Operations

How Is Residential Shipping Different From Commercial Shipping?

7 min read
Feb 22, 2021

Knowing the differences between commercial and residential shipping can save you significant shipping costs.

Harshit Srivastava Sr. Content Analyst

Ever wondered: Why does your shipping provider charge differently for addresses located next to one another? Why does the cost of delivery for different shippers vary so much?

That’s because shipping costs differ for commercial and residential addresses, and understanding this concept of residential vs. business shipping is essential to ensure the profitability of your eCommerce business. This knowledge also lays the foundation for some effective ways to reduce shipping expenses that your business incurs.

In this article, we’ll discuss the fundamental differences between the two types of shipping and provide you with insights on how you can use this knowledge to your advantage.

But before we go ahead and list their differences, let’s touch upon what each type of shipping includes.

What is residential shipping?

In residential shipping, your products are delivered to a home or private residence. In some cases, residential shipping also includes business deliveries, if the business is operated from a residential address.

Residential shipments usually include an additional residential surcharge over the cost of transportation, which makes them more expensive than business shipments. 

What is business shipping?

In business shipping, aka commercial shipping, the order is delivered to a business address, which could be a retail store, hospital, farm, church, factory, and so on. Shipping to a business location is less complex than residential shipping (more on that later on), and is, therefore, cheaper than shipping to a residential address.

How do shipping companies differentiate between commercial and residential addresses?

Shipping companies classify an address as residential or commercial using one of the following approaches:

  • Location: Some shipping companies classify addresses based on areas they are situated in. For instance, if an area has a lot of retail stores and restaurants, then that entire area can be designated as commercial. Some providers also classify multi-story apartments as commercial properties.

  • Commercial activities: Some shipping companies categorize an address as residential or commercial based on whether or not the property is used for commercial activities.

  • Government-designated zones: Some shipping companies mark an area as commercial or residential based on how state and federal governments classified the area. For instance, properties located in government-designated industry zones can be classified as commercial, even if they are meant for residential purposes.

Why the price variation between residential and business shipping?

For a shipping provider, delivering to residential customers will involve more complexities than shipping to businesses. Why?

Because businesses are usually concentrated in commercial locations, which makes it easier to send parcels to multiple addresses simultaneously. This means, when you send orders to a business park, your shipping provider can club all the packages to be delivered to offices in that park and dispatch just one mini-truck.

On the other hand, residential locations are scattered across a wider geographical area. Attempting delivery, therefore, adds complexities for your shipping provider.

Instead of sending a semi-trailer, the provider has to send several smaller delivery vehicles to cover the large area and all deliveries. It’ll also take more time and need more personnel to locate each address.

The added complexity has two implications. While the cost of shipping for a residential address will be higher, it will also take more time to complete the order. And to make up for the additional costs, the shipper will levy an additional residential surcharge for residential orders.

Key differences between residential and commercial shipping

Key differences between residential and commercial shipping

Smart ways to minimize your shipping costs

Residential deliveries add significant costs to your business. However, there are some approaches you can use to reduce delivery charges. In some cases, you’ll be able to bypass the residential charges altogether, even if your business is shipping to a residential area.

  • Identify shipping providers for whom the delivery area falls under residential shipping: The same address can be labeled as commercial for one provider and residential for another. Using a shipping services provider that labels a majority of your delivery addresses as commercial can save you significant costs on shipping.

  • Compare multiple options when deciding your shipping providers: Not all shipping companies charge the same. You may be surprised to learn how sharply the cost of delivery varies from one provider to another.

  • Use shipping management solutions: These software solutions provide you with data on the real-time cost of shipping from different providers. With this information, you’ll be able to compare the final shipping costs and decide on the provider that quotes the lowest.

Comparing shipping charges in ShipStation Rate Calculator

Comparing shipping charges in ShipStation (Source)

As you can see in the screenshot above, the software provides you with detailed information on shipping costs for three different providers—FedEx, US Postal Service (USPS), and UPS. This enables you to compare shipping costs from the three providers and identify the most cost-effective option.

Pro tip:

While the cost is an important factor in deciding your shipping provider, there’s another factor that you shouldn’t ignore: timeliness. Frequent delays in customer orders negatively impact customer experience and, therefore, future business prospects. For this reason, always select the provider that has a good reputation for punctuality.

Selecting the right shipping solution to minimize delivery costs

If you want to select a shipping solution with the goal of saving money, you should invest in a tool that offers the following two features:

  • Multi-carrier support: Lets you divide and manage orders with multiple shipping services such as DHL, UPS, USPS, and FedEx. Also allows you to automate the process of documentation such as printing shipment labels and creating custom declarations.

  • Shipping rate calculation: Allows you to view the total cost of delivery for each shipping provider that the software supports. This functionality enables you to consider a wide range of criteria, including cubic dimensions, insurance costs, and residential surcharges.

With many shipping solutions out there, finding the right product for your business can be a daunting task. Our shipping software catalog is a good place to start your software search. On this page, you’ll be able to filter shipping solutions based on criteria such as features, pricing models, and integrations.

You can also access our Category Leaders report for shipping solutions, which lists top software solutions based on functionality, data security, and ratings from real software users.

Note:

The applications selected in this article are examples to show a feature in context and are not intended as endorsements or recommendations. They have been obtained from sources believed to be reliable at the time of publication.

About the author

Harshit Srivastava

Sr. Content Analyst

I’m Harshit Srivastava, a Senior Content Analyst at GetApp. I bring you insights about marketing, manufacturing, and operations. I studied Engineering at BITS Pilani (India) and have seven years of technology research experience. I live in Gurgaon, India. When I’m not researching, I'm learning Spanish guitar and jamming with like-minded musicians. My tech trends to keep an eye on: Micro-influencer marketing, adoption of AR and VR in manufacturing, and the rise of smart machines in manufacturing.

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