Shipping and Handling: What It Includes, How Costs Are Calculated, and How to Control Them

Dec 29

Shipping and handling covers everything required to move an order from your warehouse to your customer’s door. While it often appears as a single fee at checkout, it is actually the combined cost of labor, packaging, inventory handling, carrier transportation, and execution overhead.

For growing ecommerce and omnichannel brands, shipping and handling is one of the largest and most misunderstood cost centers. It directly affects margins, delivery speed, customer satisfaction, and the ability to scale. This guide breaks down what shipping and handling really includes, how to calculate it accurately, how different pricing models work, and when in-house operations stop making sense.

What Shipping and Handling Actually Means

Shipping and handling is the operational process of preparing an order for delivery and transporting it to the end customer. It begins the moment an order is released for fulfillment and ends only when that package reaches its destination or is returned.

Many businesses think of shipping and handling as “the shipping label.” In reality, the label is often the smallest and most visible part of the cost. Most of the expense happens before the package ever leaves the building.

Shipping and handling includes:

Locating inventory
Picking items from storage
Packing and protecting products
Labeling and manifesting shipments
Moving cartons to outbound lanes
Handing off orders to carriers
Managing exceptions, delays, and returns

When these steps are inefficient, shipping and handling costs rise even if carrier rates stay flat.

Shipping vs Handling: Why the Difference Matters

Shipping and handling are closely related, but they are not the same thing. Treating them as one cost often hides where money is actually being lost.

Shipping refers to the cost charged by a carrier to transport a package.
Handling refers to the internal work required to prepare that package for shipment.

Shipping vs Handling Breakdown

  
      Component
      What It Covers
      Primary Cost Drivers
    
      Shipping
      Carrier transport
      Distance, zone, weight, dimensions, service level
    
      Handling
      Warehouse execution
      Labor time, packaging, layout, process efficiency

A brand with excellent handling efficiency but poor shipping strategy may overpay carriers. A brand with discounted carrier rates but inefficient handling often loses more money on labor and errors than it saves on postage.

What Goes Into Shipping and Handling Costs

Shipping and handling costs are the sum of multiple operational inputs. Understanding each one is the first step toward controlling total cost.

Labor and Execution Time

Labor is often the largest handling cost. Every order requires time to:

Locate inventory
Pick items
Pack products
Apply labels
Stage shipments

Even small inefficiencies compound quickly at scale. An extra 30 seconds per order becomes hours of labor every day.

Packaging Materials

Packaging includes:

Boxes or mailers
Dunnage and protective fill
Tape and labels
Inserts or documentation

Oversized boxes increase dimensional weight charges. Under-protected packaging increases damage and returns. Both raise total shipping and handling cost.

Carrier Rates and Surcharges

Shipping costs vary based on:

Shipping zone
Package weight and dimensions
Delivery speed
Residential delivery fees
Fuel and peak surcharges

Carrier pricing is dynamic. What works at low volume often breaks down as order counts grow.

Storage and Overhead Allocation

Handling costs also include indirect expenses such as:

Warehouse rent
Utilities
Equipment and shelving
Software systems
Insurance and compliance costs

These costs do not disappear simply because they are not visible at checkout.

Returns and Reprocessing

Returned orders add a second round of handling:

Receiving and inspection
Restocking or disposal
Refund processing
Repackaging

Ignoring returns in shipping and handling calculations leads to inaccurate margins.

How to Calculate Shipping and Handling Costs Step by Step

Accurate shipping and handling calculations focus on averages, not perfect precision. The goal is to understand true per-order cost.

Step 1: Define Your Delivery Methods

List the delivery options you offer:

Standard ground
Two-day delivery
Expedited or overnight
International shipping

Each option has different carrier and execution costs.

Step 2: Estimate Shipping Costs

Use historical carrier data to calculate:

Average shipping cost per order
Cost by zone
Cost by service level

Remember that carriers charge based on the greater of actual weight or dimensional weight.

