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How to calculate shipping costs?

Shipping costs can affect your overall export cost and profit margins. Learn how to calculate and reduce shipping costs, along with tips to ship internationally in this blog.

As an exporter, you must ensure your products reach importers on time and safely. Thus, it is no doubt that export logistics process is a crucial step while exporting products internationally since it directly impacts delivery and customer experience. To plan shipping and logistics, it is important to consider the costs associated with this. Packing, customs clearance, taxes, bills, inventory management, etc. need to be factored in.

What is shipping cost?

Shipping cost is total expenses an exporter needs to pay to export products to an importer. Shipping rate often vary based on weight and dimension of the cargo and distance it is being shipped to. Many export businesses charge shipping cost from the importer separately or adjust it to the product price to maintain profit margin.

Importance of shipping cost calculation

There are multiple reasons why exporters must know how to calculate cost of shipping. One of the key reasons is that shipping cost has a direct impact on profits of any business. If an exporter does not know how much they have to pay to ship goods to an importer, they may face challenges while determining profit margins. Another reason why it is important to estimate shipping costs is that exporters can quote a precise amount as shipping charges to importers. As delivery distance and package weight can impact shipping costs, it is important to provide accurate information to the importer.

Reasons for accurate estimations of shipping cost

As international trade involves dealing with various stakeholders and customs authorities, calculating an accurate estimate for shipping costs will help exporters be ready. Following are some of the reasons why it is important to have an accurate estimation of shipping costs:

Find affordable shipping services

Shipping services are responsible for safely delivering shipment to the destination country within an agreed-upon budget and time. In return, exporters must pay certain fees. When exporters are unaware of the cost of shipping, they might not be able to gauge if the cost shared by shipping services is appropriate. If exporters are aware of the overall costs, they can accordingly find an affordable and reputed shipping service within budget.

Boost sales and profits

When an exporter knows the cost of shipping a product internationally, they can work backwards to understand overall costs and calculate expected profit or revenue. This will also allow them to optimize shipping operations to make them more efficient and reliable.

What information is required to calculate shipping costs?

Some of the factors to consider while calculating shipping costs are¹:

Shipping origin and destination

Knowing from where the package will be shipped and to which location it will be delivered will help exporters calculate shipping costs. The longer the distance, the higher may be the shipping price.

Shipment weight

Shipping cost usually increases when the package weight is large. Dimension weight, which is the volumetric weight of a package, is also essential in determining the overall cost.

Package dimensions

The three dimensions of the package height, width and length are essential to determine shipping cost. It is important for exporters to know what kind of packaging is required for their goods and how much that can impact the logistics costs.

Delivery time

When a cargo needs to reach a certain destination quicker than the usual ETA, shipping services or logistics companies usually charge higher. Delivery time is the time required to deliver the package to the importer, which can range from weeks to months depending on the destination country.

What factors affect shipping cost calculation?

Shipping packages to another country can be complicated, especially when various fees are added based on the country of destination, delivery time, package weight and dimensions. Some of the factors that can impact shipping cost calculation are:

Maritime freight charges

Maritime freight charge covers expenses of shipping freight from origin to destination port. These charges vary according to the shipping route and carrier company, and can also fluctuate based on international trade.

Carrier-related fees

Apart from freight rate, shipping providers add charges to decrease or balance out expenses derived from incidents like increase in fuel charge and carrier shortages due to high demand. Some of the most essential carrier-related charges that exporters must know are EBS (Emergency Bunker Surcharge), BAF (Bunker Adjustment Factor), CAF (Currency Adjustment Factor) and PSS (Peak Season Surcharge)

Zone-specific charges

Overall shipping cost can be influenced by shipping route or lanes used by the carrier. The shipment can incur additional zone-specific charges if it passes through a specific trade zone or canal. Following are a few zone-specific charges⁴:
• 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)

Delay fees

Delay fees are common charges incurred in shipping costs due to factors like customs exams and holds, congestion at terminals, ports and yards.

