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Use Economy Shipping Methods to Lower Costs with Shipium's Dynamic Time-in-Transit Model

Efficient and cost-effective shipping methods like UPS Mail Innovations, FedEx SmartPost / Ground Economy, and DHL Ecommerce enable you to diversify shipping options for customers, increase margins or pass savings on to customers, improve the sustainability of shipping operations, and more.

Here’s the problem: because of the absence of SLAs and general performance unpredictability, shippers don’t leverage these options as often as they could (or should).Shipments that have a date constraint (“delivery by Thursday”, “deliver in 3-5 business days”) typically won’t flow to these cost-effective carrier services because shippers can’t know for certain when a shipment will be delivered. Legacy tech and DIY internal efforts simply don’t have the capabilities to send more volume to these services as a result.

The good news? One of the primary use cases for Shipium’s Dynamic Time-in-Transit Model is to create accurate EDDs for economy shipping methods, effectively enabling you to establish a dynamic SLA that’s backed by our machine learning models.

In this article, we’ll explain how you can leverage the insights provided by the Time-in-Transit Model to reduce costs through intelligent downgrades to economy shipping methods, unlock value with regional carriers, and more.

Why Use Economy Shipping Methods?

Before diving into the details of how Shipium can help you take greater advantage of economy shipping options, let’s review the reasons why you’d want to do so in the first place. While specific benefits can vary by use case, here are the general advantages of economy shipping.

It’s a lower-cost option

The most obvious reason to use economy service methods is that they’re cheaper on a per-unit basis — creating higher margins, or savings that you can pass on to customers or invest in other areas of the business.

Beyond the direct reduction in shipping costs, it’s also worth mentioning that using economy shipping can improve your negotiating leverage for premium service options — more on this shortly.

Scalable and sustainable market expansion

While there’s always a degree of investment when expanding to new geographies, economy shipping makes it possible to do so without significantly increasing costs. This helps to de-risk expansion efforts by limiting financial downside if the new market doesn’t pan out (ex. due to lack of demand). 

Limiting fulfillment costs while expanding to new markets can also enable you to offer more competitive pricing and attract price-sensitive customers — many of whom will become repeat shoppers.

Greater negotiating leverage

In many situations (for example, being single-threaded with a carrier), you may not have the leverage to negotiate more favorable rates. Instead, to keep the delivery promise you’ve made to your customers, you often need to pay for premium shipping options that can guarantee delivery by a certain date. 

When it comes to negotiating discounts with a single carrier, being able to scalably leverage economy shipping can help to shift that paradigm. For example — if you can send more volume to UPS MI without impacting the customer experience, you may be able to leverage that to negotiate stronger volume discounts for UPS 5-Day Ground. 

However, as we mentioned earlier, economy shipping methods aren’t nearly as widely-used as they could be, despite these benefits. The reason is simple — on a risk-adjusted basis, it’s a smarter move to pay a premium for the sure thing than risk breaking your delivery promise to a customer. But what if you didn’t have to choose between breaking your promise and breaking the bank?

Enter Shipium’s Dynamic TNT Model

Shipium’s Dynamic Time-in-Transit Model creates value throughout the supply chain, and is used for everything from providing accurate EDDs to building supply chain resilience. Our large pool of shipment data is analyzed by proprietary machine learning models to provide accurate and actionable insights related to your shipping strategy — in this case, specific to carrier performance.

Dynamic TnT

The Time-in-Transit model can analyze the performance of different carriers’ economy shipping methods, account for unique business rules (such as the required delivery date for an item), and help you uncover new opportunities to use economy shipping while delivering on customers’ expectations. 

Use Cases

While there are many use cases and benefits associated with Shipium’s Dynamic Time-in-Transit Model, here are some that specifically relate to use of economy shipping methods:

  • Intelligent downgrades: If you haven’t negotiated favorable rates for premium service methods, you can use Dynamic TNT to establish SLAs for Economy Shipping methods and strategically downgrade where it’s appropriate. This also gives you more leverage when negotiating premium options, as carriers will know that you have a scalable, high-margin solution in place.
  • Unlocking value with regional carriers: As obvious as it sounds, the fact that regional carriers are optimized for their specific regions typically means they can offer more competitive rates and delivery estimates — Shipium can surface these carriers for you.
    Efficient inventory management: Determine the most efficient place to store inventory, not based on just warehouse location but also historical carrier efficiency and performance. Run a smoother, more predictable inventory management operation.
  • Enhanced shopping experience: By leveraging Shipium’s Dynamic TNT, you can offer dynamic pricing (ex. offering free shipping for products with lower predicted TNT), provide accurate EDDs even for cheaper shipping options, and generally offer more options that appeal to price-sensitive and eager shoppers alike.

You can also leverage this technology to quickly pivot shipments to new carriers when faced with disruptions, build reports on overall carrier performance, and offer “greener” shipping options, depending on your organization’s priorities. In any case, you can use Shipium to quickly find savings and improve the efficiency of your operations.

How it works

Shipium’s Time-in-Transit predictions are calculated by our powerful, proprietary machine learning models, which analyze a wide range of data gathered on transit, topology, and macro-conditions impacting shipping. The platform will also factor in any known carrier promotions or changes to default rates that could help to further lower costs.

It’s important to note that recommended carriers and service options aren’t “one-size-fits-all” — you can input customer overrides to give our platform context unique to your business, such as discounts you’ve negotiated for specific shipping lanes or EDDs you’ve provided to your customers.

Once you’ve provided the necessary inputs, Shipium will surface the most efficient shipping lanes, carriers, and service methods for you to choose from. Your recommendations will follow a hierarchy based on the inputs you’ve provided, ordered by:

  1. Known customer overrides and unique business rules
  2. Shipium’s recommended options based on cost-effectiveness and predicted TNT
  3. Any relevant carrier defaults or promotions that are cost-competitive

Continuous monitoring of supply chain performance enables you to analyze different TNT configurations so you can continue to make impactful improvements over time. 

For more details, see our full documentation.

Real customer results

By applying Shipium’s Dynamic TNT to search for feasible economy shipping methods, an enterprise clothing retailer determined that they could move $30M out of $180M in total shipments to economy shipping method based on the differences between Shipium’s predicted Time-in-Transit vs. carrier defaults — enabling them to intelligently downgrade.

Their CPP was reduced by $0.36, resulting in $29.6 million in savings.

Wrapping up

Shipium’s Dynamic Time-in-Transit Model can help you to scalably leverage economy shipping methods, downgrade from premium methods as appropriate, better leverage regional carriers with more competitive rates, and uncover new layers of savings within your shipping operations. 

If you’re looking for ways to strategically reduce shipping costs while continuing to honor your delivery promise, feel free to schedule a call with our team of experts to discuss your use case.