PARCEL
JANUARY-FEBRUARY 2015 www.PARCELindustry.com
PACKAGING IS KEY, BUT ARE YOU INVESTED IN THE OVERALL PROCESS? P 18
TURN THE NEW DIM REGULATIONS INTO PROFITABILITY! P 20
PARCEL SPEND MANAGEMENT: A SOLUTION IN THIS RAPIDLY CHANGING INDUSTRY. P 24
TIPS AND TRICKS TO IMPROVING YOUR BOTTOM LINE
PARCEL
CONTENTS
JANUARY-FEBRUARY 2015 | volume 22 | issue 1
Features
Departments 06 Editor’s Note
2015: A Year of Changes By Amanda Armendariz
07 Transportation ABCs
What Can Pilot Wisdom Teach the Parcel Industry?
By Michael J. Gravier
08 Spend Perspectives
A Year for Cautious Optimism for Retailers
By John Haber
09 Supply Chain Pivot Pipeline Implications
By Rob Shirley
18 Packaging Is Key
Investing in the overall packaging process By Philip McAndrew
10 Operational Efficiencies
Order Picking: The Eye of the Storm By Susan Rider
12 Ship Right
Six Ways to Build a Smarter Returns Strategy in 2015
By Christoph Stehmann
14 Supply Chain Success 20 Turning the New DIM
Rates into Profitability
24 Parcel Spend
Management: An Effective Solution in a Rapidly Changing Industry
Paying attention to your packaging can pay off in more ways than one!
By Mike Lambert
Ed Romaine
26 Boots on the Ground: Delivering the Final Mile Solution
By Andrea Obston
Suspension of HOS Rules Has the Potential to Reduce Freight Costs
By Eric Grice
30 PARCEL Counsel
The Foreign Corrupt Practices Act: A First Look
By Brent Wm. Primus, JD
Application Articles 23 PITT OHIO
Regional Small Package Carriers Are Providing A Valuable Alternative
29 U.S. Cargo
Customers Want a Personalized and Customized Approach with Their Small Package Shipping
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JANUARY-FEBRUARY 2015 | www.PARCELindustry.com
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5
EDITOR’S NOTE BY AMANDA ARMENDARIZ
2015: A Year of Changes t seems that the parcel industry is always changing, but 2015 appears to be bringing more changes than previous years. The new DIM weight requirements are one of the most noticeable changes that has the potential to greatly impact a majority of shippers. When FedEx and UPS first announced the revision to their DIM rates at the end of last year, shippers were worried — and understandably so. Shipping is already one of the factors that can most greatly affect a retailer’s bottom line, and with the new rates, the impact becomes even greater. But while it’s easy to understand the impact of the new rates on a shipper’s profit margins, mitigating the impact is a lot more difficult. Which is why this issue of PARCEL is dedicated to helping you not only make sense of these new changes, but also reducing their impact on your operation. You’ll notice we’ve dedicated several pages to the importance of your packaging operation; it goes without saying that paying attention to your packages is one of the biggest ways to avoid paying the extra charges associated with the new DIM weight rules. There is a myriad of options; check them out and see what works best for your operation! And since our biggest mission here at PARCEL is to educate, I want to remind everyone that our Call for Speakers for the 2015 PARCEL Forum is now open. You should have received an email from us prompting you to submit a topic you’d be interested in presenting. So if you have an educational session you’d be interested in sharing with your peers, be sure to submit the form today! As always, thanks for reading PARCEL.
Are you signed up for our e-newsletter? If not, what are you waiting for? As of press time, these were some of our most popular articles from recent e-newsletters:
• One Expert’s Opinion on the FedEx Rate Increase • FedEx to Increase Fuel Surcharges on All Products Effective Feb 2, 2015 • Don’t Sweat It — Black Friday Isn’t Everything To get great articles like these emailed to you on a monthly basis, just scan the QR code above, or go to www.PARCELindustry.com and click on the “Newsletter” tab a the top of the page.
Thursday’s Tip
Have you signed up for our Thursday’s Tip feature yet? If not, you’re missing out on some great information emailed to you every week! Don’t worry, we know you’re busy, so these tips are brief and easy to read — but yet much-needed information for any transportation professional! All you need to do is sign up for our e-newsletter and you’ll get this information emailed to you the third Thursday of the month (plus an occasional extra one when we have some pressing news!).
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TRANSPORTATION ABCS BY MICHAEL J. GRAVIER
What Can Pilot Wisdom Teach the Parcel Industry? arcel folks seeking wisdom could learn a lot from an unexpected source — the cockpit! Much like supply chain management today, the 1930s were a time of transition for air transportation from its pioneering days to an established industry. What follows are modern interpretations of the Ten Commandments for airline pilots published in the May, 1939 issue of Aviation (now know as Aviation Week & Space Technology). DON’T SHOW OFF: Originally an admonishment against hot dog flying, in modern business language this would be: “Don’t show off — show up!” Nobody appreciates someone who steals the limelight, or squanders resources. Instead of showing off what you can do for your boss, or your company can do for a customer, show up with a professional attitude and offer a smart alternative. KNOW YOUR LIMITATIONS: Don’t over-promise to your customers. Too often managers succumb to the temptation to promise more to get the deal. Set realistic expectations early, deliver consistently on those expectations, and when you beat them, your efforts will be that much more appreciated. DON’T TAKE THINGS FOR GRANTED: Nobody will resent you checking on the details, whether it’s your supplier, customer, co-workers, or subordinates. If they have things covered, it’s an important oppor-
tunity to reinforce rapport and keep you situationally aware. GET AWAY FROM HOME: This refers to leaving your comfort zone. Good managers should challenge themselves to apply their skills in new situations and also to learn new skills. You never know when you might have to seek a landing in a strange airport, but keeping yourself sharp on basic skills and principles in your job ensures that you will succeed no matter where you go. WATCH YOUR WEATHER: Take the time to step back and look at the big picture in your environment. What trajectory is your industry on? What about your company? Or your customer’s industry and financials? Storms can be sudden and unpredictable, but most weather gives warning, and forewarned is forearmed. STUDY THE REGULATIONS: Know your business. Some rules should never be violated, such as safety rules. There’s no excuse for a worker or customer getting hurt due to ignorance. Whether safety or managerial in nature, most mistakes result from ignorance of established regulations and procedures. CHOOSE YOUR FRIENDS: Be careful who you listen to. This commandment originally served as a warning that some fellow pilots’ stories of aviation derring-do were likely made up, and dangerous. This advice for modern logistics managers is still good: be careful who you choose to imitate, and the “glory days” likely weren’t all that glorious if they involved a lot of “living on the edge.”
THINK AHEAD: We can leave this one verbatim as it was written in 1939: “Take time out to consider all possible things that may happen to you and decide in advance just what you will do under all circumstances.” SET A GOOD EXAMPLE: No matter where you are in a business, there’s always someone looking up to you. This may be a younger co-worker, a tired boss, or a customer. You never know who you can inspire to do what’s right, and likely they’ll return the favor. Be the person who others would trust to imitate. Those 10 commandants ended with this last bit of advice which I leave for you to interpret on your own: FLY HIGH – FLY FAST – KEEP YOUR NOSE DOWN ON TURNS!
