Why cutting shipping costs could actually be hurting companies' bottom line

Envisioning international shipping and logistics, forecasting models and complex shipping plans probably come to mind. However, while companies focus on shaving pennies off shipping routes, the greater cost lies in customer experience – creating the most significant financial impact for shipping companies.

We spoke with Joe McIntyre, General Manager at Slotted, a 3PL marketplace and self-guided RFP tool, to understand where customer service and growth fit in the world of shipping and logistics:

Missing the picture: "[I'm most frustrated] by companies that view their fulfillment, warehousing, and transportation purely as costs to be controlled, rather than levers to drive value and growth," McIntyre states, adding that while they might not be direct growth levers, fulfillment should be seen through the lens of value, not cost. Reducing fulfillment to pure costs and not how it relates to the bigger picture of operational and customer excellence is where most companies go wrong (and pay the price for it).

Triple loss: In terms of finding shipping providers, McIntyre says it's actually the least expensive providers that are full of hidden costs due to "errors, lost inventory, and reworking orders." Not wanting to compromise customer experience, companies end up paying to reship products. "You're going to give away product for free because you're going to replace it for them," McIntyre explains. "So not only have you given someone two of an item for the cost of one, you also have foregone the opportunity to sell that to somebody else at full price. So it's almost like a triple loss."

The real price of cost cutting: Price cutting in logistics comes at a greater cost than most realize. McIntyre contextualizes what's at stake: "For what may have worked out to be $0.15 more per order, you could have chosen a better provider and reduced customer service challenges, time spent on them, rework, and capital tied up in lost or buffered inventory. When you understand the full scope, you realize this provider is more expensive per order. However, at the end of the month, the full P&L shows a larger bottom line. We may not have grown the top line, but the bottom line is larger because cost leakages are closed up."

Building strategic partnerships: Bottom line or top line aside, McIntyre sees shipping primarily as a means of serving customers. "You need to be a shipper of choice. Being a shipper of choice means maintaining a two-way relationship. While you're the customer of that 3PL, they're also the partner you depend on for the most critical part of your sales cycle – delivering the product after payment."