What is included in the business process of shipping?

The transport of goods from a company’s own warehouse to its customers is referred to as shipping; it is therefore the transport of goods from one place to another. Within a value chain, shipping represents an important overall process consisting of several individual processes or process steps in which both internal and external interfaces are involved. For example, the shipping department is closely interlinked with a company’s goods issue and accounting departments, while shipping service providers or external freight forwarders are also involved in the overall shipping process.

Overview of common shipping methods in B2B and e-commerce logistics

Shipping is about bridging distances in an economically efficient way, in terms of cost and delivery time. Thus, goods can be shipped by air, seam rail and road. This is referred to as air freight, sea freight and road freight. As a rule, companies work with external service providers, specifically shipping or logistics companies (courier express parcel services, freight forwarders, shipping companies). Since shipping can be a relatively complex process due to the circumstances or quantities involved, logistics software is increasingly being used to both increase the degree of automation and optimize individual processes. Which shipping method is ultimately chosen depends primarily on:

  • Shipping costs
  • Delivery time
  • Type, dimensions and weight of the goods
  • National or international shipping
  • Mode of shipment
Bird's eye view of the industrial harbor Bukit Merah by https://unsplash.com/@chuttersnap
Aerial view of the port of Singapore. Image: CHUTTERSNAP.

Summary of the most common shipping methods

While there have always been numerous types of shipping in the corporate sector, the rise of e-commerce has also introduced a variety of shipping methods to private customers. Common shipping methods include:

  • Same Day Delivery: the delivery is made on the same day of the order.
  • Next Day Delivery (Next Day Delivery): Delivery will take place on the following day of the order.
  • Express Shipping
  • International Shipping

The differences are in the delivery time, cost and distance. Depending on how the order placement (order) is, the shipping method is chosen, if it is not already determined by the client.

Shipping and fulfillment costs

In the private sector, consumers shopping online have already become accustomed to an order being shipped free of charge, both for the original purchase and for any returns. For such a service, the seller must calculate very accurately, always taking into account the latest costs for manufacturing, storage, packaging, taxes and shipping, as well as returns, and adjusting the purchase price accordingly. For example, prices on the world market for fuel or the cost of space in a shipping container can change abruptly.

Common types of shipping costs can be roughly distinguished as follows:

Express shipping

In the case of express shipping, the inventory is to be delivered particularly quickly, i.e. arrive at the customer’s premises much earlier than would be the case with an ordinary delivery. The decisive factor is therefore the delivery time, which must be so short that a guaranteed delivery date is met. This can be same-day delivery, overnight express or simply extraordinarily fast delivery. Such a delivery of goods receives preferential treatment from the parcel service provider or the transport company, which generally costs more and can be many times more expensive than the corresponding standard shipment. The advantage is thus a short-term, punctual delivery, which also enables a rush order, while the downside consists primarily of the considerable additional costs.

Lump-sum shipping

A lump-sum shipping price is essentially a mixed calculation in which the seller distributes the entire shipping costs to all products as well as buyers or orders, and calculates in such a way that he has no disadvantage or the greatest possible advantage from it holistically. Too high fixed shipping costs scare off too many customers, while too low shipping costs cause more customers to order but put more strain on the seller’s own profit margin. While free shipping is usually imposed on the customer by pricing the cost into the product, lump sum shipping forms a comprehensible classification that benefits everyone. For example, each recipient understands that larger and heavier inventories tend to have higher shipping costs than smaller and lighter products. Lump-sum prices then refer, for example, to shipments up to 25kg, over 25kg and over 50kg.

Real-time carrier pricing

Shipping under real-time carrier prices is a transparent and very accurate way to mark up shipping costs. For example, as soon as an item is added to the shopping cart in an online store, the customer can see what shipping would cost. This process is automated via an interface between the online store and the logistics company; the prerequisite is that the relevant shipping companies also work with shipping costs in real-time. In this way, each product, each order is assigned an individual and currently valid shipping price.

Drop shipping

Drop shipping is a special case. In this case, or in such a business model, inventory is sold without owning it. Production, storage, packaging and shipping are performed by third parties. As soon as an order is received, the service provider triggers processes that result in the buyer receiving the ordered inventory. The seller, on the other hand, has nothing to do with these processes; he pays the service provider, who in turn invoices for all services performed. In such a case, the entire process after the order has been placed and the drop-shipping provider has been informed (in an automated way) can also be called shipping. In such a case, the entire third-party fulfillment service is decoupled from the seller.

Generally, numerous individual items such as taxes, customs fees, insurance are included in the final total cost of shipping, which consists of more than just paying for the transport itself.

An example of the procedure in international shipping

The following example illustrates how complex and multi-layered a shipping process can be:

In international shipping, the parties involved consist of the shipper, consignee, shipping company and freight forwarder. Before shipping, the seller (shipper) and buyer (consignee) agree on a liability solution. Once this step has been completed, the export transport follows; this means that the inventory is transported from the shipper’s warehouse to the forwarder’s place of operation. For this purpose, a purely local logistics company can be contracted or a freight forwarder already offering export transportation.

The next step is export customs clearance, which is subject to different guidelines depending on the country and must meet specific customs requirements. For this, the necessary documents are submitted to the authorities in order to obtain the release of the inventories from the country of origin. This requires appropriate expertise to understand and comply with all regulations. If said expertise is lacking, then a clearing agent can be used as an external service provider to take care of this.

The subsequent physical inspection of the shipment, as well as other physical processes such as loading onto a ship in a container, is called origin handling. In advance, a shipping company must have been commissioned to carry out the sea transport. Here, not only time is a relevant factor, but also the route itself. This is because the consignee is responsible for all sea freight charges incurred along the way, as well as for import customs clearance. Above all, tax obligations are checked during customs clearance; for this purpose, the inventory is temporarily stored in the customs area, which is a complex and time-consuming process overall, for which local clearing or forwarding agents also work together with the consignee.

The Nuijamaa border crossing on the border between Russia and Finland.
Tuomas Vitikainen, The Nuijamaa border crossing between Russia and Finland., CC BY-SA 4.0

These processes, which involve crossing (several) national borders and taking into account different customs regulations, involve a large amount of consignment notes and other documents, which is why solutions are already being tested that function on the basis of a blockchain and are intended to save a considerable amount of time while simultaneously increasing the security and traceability of the sea freight and the entire shipping route.

The final step in international shipping is then the destination clearance. Here the container with the inventory is unloaded from the ship and transported to the forwarding agent’s warehouse. From here, the recipient or buyer can pay the agreed fees, pick up his inventory or organize transport to his destination address.

Relevant documents in (international) shipping include:

  • Trade invoice: issued by the seller
  • Certificate of Insurance: protects the shipping company/forwarding agent from any liability
  • Consignment note: acts as proof of shipment, is a legal document, and contains important, accurate information about the inventory being transported

Shipping processes

As already mentioned, shipping consists of numerous individual process steps or workflows that have their own individual procedures. These include, above all:

Summary

Shipping is a complex process that consists of several individual processes and takes numerous factors into account. Time and costs represent the main criteria when it comes to shipping raw materials, supplies, semi-finished and finished products based on an order. Transportation from the contractor (seller) to the client (buyer) is the final step of order fulfillment, which in a company is usually organized by the shipping department. The shipment of the inventory can often be tracked and the shipping route or shipping process can be directly traced; either by scanning barcodes or the use of RFID. For this, the shipment of goods also contains essential documents such as a delivery bill, consignment note or a specific tracking number. Shipping processes can be designed more efficiently overall, the higher the degree of automation in the individual steps is.

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