DR. MICHAEL GRAVIER, PhD, CTL, is an Associate Professor of Marketing and Supply Chain Management at Bryant University in Providence, RI. He is also the 1st Vice Chair of the Institute for Supply Management’s Logistics & Transportation Group and can be reached at mgravier@bryant.edu or 401.232.6950. Membership in the L&T Group is open to all current ISM members who are responsible for or have an interest in Logistics & Transportation. Group Board Members are current practitioners, consultants, trainers, and educators.
JANUARY-FEBRUARY 2015 | www.PARCELindustry.com
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SPEND PERSPECTIVES BY JOHN HABER
A Year for Cautious Optimism for Retailers etail sales remained resilient in 2014 with an overall projected growth of 4.0% despite inclement weather, labor issues that plagued the West Coast ports and early inventory buildups. FedEx cited the West Coast labor issues as a primary cause for missing quarterly earnings and as of mid-January the issues still had not been resolved. Many retailers were publicly bullish over holiday season sales; however, the actual sales numbers demonstrate consumers behaving cautiously as we move into 2015. According to the Department of Commerce, December reported a 0.9% decline in retail sales as compared to November. Sales results were classified by leading economists as “weak” especially considering the massive drop in gasoline prices in Q4 2014. Macy’s and JCPenney announced positive sales results for the nine-week holiday period between November and December. Macy’s sales were up 3.6% and JCPenney sales increased 3.7%. In addition, Mastercard noted that overall sales were up 5.5% from Thanksgiving weekend through Christmas Eve. Despite these favorable results, both Macy’s and JCPenney have announced brick and mortar closures. The growth of online sales is beginning to impact the look, shape, and function of these physical store locations. IKEA announced in January the opening of new stores in Canada that are specifically designed to target customers preferring in store pick-up for online order delivery options. 8
Considering these results, what will 2015 bring for retailers? Retailers are facing mounting competitive pressure to offer a variety of options to customers such as free shipping, same and/or next day delivery and in-store pick up. With 2015 parcel shipping rates projected to realize the largest increases in decades, will retailers be able to continue to offer such options? In early January, labor groups for the West Coast ports agreed to federal mediation, prolonging the uncertainty of goods arriving on time. Will retailers rethink their inventory replenishment strategies? Will the economy continue to improve? These are among the numerous questions retailers are facing as they enter 2015. As the glow from the 2014 holiday season fades into 2015, retailers are trying to extend their holiday success by continuing sales into the New Year. The holiday season was one of fierce competition and heavy promotions as retailers offered free shipping and extended days in which to shop online and receive gifts in time for Christmas. As a result, retailers’ profit margins were pressured. Gift cards proved to be another popular method by which to lure shoppers into stores. However, roughly $1 billion worth of gift cards will go unused in 2015, according to CEB TowerGroup. Many recipients either lose them or can’t figure out what to buy. Gift cards are often given as currency for returns, and those returns then become part of the peak season for reverse logistics. While returns are certainly another method of attracting consumers back into stores, it also is costly for retailers. How to manage these effectively while maintaining profitability is a question on many retailers’ minds. UPS announced it would handle over four
JANUARY-FEBRUARY 2015 | www.PARCELindustry.com
million returns during the first full week of January. The delivery giant designated January 6 as ‘UPS National Returns Day,’ and expected to return more than 800,000 packages to retailers and merchants. Unfortunately, according to a recent NRF survey, 5% of all holiday returns will be fraudulent and will result in a projected loss of $3.8 billion. Even as retailers consider their promotional activities, inventory replenishment trends are changing. Improved visibility, garnered by advancements in inventory management systems, has permanently changed replenishment calendars. IT investments have resulted in retailers gaining more insight into available inventory within fulfillment centers and stores. As a result, retailers are waiting longer to place orders with manufacturers and suppliers. However, retailers still need to be aware of possible risks such as the US West Coast port situation and be able to adjust transportation needs accordingly. Still, despite uncertainty surrounding rising costs and profitability concerns, retailers are optimistic for 2015. In order to fully benefit from the improving economy, retailers will need to focus on cost containment and improve profitability. Supply chains need to be optimized in order to compete effectively against a growing list of competitors both on and offline.
JOHN HABER is an expert in shipping, freight and transportation spend management. In his current role he provides the vision, and the execution knowhow, that helps companies save 10% to 20% or more in logistics spend. Contact him at jhaber@ spendmanagementexperts.com.
SUPPLY CHAIN PIVOT BY ROB SHIRLEY
Pipeline Implications ransportation has five key modes to move materials: Air, Rail, Road, Water and Pipeline. Pipeline has become increasingly more visible as the Keystone Project from Canada to Texas has become controversial. Fracking shale has moved into a real ongoing supply of oil and reminds us what gushers were all about. Pipelines require both an expensive investment and a length of time to pay back the investment and become profitable. As oil recovery has grown in areas like the South Texas Eagle Ford Shale and North Dakota Shale it has created a boom in both economies, disrupted OPEC’s demand and distribution, and is being transported by rail, truck and pipeline. AS THE MARKET SHIFTS HERE ARE SOME OF THE IMPACTS: 1. The USA considers allowing exports of oil (that were outlawed in the early 1970s) 2. The customer and vendor of major volumes of oil is changing rapidly. Alignments that were unheard of are being created and sometimes business leads to other strategic alignments. 3. The book value of major energy companies has fallen 4. Railroads volume, pricing and value are all rising 5. Trucking companies are moving into move oil quickly too 6. Railroads’ revenue is rapidly accelerating 7. Exports from Nigeria have dropped from one million barrels a day to the USA to zero while the price of oil has fallen almost in half as of mid-December
8. The biggest beneficiaries are the carriers in four modes: air, road, rail and pipeline. Ocean transport is at the other end of this spectrum with 100+ oil tankers in dock. 9. Impacts to the carriers of the small package industry are lower cost of gasoline, diesel and aviation fuel on an immediate and for long contracts basis. 10. Consumers are personally seeing a reduction at the gasoline pump too Carriers who have surcharged for fuel for years are suddenly trying to figure out how to make money on a fuel decrease and keep customers happy at the same time. I think we will see some significant benefits by carriers during the fourth quarter because of the massive holiday shipping based on one set of fuel pricing vs. the cost dropping significantly. Meanwhile another wave of rate increases is already in motion the first business day of January. The combination is powerful for carriers. The saving will take a while to improve the bottom line for shippers, but it will certainly be buoyant to anyone providing free or practically free delivery like Amazon, Google, workshare partners with USPS and beneficial to independent contractors who work for package carriers. A FEW INTERESTING TWISTS ABOUT PIPELINES: 1. In 1867, Alfred Ely Beach had elaborate designs to build a subway system in New York City. Boss Tweed was in power and was totally against it. Beach “positioned” the system by saying it was a diagram of an underground map designed to ship mail for the USPS through pneumatic tubes. Tweed bought the tale, the bill was passed and the rest is history, with a
thriving subway that still serves the five boroughs in NYC. 2. The first real pneumatic tube system for mail was actually built in 1883 in Philadelphia. NYC built one in 1897 that started as only 3,750 feet; it grew and lasted for over a half century until 1953. It was extensive and could transport mail from midtown to Harlem in 20 minutes. It also had a tube over the Brooklyn Bridge to Brooklyn. 3. Elon Musk, the founder of PayPal, Tesla and SpaceX recently suggested a pneumatic tube from San Francisco to Los Angeles to move people 500 miles. He called it Hyperloop and suggested that aluminum pods would hold people in a large double barreled shotgun style, exceed 800 miles an hour, make the trip from Silicon Valley to Los Angeles in 30 minutes and be solar powered. 5. There was some serious analysis on the creation of a water pipeline that would lie on the Pacific floor from AK to Los Angeles proposed by the Governor of Alaska in 1991. It was proposed to be 35 feet wide, require four underwater aqueducts and was widely discussed the last time there was a heavy drought in CA with a target to deliver a trillion gallons of water a year. We will all enjoy the freebie of an energy cost reduction. My instinct tells me it will swing the other way and we should continue to reduce use of energy that harms our environment.
