Parcel 101; Rates, Challenges, and Cost-Cutting Solutions


Final MileIndustry News & Trends

With the growth of online shopping and ecommerce over the past two decades, parcel and small package delivery soon became a core challenge a lot of shippers weren’t familiar with and had to solve for. With the landscape of carriers changing, annual rate increases and a lot of additional fees, small parcel shipping can be confusing.

Below we will outline some of the key things you need to know when shipping small packages in the U.S.

What is parcel shipping?

To understand how parcel shipping works, you first need to know what parcel shipping is and how it differs from other types of shipping. Parcels are defined as packages weighing less than 150 pounds that are shipped via ground transportation. This can include both commercial and residential shipments, though the rates for each are determined differently.

Who are the main small parcel providers in the U.S.?

In the U.S., the United States Post Office (USPS) is the mail provider in the U.S. delivering to millions of mailboxes each day. This includes parcel shipments along with flat mail pieces.

For National Carriers, FedEx and UPS are two that most frequently come to mind, but there are also providers like DHL. Most National Parcel Carriers offer a postal consolidation solution as well, where the final delivery is done by the post office.

Over the years, Regional Parcel Carriers have grown tremendously. Companies like OnTrac, GLS, LaserShip, Lone Star Overnight, Courier Express and others serve specific regions within the U.S.

How are rates calculated?

When looking at small parcel rates there are two different components – the base rate or published rate and then accessorial charges that get added to the base rate.

For the base rate, there are two factors that determine the rate – weight and distance.

  • Weight: Weight typically in the past was solely based on how heavy your package was. With parcel shipments now, there are two ways to look at weight. Actual weight (how heavy) and dimensional weight (length*width*height/some number). If the dimensional weight is a larger number than the actual weight, shippers will pay the dimensional weight on the package. Dimensional weight was introduced to ensure parcel carriers are maximizing how much they can fit in trucks or planes. The introduction of dimensional weight has also made shippers realize the importance of optimal packaging.
  • Distance: The farther away your destination address is from your origin means longer travel time which translates into higher shipping costs overall. This distance is typically represented in zones.

What are accessorial fees or surcharges?

Like other modes of transportation, there are additional fees that you might incur. These will vary based on USPS, National and Regional carriers, but it is important to know these fees as they can sometimes double your base rate.

Most parcel carriers charge additional fees called accessorial fees or surcharges on top of the base rate. There are a lot of additional changes like address corrections, additional handling residential delivery charges and more.

It is important to keep rates, carrier diversification, accessorials all in mind when looking at your small package strategy to ensure it will meet the needs of your business today and be able to scale for tomorrow.


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