrier-calculated-shipping-rates

7. https://www.dhl.com/discover/en-in/small-business-advice/growing-your-business/reducing-shipping-costs-for-smes-in-india

8. https://nautical-direct.com/how-3pls-help-reduce-shipping-rates-for-companies/

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