ROB SHIRLEY is CEO of ExpresShip, a strategic consultancy in the global supply chain. Contact him at rob@xpship.com or visit www.xpship.com.
JANUARY-FEBRUARY 2015 | www.PARCELindustry.com
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OPERATIONAL EFFICIENCIES BY SUSAN RIDER
Order Picking: The Eye of the Storm rder picking in most facilities is where all the action is and it is usually where the greatest opportunity is found. Does your order picking process have room for improvement? Usually the answer is yes. One of the first thoughts is training. When was the last time an overall training program was completed? Do order pickers know why they are doing steps? If they don’t, many may find them irrelevant and skip the process thinking there is no harm. A typical distribution center will experience between 50-60% turnover rate in this area per year (yes, I know many facilities have much higher rates, I was trying to be kind). With that kind of high turnover, a training program is not suggested but instrumental in the success of productivity and accuracy. Especially if you have a WMS, pick to light, carousels, or any type of automation or software. If your system was installed more than three years ago, the odds are not one person remains that was there during the initial training. Therefore, the nice bells and whistles that you paid good money for in the system you selected are probably not being utilized. Another area of improvement is second or third shifts. Many times the productivity/accuracy rates are lower on these shifts and managers seem to be okay with the phenomena. Why? Your team should be productive or accurate whether it’s light of day or dark. So work on building that team. My favorite area is attitude. Okay, I see you rolling your eyes! But in many 10
facilities I walk into there is this attitude about the order pickers like they are second class citizens, and that attitude promotes a complacency that is prevalent in the area. They think no one cares, so why should I bother to do a good job? This is a management issue that many Vice Presidents don’t even know exist. When was the last time you walked the floor or picked an order? Do you have a recognition or affirmation program? Seriously, do you spend more time catching people doing things right or do you focus on catching them doing things wrong? Accountability is another gold nugget. In the early days of pick to light it was not uncommon to get at least a 50% increase in productivity. One of the tangible gains was from accountability. Accountability is why labor management systems are so popular. They give you total accountability and if employees know that you will know everything they have done, they have a different mind set. Whether you have a manual system or an automated system accountability is a huge key for productivity and accuracy. If you don’t know who picked every order every time, start today with a manual system to accomplish accountability and down the road look to an automated system. Start a KPI (Key Performance Indicators) or benchmarking program; it will pay dividends. Slotting is another nice-to-have product or system. Many people do a poor job reviewing their slotting needs and just buy a product only to find it on the shelf a year later. What are your real slotting pains, and what can you do to improve them? A great example is the golden zone. Do you need sophisticated slotting software to put your fast movers in the golden zone? No, a simple spreadsheet
JANUARY-FEBRUARY 2015 | www.PARCELindustry.com
and a little management guidance will work fabulously. Review your slotting today. Look for fast movers on the bottom. If you have a fast mover on the bottom of a gravity flow rack and you are making an order picker bend every time they pick it, over a period of a couple of hours productivity will go down over 10% and, depending on volumes, it could be more. Think about where that productivity is at the end of the shift. Do you have someone else slotting the product besides the order fillers? Is that person’s bonus based on the productivity of the order fillers? It should be! This is a common problem. Receiving usually slots the product and, quite frankly, many times they just do not care where they put the product because they aren’t the ones picking it. Lastly, don’t underestimate the value of another view. Your team gets so used to doing what they are doing that they overlook the obvious. Have someone from the outside perform an operational audit; odds are you’ll find lots of gold nuggets! It’s a good time to reorganize, review and reenergize your facility. Review your process flow and see how many touches or travel time you can remove from your processes. Remember just the smallest improvement that may only be one minute compounds to big savings at the end of the year.
SUSAN RIDER, Supply Chain Consultant, Executive/ Life Coach can be reached at susanrider@msn.com.
Q: HOW MUCH DOES THIS 1-POUND BOX WEIGH? A: 11 POUNDS, IF YOU USE THE WRONG SHIPPING COMPANY. Something is different this year: Some shipping companies are trying to box you in by expanding their use of Dimensional (DIM) Weight Pricing. That means you pay for your domestic package’s actual weight or its dimensional weight — whichever is greater. For example, you could be billed the 11-pound rate for this 1-pound box because of its 12"x12"x12" size. That could get expensive. But you have a choice: The USPS® continues to offer a broad range of efficient and economical shipping options. Because we understand that one size does not fit all.
To weigh your shipping options go to usps.com/pickyouroptions
12"
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Privacy Notice: For information regarding our privacy policies, visit www.usps.com/privacypolicy. ©2015 United States Postal Service®. All Rights Reserved. The Eagle Logo is among the many trademarks of the U.S. Postal Service®.
RB-COMP-A-PARCL
SHIP RIGHT BY CHRISTOPH STEHMANN
Six Ways to Build a Smarter Returns Strategy in 2015 eturns have a long history of being a pain point for retailers. In 2013, returned goods cost US retailers more than $267 billion in lost revenue, according to an industry report by The Retail Equation. Also, while holiday shopping can bring stores as much as 40% of their annual sales, retailers can see triple the average number of returns, according to Plunkett Research. In addition, returns matter to consumers. According to a recent survey by the National Retail Federation, approximately 55% of consumers said flexible returns are very important when it comes to shopping online. These statistics underscore just how important returns are in a retailer’s overall strategy and how they can impact their bottom line. So how can US retailers build an effective returns strategy and use this to gain a competitive edge? Retailers should not only consider looking at local marketplace trends, they should look at global trends to see how retailers are handling returns in other markets. NEW OPPORTUNITIES IN EUROPE In June 2014, the Consumer Rights Directive went into effect in the European Union (EU). The new legislation offers strengthened and harmonized consumer protection rules across European countries, regulates distance selling across the EU and will help encourage cross-border ecommerce development for retailers. 12
It also provides greater flexibility to retailers on their returns policies. For instance, in Germany where merchandise return rates are high, consumers were responsible for covering costs for returning products that had a value of less than EUR 40. Under the new rules, the limit was removed, which means the costs for return shipments can be charged to the customer, regardless of the value, provided he or she was informed appropriately before the order was made. Retailers can also still opt to cover the costs for returns to help attract and retain customers. Online retailers such as Amazon, Otto and Zalando are doing just this and using free returns as a competitive differentiator. Ikea also just recently started offering lifelong returns to customers on the majority of its products in Germany. Given these shifts in the retail landscape, smaller retailers who opt to charge customers for returns or limit the timeframe for returns may find themselves at a disadvantage. THE US MARKET LANDSCAPE In the US market, the medium return rate is three percent, according to the 2014 Internet Retailer Top 500 Guide. This is based on data from 94 of the Top 500 retailers that provided information. According to our recent research, about half of US shoppers have returned an online purchase through the mail. That means retailers are not only paying to send goods out to consumers, they’re often paying for packages to come back into their distribution network. Overall, apparel, shoes and electronics retailers continue to experience higher return rates. This is not surprising since many consumers have to wait to try on
JANUARY-FEBRUARY 2015 | www.PARCELindustry.com
clothes and shoes for fit and feel. Also, testing electronic items in person makes a difference. Traditionally, most retailers give customers at least 30 days to return items. However, several retailers have a 90-day return policy, including Target, Toys ‘R Us and Walmart, for most items. Some retailers also offer a free return policy with no time limit, like Kohl’s, Nordstrom and Lands’ End. These retailers are also widely recognized for having high customer satisfaction and stand out for customer service. To the extent returns cannot be avoided, retailers need to streamline the process by providing return labels, entering information on returns back into their systems early, and efficiently sorting and repackaging items to get them back into the selling process. SMARTER RETURNS IN 2015 Regardless of the reason for returns, retailers can use these moments as an opportunity to make a positive statement to customers. Below are six ways retailers can build a smarter returns strategy in 2015: 1. Provide clear, easy-to-understand product descriptions — Customers need to understand exactly what they are buying online. Having clear, easy-to-understand and accurate product descriptions, such as sizing charts, fabric details and product dimensions, can help make a big difference. For instance, I recently spoke with an apparel retailer in Germany that lowered its return rate from 50% to about 25%, just by improving the descriptions of items on its website.