Step 3: Calculate Handling Cost per Order

Add up monthly handling expenses:

Fulfillment labor
Packaging materials
Warehouse overhead

Then divide by average monthly order volume.

Example:

Monthly handling expenses: $20,000
Monthly orders: 4,000
Handling cost per order: $5

Step 4: Combine Shipping and Handling

Shipping + Handling = Total fulfillment cost per order.

This number is what matters when setting pricing, free shipping thresholds, or margin targets.

Common Shipping and Handling Pricing Models

There is no universal best model. The right approach depends on margins, order profiles, and customer expectations.

Flat-Rate Shipping

Customers pay a fixed fee per order.

Pros

Simple
Predictable

Cons

Overcharges some customers
Under-recovers costs on others

Free Shipping Thresholds

Shipping cost is embedded in pricing or triggered by minimum order value.

Pros

Increases average order value
Reduces cart abandonment

Cons

Can erode margins if thresholds are set too low

Real-Time Carrier Rates

Checkout shows actual shipping cost.

Pros

Transparent
Accurate

Cons

Higher cart abandonment
Less control over conversion

How Shipping and Handling Affects Conversion and Margins

Shipping and handling decisions directly influence buying behavior.

High fees at checkout are one of the leading causes of cart abandonment. At the same time, absorbing shipping costs without understanding handling expenses quietly erodes margins.

Key tradeoffs include:

Faster delivery vs profitability
Free shipping vs margin control
Transparency vs conversion optimization

Strong brands model these tradeoffs instead of guessing.

Operational Challenges That Drive Shipping and Handling Costs Up

Most shipping and handling cost problems are operational, not carrier-related.

Inefficient Warehouse Layouts

Long travel paths increase pick time. Poor slotting forces unnecessary movement.

Manual Packing Variability

Inconsistent packing slows throughput and increases errors.

Late Carrier Cutoffs

Missed cutoffs push orders into faster, more expensive services.

Poor Inventory Placement

Inventory stored far from packing stations increases labor cost per order.

Weak Returns Processes

Returns handled manually consume labor and reduce usable inventory.

When In-House Shipping and Handling Stops Scaling

In-house fulfillment works early on. It breaks down as volume grows.

Warning signs include:

Staff spending most of the day packing orders
Rising error rates during peaks
Increasing overtime costs
Limited ability to offer fast shipping
Difficulty expanding into new regions

At this point, shipping and handling becomes a growth constraint instead of a support function.

When Outsourced Fulfillment Makes Sense

Outsourcing shipping and handling is not about giving up control. It is about shifting execution to systems designed for scale.

Well-run fulfillment operations provide:

Faster order processing
Better shipping rates
Distributed inventory placement
Scalable labor
Integrated returns handling

For many brands, this transition happens when shipping and handling consumes more management time than product development, marketing, or customer experience.

FAQs

What does shipping and handling include?

It includes labor, packaging, inventory handling, carrier transportation, and execution overhead required to deliver an order.

Why is shipping and handling so expensive?

Costs rise due to labor, packaging, dimensional weight pricing, fuel surcharges, and returns processing.

How much should I charge for shipping and handling?

It should reflect average per-order shipping and handling cost while supporting conversion and margin goals.

Is shipping and handling taxable?

Taxability depends on jurisdiction and whether charges are combined with product pricing.

Final Thoughts

Shipping and handling is a system of execution decisions that shape cost, speed, and customer experience. Brands that understand and manage it as an operational discipline gain a meaningful advantage as they scale.

For teams that want reliable execution without adding operational complexity, Rush Order supports high-volume shipping and handling through coordinated fulfillment workflows. Get a quote to see how predictable execution improves margins and on-time delivery at scale.

Shipping and Handling: What It Includes, How Costs Are Calculated, and How to Control Them

What Shipping and Handling Actually Means