In 2021, an estimated 2.14 billion people shopped online and projections show that by 2024, ecommerce sales are projected to reach $6.4 trillion. Purchasing items online means businesses have to work harder to actually get the goods to their customers, which results in extra costs for the consumer. It’s a pretty logical trade-off. Online shipping tallies usually include taxes, shipping, and handling charges added on top of the value of a product. If you’re starting up a small business, or if you’re a curious consumer, you may be wondering: what are handling charges in shipping, and how are they different from shipping charges? Below, we break down the difference and explain what factors influence how shipping and handling charges are calculated.
Shipping and handling charges are the costs attributed to the process of preparing, packing, and sending the order to the customer. These fees are added on top of the product and tax charges. They are essentially the costs that cover the logistics of sending and delivering an item, such as labour, packing supplies, stock storage, transportation, and delivery.
Shipping charges and handling charges might sound like interchangeable terms, but they actually refer to slightly different things.
Shipping charges include the costs of postage, transportation, and delivery. This value may include surcharges, fuel charges, and any other additional delivery costs.
Handling charges cover the labour associated with packing an item for shipment — so, retrieving the stock, preparing it with the right packing materials, generating the shipping label, and loading the shipment. These costs will also cater to any additional steps in the order fulfilment process, such as gift-wrapping or customization.
Wondering how much to charge for domestic and international shipping? There are a few factors that are taken into consideration when shipping costs are calculated. We take a look at them below.
Carriers will look first at the size of the parcel to estimate a shipping rate. The bigger the parcel, the more expensive it will be to ship. Most carriers will determine the shipping cost by using the dimensional weight method, which is found by multiplying the length, width, and height of the package. Your quote will be based on either the dimensional weight of the package or the actual weight — whichever is larger.
Weight Of The Package
If the weight of the package is higher than the dimensional weight, the carrier will charge you for the actual weight.
Where does the parcel need to be shipped to? The required destination of the parcel will impact the shipping cost. The farther the distance between where the parcel is being shipped from and the destination, the higher the shipping cost. International locations are broken down into zones, and higher zones are more expensive to ship to.
Delivery Times/Shipping Service
Parcel delivery times will also be factored into the shipping cost. Standard shipping rates will be cheaper, while 2-day or next-day shipping will be pricier. Faster shipping methods will be more expensive (particularly as distance increases).
At Couriers & Freight, our domestic shipping services include Local Point-To-Point Shipping, Overnight Express Shipping, Same-Day Or Time-Critical Shipping, Interstate Express Shipping, and Time-Definite Shipping. For our full list of courier services within Australia, visit our dedicated page here.
Our international shipping services include International Express or Economy Shipping, International Time-Definite Shipping, and International Air and Sea Freight. Visit the full list of International Express Courier options here, and the list of International Air Freight options here.
Some businesses utilise free shipping to further incentivize their customers. The Q2 2021 Consumer Trends Report by Jungle Scout found that 66% of consumers expect free shipping on every online purchase, while 80% expect free shipping when spending a certain dollar amount on online purchases.
One way of implementing free shipping is to load the shipping cost into the cost of the product. Essentially, the product absorbs these costs so businesses can eliminate shipping and handling costs that may deter a customer from purchasing. This strategy is usually more effective with expensive items that are also unique to the business. Customers are likely to tolerate a $5 bump-up on a $100+ unique item if it means free shipping, while a $5 bump-up on a $5 item may be bothersome despite free shipping — especially if they can find it for $5 elsewhere.
Alternatively, many businesses implement free shipping on a minimum spend amount or for a limited time only. These offers still work to minimise cart abandonment while protecting profit margins.
With all these factors in mind, couriers will calculate a shipping cost. To get the best shipping rate, it’s important to compare the shipping costs from different carriers.
At Couriers & Freight, we aim to reduce overall freight costs by as much as 65%. Visit our dedicated page for your shipping quote.
The Goods and Services Tax (GST) is a charge that is 10% of the value of the goods. Domestic freight costs are usually subject to GST. So, generally, if the supply of the items ordered from a business includes delivery, the business will apply GST onto the total cost of the goods and the delivery.
The international transport of goods from anywhere outside of Australia to the place of delivery inside Australia is GST-free. The scenarios where shipping is exempt from GST include when:
There are a few goods that are exempt from GST in Australia. These include:
So, now that we’ve got all things shipping covered, how do businesses calculate handling charges?
When a business receives a fulfilment quote from us at Couriers & Freight, it will include a handling value as well as a shipping value. Remember, handling charges cover staff labour and warehouse costs such as shelving, racks, forklifts, and conveyors, as well as office supplies for printing labels and packaging the parcels.
For a rough estimate for what their handling charge should be, businesses can calculate their monthly operational expenses — labour, rent, packing supplies — and divide these expenses by their average monthly shipping volume. For example, if monthly operational costs sit at $8,000 and a business ships $2,000 worth of orders per month, the handling fee should be around $4.
This is a simplified calculation, but it can help businesses get an idea of handling costs within the context of profit margins.
Founder of Australia’s largest outside hire company Couriers & Freight, Robert Lynch is a seasoned business leader in the shipping industry with over 20 years of experience. His expertise spans from outside hire, taxi truck, and last-mile services to freight management, freight forwarding and warehousing.
Robert has also incorporated technology into his business through custom software to enhance growth and efficiency. Robert is a valuable resource for business owners looking to improve their logistics operations.
Connect with Robert Lynch on LinkedIn.