2. Use pictures to show multiple views of a product — A picture can say a thousand words and help show customers what they are buying before they check out, including the color and size of an item. Several apparel retailers are now using technology to show a 360 degree view of items so consumers can get a better idea of how they look and might fit before they complete purchases. 3. To charge or not to charge — Free returns can help encourage consumers to buy from a retailer’s website more often. They can also help give a retailer an edge over their competitors. However, retailers need to balance the costs of returns versus the opportunity to sell more if consumers are buying items online from their site.
4. Use returns to drive traffic to physical stores — Retailers should use returns as a way to help encourage convenient and quick service at local physical stores to increase shopping. 5. Embrace the notion of online purchases in multiple quantities — Consumers like to test products and return those that don’t meet their standards. For example, consumers may want to order several pairs of shoes in different styles or sizes and return the ones that don’t fit or match what they were looking for. Zappos is one example of a retailer that has a great returns model. Not only does Zappos offer free shipping, they also offer free returns. By offering free returns, customers feel a sense of freedom in their purchases and are more confident that purchases are backed by the retailer’s guarantee.
6. Reduce costs of returns — Providing easy-to-use return labels to your location at pre-negotiated rates — either through a separate website or by using pre-printed labels that carriers will only bill for when they scan them — can help reduce return costs. Technology can also help retailers obtain early insights into what items are being sent back. By following some or all of these tactics, retailers can build a smarter returns strategy and not only help drive down return costs, but also drive customer satisfaction and repeat business in 2015.
CHRISTOPH STEHMANN is President, Ecommerce & Shipping Solutions, Pitney Bowes
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SUPPLY CHAIN SUCCESS BY ERIC GRICE
Suspension of HOS Rules Has the Potential to Reduce Freight Costs n December 13, the US Senate passed the FY 2015 Omnibus Spending Bill that included an amendment introduced by Sen. Susan Collins, R-Maine that is aimed at suspending some of the HOS rules that went into effect in July 2013. The approved changes will suspend two key elements of the HOS rules for a 12 month period, during which time the Department of Transportation will conduct a study into the HOS rules and its effects. Drivers will no longer need to take two consecutive 1 am to 5 am periods off duty when taking a 34 hour restart. The bill also suspends the restriction limiting drivers to one 34 hour restart within a seven day period. The bill was signed by the President and will be made effective immediately; carriers most likely began altering their driver schedules almost immediately. When the bill was originally passed it was based on a safety prognosis; reducing their overall hours and forcing drivers to sleep will provide a more alert driver. However, there has been large fallout due to the changes, which has sent ripples through not only the trucking industry but for retailers, manufacturers and anyone who depends on freight shipments in their supply chain. With the reduced number of hours, output of drivers has gone down, increasing the amount of supply needed to meet the same demand. The result has produced a driver shortage, limited overall capacity for shippers and rising transportation costs. Drivers are now forced to run during daytime hours given the night time reset. This puts more trucks on the road during high volume traffic periods which not only 14
increases the likelihood of multiple-vehicle accidents, but reduces driver miles efficiency. Arguments could be made surrounding the ongoing driver shortage. Carriers’ desperate need for drivers to fill the increased capacity is creating a less experienced, less trained driver pool. Put simply, trucking companies cannot invest in drivers. At this point they will hire nearly any candidate who will qualify, placing them on the road as soon as minimum requirements have been met.
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(12:30am) they could start driving again. The previous rule requiring two periods between 1:00-5:00 a.m. would have pushed this back to 5:00 a.m. Sunday, and the one restart a week provision pushed this even further to Monday at 8:00 a.m. The suspension of these particular rules has the potential to increase driver utilization, which may ease trucking capacity and reduce shippers’ freight costs. The key thing to remember is that this is just a 12 month suspension to better
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So what do these rule changes really mean timeline wise? Let’s assume a driver comes off a fresh restart over the weekend, beginning duty at 8:00 am Monday morning. We then see 60 hours of driving/on duty time, with the mandatory 30 minute break each day, and the 10 hour off between. They could then begin their restart again by Friday afternoon at 2:30 pm. This means early Sunday morning
JANUARY-FEBRUARY 2015 | www.PARCELindustry.com
analyze the big picture effects caused by the HOS rules. The biggest driver will be the impact on safety, so for the next year let’s all hope that the big rigs stay clean on the road, and maybe just give them a little extra space.
ERIC GRICE is Senior Analyst - Transportation Solutions Consulting at enVista.
KEY PACKAGING IS
Investing in the overall packaging process
By Philip McAndrew
W
hen it comes to e-commerce retailers, one of the most overlooked operational investments is the packaging process for outbound parcel shipments. Many of today’s retailers are pushing their orders out the door as quickly as possible and in doing so are often plagued by inefficiencies and costly processes. Let’s explore three aspects of investing in the overall packaging process, including insight into possible investment indicators, the most common reasons for improving the packaging process, and lastly, at some possible starting points and areas of caution.
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INDICATORS THAT INVESTMENT MAY BE WORTHWHILE Perhaps investing in your packaging process is so far off of your capital expenditure radar that you are not sure if an investment is worthwhile. Some of the most common symptoms that indicate time for investment are: } Missed ship dates } Pack line falling behind } Volumes over 600/day } Inconsistency in packaging } Damaged products } Labor attraction, retention, training costs too high
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} Material waste } Human error/packages sent to wrong recipient } Limited warehouse/floor space The other side of whether or not an investment is cost-effective depends on the investment’s payback. By drilling down to a per unit cost, you can determine the average cost of getting a package out of your building. By estimating the time, labor, material, and shipping savings that your new process uses you can quickly determine if the purchase will meet your investment requirements. Should you need assistance with this process, there are many
paramount, systems that get packages out the door quickly increase overall shipping capacity and growth potential.
sion your package makes on the consumer is hard to measure, but could be a game changer for your company’s future.
