Managing International Shipping Surcharges: What They Are, Why They Happen, and How To Manage Them

January 3, 2019

Retailers are often caught unaware about certain shipping charges, especially when selling cross-border. There are various situations where shipping carriers add fees and surcharges on international deliveries which can result in additional shipping charges that online retailers might not have expected. This can create a significant amount of friction for retailers and numerous challenges in developing a successful international shipping strategy. Firstly, these accessorial fees are difficult to model or plan for since they are applied under specific situations that can vary by location for individual deliveries. Secondly, passing any of these costs on at the point of sale can be difficult since often there isn’t sufficient data to map shipping addresses to those where these fees would be applied. Thirdly, since it’s hard to know when these fees apply, online merchants are sometimes forced to model their shipping strategy in a way that doesn’t take these costs into account. Ultimately, this impacts the profitability of orders affected by these fees. Without a clear understanding of these surcharges, e-commerce businesses struggle with managing margins and pricing, inhibiting the execution of a successful international ship pricing strategy.  

Luckily, understanding and managing these shipping surcharges isn’t quite as hard as you think.

The most common fees not included in rate cards are based on individual deliveries and usually come in the form of fuel surcharges, remote area fees, and disbursement fees. Here’s a quick rundown of how they work:

Fuel surcharges

These are pretty standard across all carriers who will pass on the variability of fuel prices to the shipper. Fluctuations in the market price of oil will affect this charge and can range anywhere from 5% to 15% of the base freight charge, which varies by destination and weight of the shipment. Retailers don’t usually make this fee visible to customers, but when they don’t factor it into their shipping economics they find their true margins are depressed as a result of these additional fees.

Remote area fees

Depending on the shipping service level and specific carrier’s policy, there may be remote-area fees applied to an order. These fees arise when additional resources will be required to make a delivery to hard-to-reach locations. Either the carrier can’t make the delivery themselves and they contract out a special last-mile carrier, or the volume of shipments going to those locations is low resulting in a higher delivery cost.

This usually happens with countries where population density is low, such as central Australia or northern Canada. The extra fee, determined by ship destination address, can range anywhere from $5 to $35 depending on the carrier. This can have a huge impact on margins, especially for online merchants with a low average order value or a disproportionate volume of orders in low density regions.

Disbursement fees

This is a service fee charged by many carriers for paying duty and tax upfront for the shipper when clearing customs. The carrier then charges the shipper for the cost of duty and tax, plus the service fee for floating the funds.

Disbursement fees are a flat fee across all markets but can vary by carrier, and it usually comes to 2% to 4% of the duty and tax paid on a shipment. Merchants rarely pass this along to a customer but as it is often not included in freight cost modelling, it can lead to discrepancies in shipping economics.  

Technology makes it easier to manage

Just being aware of these shipping fees and surcharges doesn’t solve the problem. Incorporating the right merchant shipping surcharge management controls, like the ones available in Flow’s Console, will bring transparency and control for merchants when faced with these variable fees. Armed with the information, online retailers have visibility into when they can expect to be charged and why, and which deliveries are affected by market. Furthermore, online retailers are now able to design an informed international shipping strategy for each market to create a sustainable unit economics model for their business.

Working closely with its shipping carriers, Flow has carefully modeled how the major fees are applied in practice in order to provide our clients with the ability to easily manage these fees. This unique capability and features within our solution gives merchants the option to pass the cost of the fees on to their customers at the point of purchase or to absorb the cost themselves in their margins.

To find out more about how Flow’s fee management capabilities and how its flexible cross border e-commerce Console can help, contact us to schedule a demo.

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