Running a small business can feel like juggling a million things at once, and shipping is no exception. Whether you're sending out a few orders a week or hundreds, having a grasp on shipping terms can help you save money, avoid misunderstandings, and make sure your customers are happy.
We break down some of the most important shipping terms that you need to know: FOB, DIM weight, freight, carriers, and more.
1. FOB (Free on Board)
Let’s start with FOB, which is a term you’ll come across if you’re dealing with suppliers or shipping products from overseas. Simply put, FOB defines who pays for shipping costs and who assumes responsibility for the goods during the journey. There are two types of FOB terms you’ll commonly encounter:
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FOB Origin: This means the buyer (you) takes responsibility for the goods as soon as they leave the supplier’s warehouse. You’re on the hook for shipping costs, and you’ll also have to handle the risks if anything happens during transport.
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FOB Destination: With this, the seller (your supplier) assumes responsibility for the goods until they reach your door. They pay the shipping costs and carry the risk. Once the goods arrive at your location, you take responsibility.
In short, FOB Origin puts more of the shipping and risk on you, while FOB Destination places that responsibility on the seller.
2. DIM Weight (Dimensional Weight)
You know that feeling when you get your shipping bill, and it’s higher than expected? Often, this is due to DIM weight, which refers to the size of your package rather than its actual weight.
Here’s how it works:
Shipping carriers (like UPS, FedEx, and USPS) use DIM weight to calculate charges based on the size of the package. Even if the box is light, a large box takes up more space on the truck or plane, so it’s still going to cost more to ship.
To calculate DIM weight, you’ll need the dimensions of your package (length, width, and height). Then, carriers typically use a formula that divides the cubic size of the box by a set divisor (e.g., 166 for domestic shipments).
For example:
- If your package is 24” x 24” x 24” (which equals 13,824 cubic inches) and the divisor is 166, your DIM weight would be 83.33 pounds.
So, even if your package weighs 10 pounds, you might still be charged 83.33 pounds based on the size. That's why it’s so important to keep your packaging compact and efficient!
3. Freight
When we talk about freight, we usually refer to the transportation of large shipments of goods. For small businesses, freight can apply to orders that are too big for standard parcel services like USPS, UPS, or FedEx, typically over 150 pounds. Freight shipping includes less-than-truckload (LTL) and full truckload (FTL) services.
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LTL (Less-than-Truckload): This is for smaller shipments that don’t fill an entire truck. Your items will share space with goods from other shippers, and you’ll pay only for the portion of the truck your products take up.
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FTL (Full Truckload): This is for larger shipments where you’re using the entire truck. This can be a more cost-effective option if you’re shipping a lot of goods at once.
Freight shipping can be complicated, and rates vary based on the size, weight, and destination of your shipment. Working with a freight forwarder or a shipping expert can help you navigate these waters and find the best deal.
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4. Carriers
In the shipping world, carriers are the companies or individuals who move your goods from one place to another. You’ve probably heard of big names like UPS, FedEx, and DHL, but there are also regional carriers, freight companies, and even postal services like USPS.
For small businesses, picking the right carrier can save you a lot of time and money. When choosing a carrier, consider things like:
- Shipping speed (Do you need overnight delivery? Or is a slower, budget-friendly option okay?)
- Cost (Different carriers will have different rates for various services.)
- Customer service (If something goes wrong, it helps to have a carrier with solid support.)
- Reliability (You want your customers to receive their products on time and in good condition.)
5. Shipping Zones
Shipping zones are another thing that can affect your shipping costs. In a nutshell, a shipping zone is a geographical area that helps determine how much you’ll pay for shipping. The farther your package has to travel, the higher the shipping cost.
Carriers like USPS, UPS, and FedEx have different zone systems. So, if you’re shipping from the East Coast to the West Coast, your package might be in a higher zone and cost more to ship. Knowing the shipping zones of your customers can help you better estimate shipping costs and factor them into your pricing.
6. Last-Mile Delivery
Last-mile delivery refers to the final leg of the shipping journey – from the local distribution center to your customer’s doorstep. It’s the part of the delivery process that can be the trickiest (and most expensive), especially for small businesses that ship to different parts of the country.
To make last-mile delivery easier, some small businesses partner with local delivery services or use third-party providers to handle the final step. That way, you can avoid some of the headaches that come with delivering to far-flung locations.