Human Error Reductions: Mistakes and inefficiencies are deceptively costly to a company. Putting the wrong shipping label on a package, for example, incurs the cost of the original shipping, the return, restocking, re-shipping, and the consequences of two dissatisfied customers. This type of error will usually eliminate all profit from the sale and most times have a direct negative impact on the company’s bottom line. Investment in verification systems can prevent these types of errors.
Meeting Demand: Depending on the nature of your business, there may be peaks and valleys throughout the year. During peak times, it is important to have the processes in place to make sure that you don’t run into capacity related issues. It is not uncommon to see online retailers with up to 10 times their regular volume during the holidays. Trying to bring in temporary employees or working overtime can help, but investing in automated or semi-automated systems can really allow companies to capture that demand. At first glance, it may not be obvious that the packaging process is so integral to the success and development of your business. Without proper management and appropriate incremental investment, it should be clear that skipping over the packaging process can result in many lost opportunities to improve your business.
Space: Warehouse space is a limited resource, and as such, making the most of it becomes increasingly important as capacity limitations are approached. Calculating your throughput per square foot and ways to incrementally improve it are a great indicator of progress made in space utilization. Invest in systems that maximize your ability to utilize space.
FINAL REMARKS Automation: As a company grows, employee attraction, compensation, retention, and training become expensive. If volumes can justify automation, many of these costs can be reduced and the operations of the company simplified.
integrators and equipment manufacturers who would love the chance to help. Reaching out to some of them is a great place to get inexpensive consulting on the best options for your particular business.
POSSIBLE BENEFITS OF INVESTMENT: Just as each business is unique, the benefits realized from investment in the packaging process may be unique as well. There are many specific areas that you can target with your investment and most of the larger systems will improve many, if not all, of these functions. Speed: In a world where delivery speed is
Product Protection: Over protecting or under protecting products can be very costly for companies, but most elect to err on the side of over-protection. With the new DIM weight shipping policies used by FedEx and UPS, as well as the increase in material costs, this is an expensive policy. There are methods of investing in the packaging process that can reduce void fill and enhance product protection without increasing package size. Customer Experience: In today’s market, delivery promises, package friendliness, and the ability to include marketing/promotional materials in your package can play a huge role in your business development efforts. Amazon.com places such a high level of importance on this that it allows consumers to rate their packaging as well as provide a “frustration free packaging” designation for sellers that meet its requirements. Investing in the impres-
Engrained in the nature of investment is risk. Just because we throw money and time at a problem does not guarantee that we will realize the desired result. As such, it is important to find methods to minimize and mitigate that risk. The most important method to do so is by performing adequate research into the nature of your challenges. This due diligence will often include finding the right partners who will steer you in the direction that is best for your company and not best for what they are selling. Some areas to be conscious of at the outset are: the size of your company, your specific growth projections, your current cash flow, the effect this investment will have on your taxes, the processes and machinery you have already put into place, and the total cost of ownership to take this action. Finding the right balance for your company may take some leg work, but it will definitely alleviate a lot of potential headaches in the future. Good luck and happy investing.
PHILIP MCANDREW is Marketing Administrator at Systems Technology, Inc. Contact him at PhilipMcAndrew@systems-technology-inc.com or visit www.systems-technology-inc.com.
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By Ed Romaine
TURNING THE NEW DIM RATES INTO PROFITABILITY Paying attention to your packaging can pay off in more ways than one!
I
t felt like only yesterday when a package’s weight was my primary concern… well, that’s because it was my primary concern until the beginning of 2015, courtesy of UPS’s and FedEx’s new costing models. All of a sudden, your world is cha-cha-cha-changing (to quote David Bowie). This can be a disaster, or it can be an opportunity to increase your profitability and move past your competitors. Your actions today will dictate your path.
LET’S LOOK AT AN EXAMPLE Here’s an example of a 12 pound order for zone 8 ground home shipment in a 14” x 14” x 14” box. This order has a DIM factor of 166: 14 x 14 x 14=2,744 cubic inches/166=16.5, which then must be rounded up to 17 pounds. At 2014 rates, this package would be 20
billed at the 12-pound rate of $19.67. In 2015, and based on the new costing structure, this package would be billed at the 17-pound rate, which is $24.26. This translates to a whopping 23% increase. This 12-pound box is now shipping at the 17-pound rate. The consensus seems to be that depending on your order profiles, it would be safe to assume the new DIM factors are going to add anywhere from a 25% to 100% increased transportation cost to you and your customers. Financial pundits are saying this move will increase operating income for UPS’s domestic ground unit by at least $350 million. Clearly, you need to have a plan to make sure you are giving as little as possible.
TAKE CONTROL OF YOUR DIM DESTINY Depending on the level of automation
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you currently have, your solution will vary. Every business sector and company will have different needs so it’s important to realize that one size will absolutely not fit all to solve this problem.
1. NEGOTIATE Open communications with FedEx and UPS, and start negotiating the rates, implementation dates and pick up times. A quick survey conducted by Integrated Systems Design (ISD) found that both FedEx and UPS are ready to negotiate down from their announced rate and start time. As Bob Jones, Senior Distribution Manager at ISD said, “Your volume, geography, history with the carrier and ability to play hard ball will dictate your exact terms (and they seem to vary greatly). But no matter how “successful” the negotiations are, they will be temporary and will certainly
software system. As new items are added to inventory, an operator places one sample of the piece into the system. The system will automatically measure, weigh and upload the information to a software system. Now every time this SKU is ordered, the software knows the physical sizes of each piece and dunnage requirements and automatically selects an optimized carton size. Likewise, intelligence can be built into this system which says if there is going to be more than 30% wasted space, route to a special pack station for handling. At this station, custom cartonization or more standard sizes might be available to reduce the wasted space.
New DIM Structure & The 25 Most Common Box Sizes Length 4 5 6 8 6 12 10 8 12 12 10 12 12 16 18 14 24 16 18 18 18 24 20 22 24
Inches Width 4 5 6 6 6 6 8 8 12 12 10 12 12 12 12 14 12 16 18 18 18 18 20 22 24
Height 4 5 4 4 6 6 6 8 4 6 10 8 12 12 12 14 12 16 16 18 24 18 20 22 24
Cubic DIM - Dimensional Inches Weight (in lbs.) 64 125 144 192 216 432 480 512 576 864 1000 1152 1728 2304 2592 2744 3456 4096 5184 5832 7776 7776 8000 10648 13824
1 1 1 2 2 3 3 4 4 6 7 7 11 14 16 17 21 25 32 36 47 47 49 65 84
New or Same Minimum Weight, No Impact Minimum Weight, No Impact Minimum Weight, No Impact NEW DIM Rates NEW DIM Rates NEW DIM Rates NEW DIM Rates NEW DIM Rates NEW DIM Rates NEW DIM Rates NEW DIM Rates NEW DIM Rates NEW DIM Rates NEW DIM Rates NEW DIM Rates NEW DIM Rates NEW DIM Rates NEW DIM Rates 2011 DIM Already Applies 2011 DIM Already Applies 2011 DIM Already Applies 2011 DIM Already Applies 2011 DIM Already Applies 2011 DIM Already Applies 2011 DIM Already Applies
25 of the most popular carton sizes in the US and how the new DIM rates will apply. Information from Shipware LLC, a parcel audit and consulting firm.
increase your transportation costs. So you can stall a bit (which is a good thing), but the inevitable DIM based pricing and additional costs are in your future and you will need to start making arrangements immediately.”
