Carrier quotations. Which one is really the best value?

Have you received a quotation from a transport company and are convinced it is the best one? Even though it may look that way at first glance, the reality can be different. From our business meetings we know that very few people analyse a quotation and are then able to evaluate it correctly. Leaving aside the fact that transport costs are influenced not only by price but also by a host of other factors that significantly affect total dispatch costs, in this article we focus on the price of transport alone. At the end we offer you the chance to download a „Helper” for analysing quotations and calculating transport costs.

What will you read about in this article? 6 factors influencing the price of a parcel Analysis: comparing quotations from carriers X and Y A helper for calculating transport costs It is not just about the price of a parcel …

6 factors influencing the price of a parcel

We have selected and written down six significant factors that go into the delivery price per parcel and significantly affect how high it is:

Factor 1: The weight category

When deciding how good the individual quotations are, it is important to have statistics on all your parcels, or at least to know their nature, weight and dimensions. If you have a shoe e-shop where the weight of all parcels stays under 2 kg, you will only be interested in the prices for weight categories up to 2 kg. The prices for the other weight categories will be irrelevant to you (even though they may look attractive). If, however, you are an e-shop selling garden tools that sends everything from a screw through a spade to a lawnmower (so your parcels have various weights), then it is important to look at the quotation comprehensively: to have information about the individual weight categories, about the expected number of parcels sent in those categories, to total up both quotations and then compare them. This is exactly the moment where you may be surprised that prices that look „more attractive” at first glance will not be so advantageous for you after all. In this context we would draw your attention to point 6, where we look in more detail not only at parcel weight but also at how shipments are composed and how that affects the final price.

Factor 2: The price of cash on delivery

Are you one of those e-shops that sends most parcels cash on delivery? Then the COD price should be a significant factor when assessing quotations. Sometimes even minimal differences can add up to tens or hundreds of euros in your total costs. With COD you also have to think about card payments. Card payment is still very popular with customers in Slovakia, but carriers charge for it – and even at a higher rate than for COD collected in cash.

Factor 3: The price of notifications

Does your carrier offer the notification service free of charge? Or does it charge for it as a surcharge on top of the basic price? The price of notifications is often not clearly stated in quotations. Do ask whether it is charged. When you calculate it with your expected number of parcels per month, the total price for notifications can be quite a surprise.

Factor 4: The toll surcharge

The toll surcharge can be defined differently at every transport company: its price is usually around 0.02 € and is charged for every started kilogram of the shipment, or it is fixed according to the parcel's weight category. With the toll surcharge the difference between carriers' quotations is not that significant. The difference in the final prices is caused by the parcel's weight. When considering the postage prices for your customers you should therefore not forget about it.

Factor 5: The fuel surcharge

The fuel surcharge is calculated as a % of the parcel price set by the transport company. The base parameter for calculating it is the average diesel price determined by the Statistical Office of the Slovak Republic. Every transport company, however, has its own criteria for setting the %. That means that in the same month the fuel surcharge can be 3% at one transport company and 5% at another. Again a surcharge that may seem inconspicuous, but which needs to be included in your transport cost calculation.

Factor 6: Multi-parcel shipments

Do you send your customers several parcels in one order? Do you know how your carrier charges for them? Does it charge for each parcel separately or does it take the combined weight of the parcels into account? If you answered YES to the first question, that is a reason to find out how many such orders your e-shop handles each month. For a proper understanding, here is a simple example: An e-shop selling car parts sends 50 shipments a month made up of two 3 kg parcels. The e-shop received a quotation from carrier X and carrier Y. Carrier X's quotation is 0.10 € cheaper in every weight category.

Analysis: Quotation X: 50 shipments (1 shipment = 2 parcels) = 100 parcels x 3.28 € (the price for a 3 kg parcel) = 328 € Quotation Y: 50 shipments (a shipment is charged by combined weight, i.e. 3 kg + 3 kg = 6 kg); 50 parcels x 4.12 € (the price for a 6 kg parcel) = 206 € This example shows that the „cheaper quotation X” is ultimately „more expensive” for the e-shop. (Even without taking the other aspects mentioned above into account,) by accepting offer X the e-shop would pay 122 € more in costs every month. The nature of your orders can be exactly the parameter that significantly changes your decision about which quotation to accept.

Analysis: comparing quotations from carriers X and Y

In the following example we analyse two specific quotations from transport companies for an e-shop that sends: - 500 parcels a month, - parcels in various weight categories (see the table), - 95 % of parcels cash on delivery.

Analysis: We included all the factors mentioned above in the calculation (with the exception of multi-parcel shipments – if we had included that factor too, the difference between the quotations could have been even more pronounced or, on the contrary, could have favoured the other offer). We start from the assumption that, looking above all at the prices in the individual weight categories, quotation X would be more acceptable to the e-shop owner. The main reason for such a decision could be the fact that 425 dispatched parcels (as much as 85% of the total) are up to 10 kg and carrier X's prices are clearly more tempting. On the other hand, the remaining 75 dispatched parcels (25% of the total) are over 10 kg and, although their number is much lower, in this case the owner saves with carrier Y's offer. As we have mentioned several times, there are other parameters (COD, SMS notifications, the toll and fuel surcharges) that go into the total price. COD and the toll surcharge are cheaper with carrier Y. SMS notifications, on the other hand, with carrier X. The fuel surcharge is the same at both carriers. After plugging the numbers into the table – the carriers' prices and the number of parcels in the individual weight categories (marked in blue) – we arrived at a total monthly difference of 46.18 € in carrier Y's favour. Without the analysis, the e-shop owner could therefore have decided on option X, while in the end option Y is better value and cheaper for them. The well-known saying „all that glitters is not gold” can therefore apply when assessing quotations from transport companies too.

A helper for calculating transport costs

At the beginning of the article we mentioned the „Helper”, which can make analysing carriers' quotations easier for you. We used it for the analysis above too, so on the basis of that you will find it very easy to work with. We would also be grateful if you left us feedback on the article.

It is not just about the price of a parcel …

In closing we would again like to remind you that price is an important but not the only aspect influencing total dispatch costs. Do not forget a significant factor, namely the cost of a man-hour for all the people involved in your dispatch processes. You can read more about this topic on our blog in the article The cost of dispatch = the price per parcel? If you have any questions about logistics or would like a consultation on the topic, do not hesitate to get in touch.