7. BOL (Bill of Lading)
A Bill of Lading (BOL) is a document that serves as a receipt for goods being shipped, a contract between the shipper and the carrier, and a title to the goods in transit. It’s one of the most important shipping documents, especially for freight shipments. The BOL outlines details like:
- Shipper and recipient information
- Description of the goods
- Shipping terms (e.g., FOB)
- Delivery instructions
Think of it as your shipment’s passport—it ensures that everything gets from point A to point B without issues. When you’re dealing with freight, make sure you get the BOL from your carrier so you can track the shipment and handle any potential claims.
8. Ex Works (EXW)
Ex Works (EXW) is another shipping term that defines the seller’s responsibility in the shipment process. In an EXW agreement, the seller’s responsibility ends once the goods are made available for pickup at their premises or another agreed-upon location.
This means that the buyer (you) will be responsible for all costs and risks related to transportation, including export duties, shipping fees, and insurance. If you're a small business owner sourcing products internationally, you need to know whether you’re dealing with EXW so you can factor in all those costs into your price.
9. CIF (Cost, Insurance, and Freight)
On the flip side of EXW, you’ll often see CIF, which stands for Cost, Insurance, and Freight. With this term, the seller takes on more responsibility by covering the costs of goods, shipping, and insurance until the goods reach the destination port.
CIF is common for international shipments and offers a bit more security for the buyer since it’s the seller’s responsibility to get the goods to your location, including covering risks like damage during transit. However, the buyer is still responsible for customs and import duties once the goods arrive in the destination country.
10. Shipping Manifest
A Shipping Manifest is a detailed list of everything included in a shipment, much like an inventory. It’s used by carriers, customs, and sometimes even your business to track exactly what’s being sent.
The manifest will include details such as:
- The contents of the shipment
- Quantities and weights of the items
- Shipping method
- Destination address
For larger shipments, particularly international ones, having an accurate manifest ensures that everything goes smoothly through customs and helps with any issues that might arise during the delivery process.
11. Shipping Insurance
Shipping insurance protects you against the loss, theft, or damage of goods during transit. If you’re shipping expensive products, it’s a good idea to invest in shipping insurance to protect your investment. Some carriers provide insurance automatically, but you may want to opt for additional coverage depending on the value of the items.
While the cost of insurance might seem like an extra expense, it’s much cheaper than dealing with the financial fallout of a lost or damaged shipment—especially when it’s something important for your business.
12. UPS/FedEx Zones and Surcharges
Carriers like UPS and FedEx have specific surcharges for certain types of deliveries. These surcharges can add up, but understanding them can help you plan better for your shipping expenses.
Some common surcharges include:
- Residential delivery surcharge: If you're shipping to a residential address (rather than a business address), you may pay extra.
- Address correction surcharge: If a customer provides an incorrect address, it might cost you a fee to correct it.
- Peak season surcharge: During busy times like holidays, you might incur higher fees due to increased demand.
To minimize costs, always double-check addresses, consider shipping to business addresses, and keep an eye on any seasonal surcharges that may pop up.
13. Transit Time
Transit time refers to the time it takes for a shipment to travel from the point of origin to its destination. This is crucial for meeting customer expectations. Understanding the different transit times of your carriers will help you set accurate delivery windows for your customers.
Most carriers provide estimated transit times based on the type of service you select (e.g., Ground vs. Air), but keep in mind that delays can happen—weather, customs, or even high shipment volumes during the holiday season can affect delivery dates.
14. Parcel Consolidation
Parcel consolidation is a process that combines multiple smaller shipments into one larger shipment, typically for international shipping. This can save you money because you're combining packages and shipping them together to reduce overall costs. Once the shipment arrives at a regional hub, the packages are split and sent to their final destinations.
For small businesses shipping internationally, parcel consolidation can help reduce costs on multiple smaller shipments.
15. Customs Duty and Brokerage Fees
When you’re shipping products internationally, customs duties are taxes that a government imposes on imported goods. As a small business, you’ll need to be aware of the customs regulations for the country you're importing to or exporting from. You might also encounter brokerage fees, which are charges from a customs broker for handling the customs clearance process.
Understanding these fees will help you factor in the true cost of international shipping and avoid surprises when products arrive.
16. ETA (Estimated Time of Arrival)
The Estimated Time of Arrival (ETA) is exactly what it sounds like: an estimate of when your shipment will arrive at its destination. While it’s not always 100% accurate (especially for longer shipments), knowing the ETA will give you a rough idea of when your customers can expect to receive their products.
Keep in mind that unforeseen delays (like weather, labor strikes, or customs issues) can affect the ETA, so it's always a good idea to communicate with your customers if anything looks off.
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