2. DO AN AUDIT If you currently utilize cubing equipment, populate box dimensions in your WMS and have an in-motion weigh, label and seal system, it’s just a matter of doing the math on your profile orders. If you don’t have this type of system (and that’s ok, many organizations don’t) the same math needs to be done, but with a lot more elbow grease. You multiply the box’s length X width X height, and then divide by the weight, to determine the Pounds per Cubic feet (PCF). If the PCF is 10.4 or higher, your impact will be marginal and the speed in which you implement changes for domestic shipping isn’t as critical. But if your PCF is lower than 10.4 on a significant percent of your orders/boxes, it’s time to move. This may be an opportunity to call in an integrator who is versed in the new shipping requirements, pack station de-
signs and implementations. These firms can provide not only an objective view to the data, but should be able to provide an entire gamut of technologies, solutions and performance guarantees designed to meet your needs. The end goal is to improve efficiencies to not only cover the increased transportation costs, but your overall warehouse costs. These additional savings come from reduced labor, space savings, reduced error rates plus the elimination of excess dunnage, cardboard and inventory. Make sure you and/or your integrator does the return on investment and internal rate of return calculations. With the increase DIM rates, it should take very little time to cost justify and provide a huge savings.
3. INVESTIGATE AND REVIEW KEY TECHNOLOGIES Cube & weigh each SKU to build orders. Knowing the size and weight of every item in your inventory allows orders to be designed for specific carton sizes. Using this technology requires that every SKU be databased in your host
Carton light sensor array and integrated manifest and label printer. This is a new system designed specifically to solve DIM rates. The system utilizes light scanning technology to determine every package’s outer dimensions. The system measures down to 1/8” increments for maximum accuracy. This system is ideal for organizations using manual picking and packing processes or for facilities that already utilize weigh scales in their process. The carton light sensor array integrates seamlessly with most existing weigh scale systems. As boxes go down the conveyor the light array system automatically scans and records each box’s height, width and depth, and the data is uploaded to a host software system if it exists. If there isn’t a host system, the data is recorded in the light array’s controls and software system. The data is then used to print shipping labels which can be manually or automatically applied. Shipping manifests and documentation can also be created as needed. WMS module or cartonization software implementation. Many organizations have an existing WMS system, but simply haven’t utilized the existing dimension gathering module. In some cases, utilizing the module is the answer to part of the problem. However, in other cases, the WMS company’s module is below par and doesn’t perform or have the functionality that will be required for your application and specific usage.
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The module’s functionality should be assessed during the audit phase. Be careful in believing everything the WMS provider’s literature and sales people claim. It may be beneficial to verify with other users that you can trust, and validate their success with the module. You may want to call in a trained third party who has worked with many WMS packages and modules and understands from experience the pros and cons of the module and your specific needs. Likewise, there is an entire class of software that provides “cartonization logic,” which the vast majority of WMS modules don’t come close to providing. This type of software will optimize every order for the precise carton size. It will take into account dimensions, weight, dunnage requirements, special handling needs and more. This type of software, working in conjunction with the host WMS/WCS software, is often the best plan depending on volume, labor and throughput requirements.
with the proper information automatically printed and applied. The carton is routed via conveyor to the correct shipping location where it’s often placed on a pallet for transportation via a carrier. This system is ideal for applications that are not currently capturing weights or dimensions of its cartons and has a host software system. The labor, accuracy and space savings for this type of system prior to the new DIM rates often had a return on investment of under 12 months. With the new DIM rates, it’s now conceivable that a return on investment can be in as little as six months. The key to this system’s success is the conveyor, software and equipment integration and communications. Using bags rather than boxes when possible. Based on the current DIM rules, orders shipped in bags rather than boxes seem to be unaffected by the new rates. This would be a perfect time to look at your inventory and order profiles to see what percentage of your daily shipped orders can be shipped in bags. Assuming you have some inventory that can be shipped in bags and other inventory that can’t, a simple flag placed in the WMS can be created to determine if a SKU can be placed in a bag. Logic is built into the software that determines that the order flagged is automatically routed to a bagging pack station. This allows a seamless means of handling orders without the impact of the DIM rates. This system needs to be justified by reviewing the percentage of inventory and orders which can be shipped in bags and the difference in shipping these same orders in boxes. Then calculate the return on investment and factor in any customer sentiment (either way) to make the final decision.
The end goal is to improve efficiencies to not only cover the increased transportation costs, but your overall warehouse costs. In-motion weigh, measure, print, and apply systems. This solution automates the entire packaging process once an order’s contents are placed in a carton. The system is designed to weigh and measure each carton automatically as it moves on the conveyor towards the shipping department. Cartons and orders are evenly spaced by the conveyor to allow the sensors to identify each order separately. As the carton moves through the system, the barcode on the box is read and the weight and dimensions are associated with that carton in the software. The carton continues its path on the conveyor to shipping. It then has a label 22
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On demand boxing systems. These systems cube and create a box to the order’s exact requirements. The amount of wasted corrugated, dunnage and floor space saved is dramatic and should be
investigated. For very high throughputs and relatively stable standard box size requirement applications, this system might not fit. When order cubic sizes range greatly and with medium throughput levels, this system can pay off for you quickly. It just might make good business sense to route a specific group of orders to this system rather than “all.” These systems come either semi or totally automated depending on your throughput requirements. It all comes down to analyzing your data and understanding the order profiles and shipping requirements to determine how to best improve your shipping rates and efficiencies. Conveyor and box motion audit is required. As orders move to smaller and even smaller sizes, many conveyor systems were only designed for a standard 12” x 6” x 6” carton. New smaller sized boxes and even lighter weights can provide conveyance issues that can be easily solved, but need to be identified first. Going into full speed and finding out that some cartons are not positioning correctly, and are sliding, can create a damage and loss of productivity.
DO NOTHING? If you “just ship” boxes as you would normally do today, both FedEx and UPS will do the measuring and calculating for you (and send you a bill). I can’t imagine any business running successfully based on this surprise factor. So your future is clearly in your own hands. Start by auditing your facilities and systems, or bring in an integrator expert who can provide you with these services. As you can see, you will likely need multiple technologies and systems to create your best return on investment solution. Find yourself an integrator whose audit and review of your requirements include a wide array of technologies and processes.
ED ROMAINE is VP Sales & Marketing for SI Systems, a Paragon Technologies company. Contact him at 610.559.4016 or romaine@sihs.com. Visit www.sihs.com for more information.
