What Can Be Done to Reduce Shipping Costs for CPG Brands and Wineries?

You can have the finest products and the best customer service in the world, but if you can't get a handle on your shipping costs, it's difficult to turn a profit. Shipping is a major challenge for CPG brands around the world, especially if they produce temperature-sensitive goods or focus on direct-to-consumer sales.

Some costs are unavoidable, but many brands leave money on the table by failing to negotiate with carriers, sticking with inefficient packaging, and ignoring fulfillment data. The good news is you can reduce shipping costs by making a few changes to your business model.

In my work with emerging CPG brands, I've had many opportunities to counsel founders on minimizing their costs without sacrificing quality. Here's what I recommend if you want to know how to lower fulfillment expenses for your winery or CPG business.

Optimize Packaging to Reduce Dimensional Weight Charges

Improper packaging is one of the most common causes of high shipping fees. Fortunately, it's fixable — if you understand how dimensional weight, or DIM, affects your costs. Many shippers now use DIM to set their rates, so the volume of a package matters just as much as the weight in pounds and ounces. To calculate the DIM of a box, simply multiply the length by width by height.

The higher the DIM, the more you pay for shipping. Optimizing your packaging can help you keep your shipping costs as low as possible, and that begins with auditing your current packaging and looking for ways to improve.

Tips for Conducting a Packaging Audit

The first step is to review your packaging materials. If you're using large boxes to ship small items, you can likely reduce the amount of padding or void fill in each package. Minimizing packing materials allows you to choose smaller boxes, reducing your DIM-based shipping costs.

It's also helpful to review shipment data from the past few months. Once you identify the shipments with the highest DIM charges, see if you can spot any patterns. For example, if high DIM charges are associated with the same two or three products every time, you have an opportunity to change your packaging process.

Packaging Optimization Guidelines

One of the easiest ways to reduce your DIM-based shipping costs is to use smaller boxes. Simply reducing the volume of each package can help you avoid high DIM charges. It's also critical to rely on right-size packaging. With this approach, you use just enough materials to protect merchandise and reinforce your brand's image. Consider reducing carton SKUs or replacing void fill with molded inserts.

Negotiate Carrier Rates and Understand Accessorial Fees

Carrier rates aren't set in stone. In many cases, you can negotiate discounts, volume pricing, or even waived fees. Also, read your shipping agreements in detail. The base rate doesn't tell the whole story, as some carriers charge accessorial fees to cover the cost of extra fuel, labor, time, or equipment. You may even have to pay extra for residential delivery or signature confirmation.

To reduce shipping costs substantially, try negotiating the following fees with your carriers:

• Base rate

• Fuel surcharges

• Residential delivery fees

• Oversize package fees

• DIM pricing

• Fees for Saturday or Sunday delivery

• Service-based discounts (e.g., 2-day delivery versus regular ground)

Tips for Negotiating With Carriers

If you plan to negotiate with carriers as one of your shipping cost reduction strategies, be prepared to share your data. A carrier is much more likely to offer a discount if you can demonstrate that your business does enough volume to make it worth their while. Use volume data to negotiate a contract adjustment or service change that benefits your bottom line.

Using Third-Party Logistics and Shipping Brokers

Using a 3PL provider or a shipping broker makes sense if you're dealing with high shipping costs and/or unmanageable volume. If your business is growing quickly, you may not have the resources to handle warehousing, packing, and shipping. A 3PL provider or shipping broker can manage these activities for you, leaving you with more time to focus on strategic decision-making.

Brokers and 3PL providers can also help you save money, albeit in different ways. Brokers work with many carriers, so they tend to have more negotiating power than individual CPG businesses. A 3PL provider can optimize your packaging to reduce DIM charges.

I highly recommend working with a broker or a 3PL provider if you plan to expand internationally. Domestic freight optimization for wineries and CPG brands is one thing; optimizing freight for multiple countries and carriers is another. Experts can help you with customs, sales tax, and other international shipping issues, resulting in significant CPG logistics savings.

Use Zone Skipping or Distributed Fulfillment to Reduce Last-Mile Costs

Many CPG brands rely on zone-based shipping, which is usually more expensive than local shipping. If you want to reduce shipping costs, consider zone skipping instead, which is the practice of bundling multiple packages and shipping them to a hub close to their destination.