Taxes and duties

The value of the exported merchandise determines its taxes and duties. In most cases, an importer is liable for paying taxes and duties. In certain circumstances, the exporter might have to pay them. Following are some of the taxes involved in exports:
• Merchandise processing fee
• Federal excise tax
• Sales tax

Customs clearance fee

Customs clearance is the process where customs authorities verify export documentation and goods to determine whether they can be exported to another country. The officer charges customs clearance fees to cover administrative costs of various procedures.

How to calculate shipping costs

Every export business is different. Therefore, there is no ‘one-size-fits-all’ solution to calculate shipping costs. However, below are a few methods to help an exporter determine or estimate shipping costs⁵:

Calculated shipping

Calculated shipping is a straightforward way to estimate shipping cost where the package dimensions and weight are measured and this is used to calculate shipping cost, along with delivery location.

Flat rate shipping

Flat rate shipping includes charging one price for all the packages regardless of weight, dimensions or shape. The only difference can be made when shipping internationally. This calculation method allows importers to import more products and pay only one fee set by the exporter.

Free shipping

Many exporters offer free shipping since it attracts importers while deciding if they should go ahead with a trade agreement. However, it is important for the exporter to calculate and ensure offering free shipping does not impact their business or profit heavily.

Tips to reduce shipping costs when exporting from India

Shipping costs can have a significant impact on the overall export cost. An exporter who wants to increase sales and profit margins must keep shipping costs in check, especially when selling globally. Here are a few tips to reduce shipping costs when selling globally:

• Spending more on production rather than packaging can be effective in reducing shipping cost as you can enhance product’s weight, size and shape.
• It is suggested to opt for a regional shipping carrier as they usually offer lower shipping rates.
• Online logistics is hassle-free and efficient.
• Automating shipping operations can help focus on other aspects of export business.
• Using own brand packaging can help build brand awareness. However, this might be relatively expensive.
• Buying shipping labels in advance and in bulk is can also help reduce shipping costs.

Since shipping is a crucial part of overall export procedure, exporters must calculate their shipping costs and plan accordingly. They should look for ways to reduce this cost so they can maintain their desired profit margins and grow their businesses.

Easy international shipping with Amazon FBA

Delivering international orders through an e-commerce platform and its tool can be helpful to exporters. It can also affect profit margins and business success. Indian exporters who want to ship internationally and avoid spending heavy shipping fees can explore Amazon FBA. Fulfillment by Amazon (FBA) ships products to Amazon’s international fulfilment centers across the world. Amazon stores, packs and delivers products to international customers.

With the growing demand for Indian products in international marketplaces, exporters and Indian sellers are keen to expand their businesses to the world. Amazon Global Selling is an e-commerce exports program that enables exporters and MSMEs to start and grow their export business in 200+ countries and territories. The exporter can simply register with the program in four simple steps and reach millions of customers shopping on 18+ Amazon international marketplaces.

To support you for hassle-free logistics, Amazon has also launched SEND, enabling you to ship directly to international fulfillment centers at competitive prices. All you have to do is book, pay and track shipments without any hassles from India to the world.

Explore Amazon SEND

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 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?

Shipping internationally can be challenging, especially when you must meet compliances and pay different export fees and taxes. It is often suggested to partner with fulfilment providers like Amazon FBA to take care of your international shipping.

Published on November 30, 2022.

Sources:
1. https://www.easyship.com/blog/how-to-calculate-shipping-costs#ecommerce-businesses-can-save-money-with-easyships-3pl-services
2. https://www.smartcapitalmind.com/what-are-shipping-charges.html
3. https://www.cloudways.com/blog/calculate-shipping-costs/#adding
4. https://dclcorp.com/blog/shipping/shipping-zone-guide/
5. https://www.skuvault.com/blog/how-to-determine-the-best-shipping-cost-for-your-business/

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