COMPANY PROFILE
Regional Small Package Carriers Are Providing A Valuable Alternative In the past, you may have thought about the possibilities of using a regional carrier to handle your small packages but were unsure about making a change. Now more than ever, regional carriers offer a choice that’s economical, reliable, flexible and personalized. PITT OHIO has thrived on providing valuable solutions to its customers and that was no exception when they launched their small package service in 2009. They found that shippers are looking for an alternative when they inevitably begin to feel pressure by small package giants whose accessorial charges continued to climb. PITT OHIO‘s GROUND service combats those industry trends by leveraging their network of regional based partnerships to reduce shipping costs and lower accessorial charges through client collaboration. Flexibility and convenience were missing from the picture, so PITT OHIO put significant focus on offering unique solutions based on customers’ needs. They specialize in solution based selling including handling irregular and non-conveyable items that others prefer not to. A variety of these solutions includes pool, general distribution and routed work in addition to parcel, lightweight and dedicated options. When it comes to delivering a personalized service, regional carriers offer more than customers may expect. PITT OHIO’s GROUND service understands their customers’ needs and are focused on providing quick response times that offer a seamless and integrated experience. Through their world class IT systems, PITT OHIO customers have the ability to leverage back office integration & tracking and tracing functionality on demand with our GROUND service. Optimizing your small package shipping can be overwhelming, but it doesn’t have to be when you trust a regional provider. PITT OHIO’s GROUND service leverages regional based partnerships to offer 48 state coverage with the ability to determine a solution that works best for you and for your customers.
www.pittohio.com/parcel
Parcel Spend Management: An Effective Solution in a Rapidly Changing Industry By Mike Lambert
Most large parcel shippers would agree that the parcel industry is evolving at a pace more rapidly than we have ever seen in recent history. After years of shippers designing and operating their parcel networks primarily based on FedEx and UPS’s service capabilities, we are seeing a shift to alternative network strategies that permit the incorporation of other carriers’ solutions. In an industry dominated primarily by two large carriers, opportunities are quickly arising that lower the barriers to entry for new carriers and the switching costs for shippers. The change is evolving 24
rapidly as a result of the dramatic shift in how retailers interact with and fulfill the requirements of their customers. Incorporating mobile technology with the latest marketing strategies and leveraging a new breed of order fulfillment system capabilities, retailers have established entirely new parcel shipping channels that change both their parcel network requirements and package profiles profoundly. As a result, we are finding the rapid evolution of the parcel industry is directly linked to the speed of changes in recent technology. These changes are disrupting the industry, chal-
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lenging the established carriers’ networks, creating new carrier and service opportunities, and exponentially increasing the complexity of shippers’ parcel networks. In the past, many networks consisted of only a handful of fulfillment locations serviced by one or two carriers, but now the current environment requires the ability to ship from potentially hundreds or thousands of local origin points in a network. As a result, new opportunities are emerging for established regional carriers and local couriers. At the same time, new delivery and service innova-
tions based on the latest technology and mobile device capabilities are quickly evolving. It’s a new world for parcel transportation managers and the requirements for planning and executing their network are nothing like they were just a few years ago. As a result, most shippers are finding they lack the resources needed to manage parcel in this new world. In the past, one person could manage his or her parcel network and relationships with FedEx, UPS, and/or USPS. Now, due to the complexity of managing a network that incorporates thousands of origin points,
a growing carrier and service base, constantly changing service level requirements from consumers, and exponential amounts of data, retailers are in need of resources with established parcel industry intelligence and data analytic capabilities. However, the resources needed are limited in the marketplace and expensive to develop. That’s why many retailers are partnering with third-party Parcel Spend Management companies with the resources and capabilities to aid them with planning, executing, and monitoring the performance of their parcel network. Your firm may be a good candidate for such a Parcel Spend Management partner if you ship millions of packages annually and are impacted by the industry changes, complexities, and resource challenges described previously. Planning a network involves developing your cost and service goals and then evaluating and implementing strategies to achieve these goals. Typically, a shipper will be assessing an optimal fulfillment footprint (origin locations) combined with service level strategies (time in transit). This planning will involve potentially evaluating the use of a multitude of carriers and services and understanding how they may impact your current network situation. Most of this work is based on very intensive data analytics and requires the technology to support it. Ultimately, the plan finds its way into the annual budget with cost expectations that are expected to be met. The value of a Parcel Spend Management provider in this process is providing strategic guidance based on their industry intelligence and ensuring you make the correct decision that minimizes cost utilizing their analytic processes. Once the plan and budget has been established, a shipper must execute the plan. Executing the plan typically involves the bid and implementation of parcel carriers along with properly fulfilling orders based on inventory allocation strategies. A Parcel Spend Management firm will support a shipper in both these exercises. A quality partner will aid you with managing the bid process and ensure it is conducted with integrity. A few key values a Parcel Spend Management partner provides in the bid process are: utilizing accurate and representative
data, providing analytics to understand the value of each proposal, and having the capability to evaluate multiple carrier implementation scenarios to optimize cost and transit time goals. The provider can also supply the capabilities to determine where to source inventory optimally for each destination and understand inventory items that are not profitable to ship parcel. Plans and budgets that have been implemented require monitoring budget expectations versus actual spend to identify gaps in execution. An ongoing Parcel Spend Management partner engages with companies to identify the gaps and determines root causes for potential resolution. The ability to manage big data and identify the drivers of cost and service issues is typically a significant challenge for shippers without the aid of a Parcel Send Management firm. The use of business intelligence and data visualization technology is employed by best-in-breed Parcel Spend Management firms. In today’s rapidly evolving parcel environment, most large and complex shippers struggle with planning, executing, and monitoring the performance of their parcel network. Limited resources, expertise, technology and the pace of change are requiring shippers to think differently about how they manage their network. If your firm falls in this category and has the need or appetite for change then you most likely will find value in engaging with a Parcel Spend Management partner on an ongoing basis.
MIKE LAMBERT is Vice President of Strategic Solutions for Green Mountain Consulting (GMC). In this role, Mike is responsible for the development and execution of all strategic Parcel Spend Management solutions which include spend analysis, network optimization, and contract management. GMC helps the largest parcel shippers optimally manage a total of over 3 billion dollars in parcel spend, and GMC’s services consistently result in a 10% reduction of parcel spend for its clients. GMC’s Parcel Spend Management solution combines a parcel invoice audit solution with strategic resources to engage customers in the optimal management and execution of their parcel network. Learn more at www.GreenMountainConsulting.com. Mike can be reached at mlambert@gmcps.com.
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By Andrea Obston
BOOTS ON THE GROUND:
Delivering the Final Mile Solution How can shippers work with small and large delivery companies to get products from A to B, no matter where B is located? By creating an updated model of the supply chain that combines the resources of all of them. The topic was a popular one at the 2014 PARCEL Forum, where shippers and carriers of all sizes discussed ways to update the supply chain. “Boots on the Ground: How Large and Small Delivery Companies Work Together to Deliver the Final Mile Solution” was one of seven workshops presented by the CLDA. The panel and discussion was moderated by CLDA Board Member Charlie Wolfe of Blaze Express and included both large and small carriers. Representing the smaller carriers were Chris Kurzadkowski of Lone Star Delivery and Linda Louviere of First Choice Delivery. Representing the larger carriers were Richard Whitlock of Courier Express and Jim Witmer of Dynamex. All had the same message: getting it there cost-effectively and on-time means using the services of carriers, both big and small. Panelists drew from their experience, providing real-life examples of how smaller delivery companies are providing shippers and larger regional carriers with total geographic coverage. Those representing regional companies also learned about 26
the opportunities available to them to be involved in the larger supply chain. Moderator Charlie Wolfe put it this way: “There are many creative ways to get a package to the customer. Recently, there’s been a trend by shippers to use larger regional carriers to enhance their supply chains. On the surface, that might look like the smaller carriers are being left out, that they are not being given the ability to bid on those jobs. But, in truth, it’s good news for them too because many larger carriers are turning to them in those areas that are too small for them to cover. Essentially, the larger carriers like Dynamex are using smaller ones to extend their footprints. This is good for shippers and it’s good for whole industry.”