Zone skipping lowers shipping costs and speeds up deliveries. It's also a critical component of multi-node fulfillment, which requires CPG brands to use multiple locations to fulfill orders. If you try zone skipping, a 3PL provider can help you optimize your fulfillment activities.

Analyzing Shipping Data

To determine if zone skipping and multi-node fulfillment are right for your business, gather several months' worth of shipping data. Use one of the zone charts from UPS or FedEx to determine how much it costs to ship to each zone. Then, segment your data by zone to determine if a significant percentage of your packages go to the same region.

For example, if you own a CPG business in New England and notice that 50% of your shipments are going to California and Oregon, it may make sense to open a fulfillment location on the West Coast.

Explore Flat-Rate and Hybrid Delivery Options

With traditional ground shipping, you typically pay based on the weight and volume of a package, plus the cost of extra services (e.g., Saturday delivery or signature confirmation). Unless you have a single SKU, relying on traditional ground shipping can lead to unpleasant surprises when it's time to ship goods. Another way to reduce shipping costs is to use flat-rate and hybrid delivery options whenever possible.

Flat-rate shipping lets you ship something for a fixed fee, regardless of its size or weight. Choosing flat-rate shipping makes your costs more predictable. Hybrid delivery uses services from more than one carrier to deliver the same package.

For example, UPS Ground Saver (formerly UPS SurePost) often transfers packages from UPS to the U.S. Postal Service for last-mile delivery. Ground Saver is intended for lightweight, nonurgent packages, so it costs less than traditional ground shipping.

If you decide to offer lower-cost shipping options, use value-based framing to help customers understand they can save money. It's also helpful to provide estimated dates of delivery. Instead of telling a buyer that it should take 7-10 days for their package to arrive, let them know you expect to deliver the order on June 10.

Audit Fulfillment Operations Regularly

When it comes to shipping costs, carriers are only part of the equation. In some cases, inefficiencies within your business can drive up costs, leaving you with a razor-thin profit margin. These inefficiencies include inaccurate weights, manual label entry, and overpacking.

To avoid these issues, audit your fulfillment operations regularly. Review your pick-and-pack processes, provide additional training, and make sure fulfillment team members have access to software that automatically selects the best service for each situation. Training makes employees aware of common shipping issues and gives them the knowledge needed to make wise decisions.

Keep an eye on these metrics to spot cost creep before it hurts your business:

• Average shipping zone

• Cost per shipment

• Surcharge spend

• Dimensional weight charges

• Shipping cost as a percentage of revenue

Get Strategic About Your Shipping Costs

Every dollar you save on shipping is a dollar you can invest in your company's strategic growth. Whether you're a winery shipping seasonal gift packs or a CPG brand expanding into DTC sales, shipping costs add up quickly. However, a few tweaks to your picking, packing, and shipping processes can help you save big. Don't wait until your margins are squeezed — implement these changes now.

Shipping optimization isn't just a logistics concern. It's a strategic tool for strengthening your company's financial performance. Balanced Business Group can provide additional insight into reducing overhead and increasing your margins.

Contact BBG today for personalized support with your business.

Author: Pedro Noyola

Pedro Noyola is the CEO of Balanced Business Group (BBG), a company dedicated to helping Founders in the CPG food and beverage industry gain financial confidence. At BBG, Pedro combines traditional accounting with tailored financial guidance, providing industry-specific insights to ensure sustainable growth for passionate food entrepreneurs. He is also an angel investor and a mentor to emerging CPG brands via SKU and TIG Collective. Pedro’s career spans leadership roles at FluentStream, where he helped the company achieve recognition as one of the Fastest Growing Companies in America by Inc., and Telogis, where he was part of a team that grew the company’s recurring revenue from $50 million to $1.2 billion in under five years.

Pedro holds a BA and MPA from The University of Texas at Austin and an MBA from Harvard Business School. He is an active member of the Young Presidents Organization, continually seeking growth in both leadership and learning. Outside of work, Pedro enjoys family time and outdoor activities, drawing personal fulfillment from his roles as a husband and father.