Thanks to Amazon Prime and other large retailers, 75% of consumers expect free delivery on e-commerce orders, even for orders less than $50. When you contrast that statistic with the fact that non-Amazon US retailers sell over $82.5 billion internationally, it’s easy to see the challenges and the opportunities facing small businesses considering going international. So, let’s answer the question: Why is international shipping expensive?
Why is international shipping so expensive?
The expense of international shipping often scares small business owners, but that’s because they don’t know the intelligent shipper savings tips that can save them money and make the expansion they’ve dreamed of possible.
Formulating international shipping rates is complicated, but there are five areas where you can cut costs: package dimensions, fuel surcharges, minimum package charges, value-added services/accessorials, and customs.
Package dimensions
Shipping companies use the square footage and weight capacity (or similar metric) of their transport vehicles in their rate calculations, which means larger, heavier boxes cost more than smaller, lighter ones.
Smart shipper savings tip: Small businesses looking to expand into international markets can reduce their initial costs by selecting a few products with similar dimensions that can be packed in standard boxes. This will allow you to buy your packaging in bulk and accurately forecast your international shipping costs.
Fuel surcharges
You pay fuel surcharges for domestic and international (aka cross-border) shipping, but since international shipping involves longer distances with sometimes dramatic differences in fuel prices between countries, international fuel surcharges are substantially higher.
Fuel surcharges are the average, not the actual, fuel cost your carrier pays to deliver your products. Your carrier agreement likely has terms setting a base fuel rate and a base fuel mileage as part of its terms. When the fuel price exceeds your agreed-upon base fuel rate, the surcharge kicks in.
Small business savings tip: Fuel surcharges aren’t set in stone, and they don’t have to be a mystery. A reputable carrier will be upfront about how they calculate their fuel surcharge. It’s also often possible to negotiate a lower fuel surcharge with your carrier(s).
Formulating international shipping rates is complicated, but there are five areas where you can cut costs
Minimum package charges
One of the primary methods carriers use to protect their profits is minimum package charges, meaning the lowest price a carrier will accept to deliver a package. If you aren’t careful, this fee can cost you a lot of money.
Say your minimum package charge is $7, and your carrier service agreement has a 50% discount on packages shipped to London. You have a package that would typically cost $10 to send across the pond, which, with your discount, should cost $5. But that minimum package charge means you’ll pay $7, and the 50% discount you had budgeted for is now only a 30% discount.
The same thing goes if you are sending a tiny package of earrings to a shop in Notting Hill. Instead of paying the $4.25 it actually costs, that sneaky $7 minimum will cost you an additional $2.75.
Smart shipper savings tip: Like fuel surcharges, minimum package charges can be negotiated. Start tracking how many of your shipments are affected by the minimum package clause in your agreement. If you’re regularly paying more than you should or not getting the total discount in your contract, ask to renegotiate your minimum package charge.
Value-added services & accessorial fees
Many of the features consumers take for granted are actually value-added services (VAS) or accessorial fees that you, as the shipper, have to pay for. Examples of these fees include:
- COD
- Delivery confirmation
- Return services
- Declared value
- Residential delivery/pickup (yes, you can be charged more for having customers in residential neighborhoods)
- Special-handling (documentation, hazardous materials certifications, medical equipment, etc.)
- Delivery issues (liftgate delivery, unsafe delivery locations, or improper equipment for shipment receipt)
- Non-delivery due to business closure, no recipient present, or security delays
Small business savings tip: Small businesses, especially e-commerce businesses, ship internationally are much more likely to be adversely affected by these fees. As with minimum package charges, data is your friend when negotiating these fees (which you can do).
First things first, you need to keep track of which charges show up the most often, which accessorials are the most expensive, and what packages/locations are most likely to trigger those charges. Then, examine your operations. Can you pack your products in smaller boxes? Can you use more than one carrier? Can you verify addresses before releasing packages for shipment?
After you’ve lowered your expenses as much as possible on your end, you can negotiate which fees you are assessed and how much you are charged with your carrier.
Customs/duties/taxes
This is one area you have to budget for. Customs and duties are taxes charged at both ends (export/import) of international shipping, and you can’t avoid them.
Small business savings tip: An international e-commerce shipping software can help you build an accurate estimate of what your customs costs will be so you aren’t ever surprised.
Level up with international shipping solutions for your business
If you want to save money on your international shipping, optimize your packaging, understand your carrier agreement, and negotiate your fees. Click here to find out more about how eHub’s e-commerce shipping software can help you do all of that and more so you can capitalize on opportunities for international trade.
