Minimizing Shipment Damages in the Supply Chain

The True Cost of Shipping Damages

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How much does damage to shipments cost you? The true cost goes way beyond the cost of replacing product. Here’s how to calculate and fix it.

Many company representatives know that goods damaged during shipping can cause significantly elevated expenses that affect the bottom line. However, they may not have stopped to calculate a full and accurate cost of shipping damage. The specifics will vary depending on the type and volume of items sent, the number of customers a company has and more. But when you ship thousands, or millions of shipments, the costs lost directly and indirectly through damage are enormous. It’s important to know the actual amount of damage, in order to mitigate and manage future costs stemming from shipment loss.  

The Cost of Shipping Damage Goes Beyond Damaged Units

Many company leaders only calculate the cost of replacing what’s damaged. That’s a start, but it falls short of the full expenses the business incurs due to the problem.

How Much Does Shipping Damage Actually Cost Your Company? Most companies have little idea and grossly underestimate the costs. Here's how to calculate them… #logistics #packaging Click To Tweet

Lost profits or loyalty. First, and most obviously, shipping damage removes the opportunity to profit from a broken item. There are then the associated costs of making things right with the customer. That probably means sending them a replacement item and covering the shipping cost. Plus, depending on the severity of the issue and the buyer’s overall sentiment, the company may need to do even more to smooth things over. That could mean sending them a free item to complement whatever was damaged in transit. In a worst case scenario, this could mean the loss of a loyal, long-term customer.

That’s bad enough, but it gets worse.

The most powerful form of marketing is “word of mouth,” and there’s no one more willing to spread the word than a disgruntled customer. And today, with social media, that mouth can reach countless ears, and influence thousands or more buying decisions.

This is impossible to quantify, but emphasizes why it really pays to go the extra mile in compensating a customer for shipment damages.

Here are some other considerations you should factor in to the cost of shipment damages.

High logistics costs. There are also logistical and administrative costs to consider. The customer service representative who deals with the situation will likely need to fill out extra paperwork to specify the details of the incident, and the forms may extend to making insurance claims.

Storage and disposal costs. Furthermore, if the company policy is to have customers return damaged items, it may have to store the products after arrival or pay disposal fees. Estimates from Statista show department and specialty stores lost six profit margin points on average due to returns in 2020.

Parts and repair costs. Some businesses opt to refurbish returned items, provided the damage is mostly cosmetic. However, that has attached expenses for labor and parts. Also, although the company may profit after selling the repaired product, it won’t be as much as if it were new.

Adding all those estimated costs allows for more accurately determining the true expenses. The costs will vary by product line and by company. This exercise takes time, but the results are often eye-opening. The outcomes may also motivate decision-makers to evaluate what more they can do to minimize shipping damage.

Preventing Damage Requires an All-Encompassing Approach

Protecting goods while in transit may not be as simple as including more bubble wrap around an item or choosing a different box size. It often requires considering a wide range of aspects, including the likely effects of insufficient protection on a product, but also temperature variations that can affect cold chain products like food and pharmaceuticals. Companies that begin sending more items to customers than before may also inspire leaders to investigate better ways to keep them well-protected.

How Much Does Shipping Damage Actually Cost Your Company? Here's how one company successfully reduced shipment damages, and improved their customers' experience… #shipping #logistics Click To Tweet

Let’s consider a real-world example.

New York’s Levain Bakery increased its online orders by 200% during COVID-19 lockdowns. This shift toward shipping so much more through the mail necessitated a change in packaging, which as not designed to handle the bumps and knocks of being shipped across town and the country. Company representatives chose a packaging provider that offered options for the Levain Bakery team to put through transit tests. One of the goals was to find options that would safeguard cookies from crushing or packages from being torn.

Levain Bakery improved the protection of its cookies with corrugated insert, a lip to stop cookies moving around, and better branding and design for improved customer experience.

Company leaders settled on a roll-end lock-front shipper with a corrugated insert. One of the main benefits was that it created a lip along the package’s bottom that prevented the cookies from being smashed during transit. The inserts also fit snugly into the box, so the chances of the cookies moving very much were greatly reduced.

Not only can you protect the product, in addition, customized packaging makes it easier for customers to recognize a brand. Levain Bakery took the opportunity to not only improve the protection of the product, but also developed a distinctive new look. The final design has a blue and white color scheme and gives the appearance of a ribbon tied around the box.

Poor Packaging Can Raise Return Rates and Taint Customer Perceptions

Poor packaging increases the likelihood of damaged product, which has repercussions on brand perception and loyalty.

Return shipments during a single holiday season totaled $32 billion, with an estimated 20%-30% related to damage. Certain items are more susceptible to in-transit damage, requiring extra precautions. For example, when shipping items contained in glass, a best practice is to use approximately 3 inches of packaging material inside the box (unless using specialized options that enable relying on less).

It’s also necessary to realize customers may not deem the damage severe enough to make a return. Maybe it only affected the external container that most people throw away. Even so, the overall experience may cause customers to think negatively about the brand. Some people save for months or years to buy high-end items. If such products arrive in dented boxes or containers with torn edges, they may think twice about repeat business.

Needing to return an item doesn’t always have adverse effects, though. One 2021 study revealed how a well-managed process could significantly increase loyalty in consumers who didn’t anticipate needing to send items back. Of course, making things go smoothly for customers comes with costs, too. They might include using prepaid packaging labels, creating a dedicated portal for people to use, or even hiring more employees to process returned items and receive calls related to those goods.

Is High-End Packaging Worth the Expense?

Using high-end packaging could reduce the cost of shipping damage while simultaneously minimizing returns. Researchers recorded 107,163 observations about handbag returns. Their takeaways may shape decision-makers’ packaging decisions. For example, they found that items enclosed in premium external and internal boxes were significantly less likely to get returned than those where only one type was a higher-grade variety. Interestingly, the same was true for packaging with visual enhancements rather than purely utilitarian ones.

How Much Does Shipping Damage Actually Cost Your Company? "The true cost goes beyond the cost of the product and replacing it. It can damage your reputation and cost you long term loyal customers." Emily Newton @ReadRevMag Click To Tweet

Some company representatives take packaging decisions especially seriously. Designers at Apple painstakingly evaluated details associated with the product boxes, ensuring they’ll protect the products and offer users a multi-sensory premium experience.

Adam Lashinsky, who wrote a book called “Inside Apple,” revealed that the company has a packaging room that only select individuals can access. Inside the lab, they test dozens of versions of minute aspects of each product . One example is a tab that lets people pull a sticker off the product box to aid with opening it. The tab’s placement in the final design created negative space to stop it from being damaged when multiple packages were shipped together to retail outlets.

How Much Could You Save?

It’s important to know your shipping damages costs, to see if it makes sense to address them.

Identify the scale and extent of shipping damages across your portfolio of products and customers.

Is there a pattern? Can you identify a possible cause? For example, do they come predominantly from a particular carrier (or subset of carriers), or are they evenly spread regardless of which company transports them?

If the damages are fairly widespread, consider redesigning the packaging and possibly the presentation of the packaging to elevate the consumers’ experience. The benefits can mount in terms of reduced shipping and admin costs, as well as improved customer experience and loyalty.

Finally, the total cost of shipping damage will likely change if you make drastic alterations to what you sell. So, it’s worth revisiting this every time you make a significant change to your product portfolio.

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Emily Newton