As an online seller, you may have noticed that shipping fees for residential addresses are higher than commercial ones. Continue reading to find out why this is the case, and what you can do to avoid these type of fees.

The reason residential delivery costs more? Last mile shipping. 

Most of the commonly used shipping carriers add a last mile shipping surcharge when delivering to residential addresses. This last mile shipping fee is the main reason why it’s more expensive to deliver to residential addresses.

“Last mile” refers to the cost of delivering a parcel over the last leg of it’s journey to the customer. This is generally from a facility or distribution center to the customer’s preferred delivery address.

According to a report from McKinsey & Company, last mile delivery services make up at least 50% of a parcel’s total delivery price.

Carriers like UPS who compete on price and delivery options have a vested interest in mitigating the costs associated with last mile delivery.

Residential addresses are far flung and spread out, and generally have more overhead costs. Plus, it takes more time, consumes more gas and does more wear and tear on vehicles.

Carriers may also have to perform services like address correction for residential addresses. This also adds time and administrative costs to the delivery.

What about commercial deliveries?

On the other hand, commercial addresses are a carrier’s dream.

Commercial addresses are generally in high-density areas. This allows a carrier to bundle many deliveries in a small geographic area.

Carriers may even be able to deliver multiple packages to the same address. And if not, they are probably at least delivering to other businesses nearby.

It’s this “delivery density” drives carrier costs down.

There’s also usually someone available to receive or sign for the package when delivering commercial.  Carriers likely can deliver on the first attempt and won’t have to return the package to a hub. 

Can you avoid residential delivery fees?

As an eCommerce merchant, you are likely paying a residential surcharge every time your customer has a shipment delivered to their residence.

Here are a few ways you can avoid this:

  • Integrate a way for customers to pick up their packages. UPS Access Points are conveniently located and secure. They also often offer later pickup hours and can help you avoid paying or passing along the residential surcharge to your customers.
  • Incentivize the customer to enter a business address. Offer your customers a discount or faster shipping if they do so.
  • Ask the carrier to waive the fee during your annual negotiation. Go in armed with your shipping costs. If you are a loyal customer who uses one carrier for all your small package deliveries, they may waive this fee in order to retain your business.

For Further Reading

ShipperHQ can help you assess your current shipping strategy and offer your customers more options like these.

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