QUESTION: We’re talking about shippers, large carriers and smaller carriers all being part of the same supply chain. How do those carriers overcome the essential competitiveness they have for each other to do that? RICHARD: We all have a competitive nature. But the truth is that Courier Express and First Choice Delivery can compete for business in a particular market but still combine resources to work for the larg-
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er shippers. It’s all about relationships. I use these smaller carriers to do work for some of our larger customers because we can’t be competitive without them. So instead of telling our customer we can’t do a job (and losing the business), we’ll cultivate relationships with smaller carriers. Yes, we’ll still compete with those carriers for other business in a particular market. But we also know that we need to work together to help each other grow.
LINDA: It’s always our goal to move up, so of course there’s a sense of competition with the larger companies. But we also realize that without our relationships with larger carriers, we wouldn’t be where we are today. These are relationships that will lead to larger business. We might not have the footprint the larger carriers have, but they do turn to us to do what we do best.
CHRIS: Our customers look to us to get it done. We’re only as good as our last delivery and we’re terrible when we fail. And one way to fail is to overextend yourself. You make a commitment to cover the work. These smaller carriers allow us to do that. We see working with them as a formula for success on the ground.
RICHARD: Customers expect a lot of us. And our expectations of the carriers who work with us are also high. We depend on them to maintain the level of service we’ve promise our customers. We can’t stick our necks out by using one of these small carriers without checking them out. We can’t just assume these people are good. We vet them. We talk to people who’ve used them before to make sure they can maintain our standards. QUESTION: That brings up another question that I want to direct to the smaller carriers: When a smaller regional carrier gets a piece of business from a larger carrier, chances are they’ll be using their network of ICs do the work. What type of safeguards do you put in place to keep the ICs who work with you from eliminating you and going to work for the larger companies? CHRIS: The word relationships applies here, too. We build relationships with the ICs we use based on the idea that we’re providing work to them. We’re also handling the level of complexity needed to deal with the customer that they don’t have to worry about. We make them a part of our structure and compensate them so they do the job. It’s easier for them to take the check from us and have us take care of other requirements with the customers. We have the technology. Customers expect this. That means that the entry point to this business is higher than it used to be and a good part of that is the technology requirements. It’s an easier thing for an IC to let us handle those costs and not have to do it themselves.
QUESTION: We’re all here to solve the problems shippers have. We want to be the people who get their stuff into the hands of their customers. When you’re serving a larger shipper in multiple markets, what goes into your decision making about using a smaller carrier vs. putting in your own facility and doing the work yourself? RICHARD: A lot goes into the decision about whether to use our people or outsource to an agent. Among the factors we consider are backup, insurance, technology and customer requirements.
JIM: For us it’s often a question of whether or not we’re already going into an area. If not, it might actually be cheaper to outsource to an agent. Each situation is different. It depends on the opportunity.
RICHARD: We have to ask ourselves if we want to be in that market. Is it worthwhile for us to get our own building and recruit our own employees? We tried that in 2006. We went into markets outside the southwest. It didn’t work out. It wasn’t our niche. That’s why I’m here. I want to connect with agents to expand our footprint without setting up operations in markets outside the southwest.
QUESTION: What’s the flip side for smaller carriers? What makes it worth it to take work from regional carriers? You are giving up some revenue handling their work. LINDA: The work helps keep our drivers busy. Also, it opens up a relationship with a regional carrier. We do the job and then we may go back to them and ask “What else can we do for you?” It’s good to have visibility with regional carriers. That doesn’t mean we take all the work the larger carriers offer us. We have to ask ourselves questions like: Is it our niche? Can we co-mingle? Is it what we do? What other opportunities does it present? Is it going to be profitable? What’s the risk to us? What are the administrative requirements? If we have staff in place, can leverage those costs?
CHRIS: You have to know what you need to make to keep a driver on the road. Some companies take all the work they can and ignore their margins. We’re not going to do that. You have to be able to say no. It doesn’t make sense to pay $1.10 for work that brings in a dollar. Don’t get caught up in volume. The top line will look nice but the bottom line won’t. I keep track of the bottom line, asking myself each time, “What’s this going to cost me?” If, for example, one of those deliveries is going to take the driver 40 miles out of his way it may not be worth it. That one delivery will cost me more, and I’ll be honest in sharing that information when it comes to pricing. It makes the large carrier understand my thinking. If they’ve made unrealistic prom-
ises to the customer, I’m hoping they rethink what they proposed and go back to their customer with a more realistic cost.
QUESTION: We have to talk about technology. Today, it’s not just about picking up and delivering. It’s all about information. That can put a strain on a smaller shipper when they are representing a bigger shipper. Shippers want transparency all the way through. Talk about that.
RICHARD: When we contract with a smaller carrier, we let their IT department know what our customer’s requirements are. Shippers are requiring more. They want instantaneous responses about when their packages are delivered. We get our IT departments to talk to the smaller carriers so we can come up with ways to make things work. JIM: Technology is part of the qualification for us when it comes to using a smaller agent. They have to have the technology to make things work out. My advice to smaller carriers in this arena is to under promise and over deliver.
LINDA: On our end, we ask ourselves what kind of adjustments we have to make to fulfill the technology requirements of large carriers’ customers. We’ve been fortunate. The larger carriers have partnered with us, supplying some of the technology they want us to have. That’s helped, but, of course, we’re always adding technology on our own too. CHRIS: We’re doing agent portals for larger clients. Our dispatchers take care of them. We have our own technology with our drivers and our dispatcher will relay their information into agent portals. We have six of these. Each has its own application. Some of our customers provide us with their own apps. Our driver sends information to us and we use the customer’s app to send it to them. You’ll find that in medical business. Some labs are coming out with apps to integrate with their programs
QUESTION: Are large shippers only interested in looking at larger regional carriers? Do they prefer not to deal with smaller carriers?
RICHARD: It’s all about simplifying their lives. They’d prefer to get their needs sat-
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isfied with five carriers versus, say, 35. They don’t strictly mind going to smaller companies, but the trend is definitely towards the larger ones. They want to get out of the logistics side and out of the transportation business. Usually it’s the larger carriers that can handle that.
JIM: I’ll tell you what drives the bus on the shipper that only wants to deal with one carrier: the administrative costs involved in invoice tracking.
CHRIS: True. The larger ones only want to look at consolidating invoices. These make it easier for them to operate. We know that. They’ll still use us to supplement the larger, nationwide carriers despite that because it can be more cost-efficient instead of having the regional carriers do it all. We market ourselves to them based on that. We encourage them to look at their larger carriers and integrate us into that
QUESTION: Is there resistance from shippers against larger carriers subbing out business to smaller ones?
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JIM: Yes. They worry about control. But when they bring up that issue, we’ll push back. We explain that technology helps with those concerns about control. And then we’ll remind them that there can be cost savings.
RICHARD: That’s what we say when they insist that we can’t sub. We’ll tell them that a lot of our vendors do it more cost-effectively than we can in certain areas.
LINDA: It is a smart thing to allow carriers to sub it out for other reasons, too. Smaller ones are closer to the drivers. We are really tuned into driver accountability. In addition, we can be more flexible and offer faster responses.
RICHARD: If I’m going into a region and I’m dealing directly with the owner of a small carrier, I see that as a benefit. I know I’ll have better control because of that. QUESTION: At the end of the day, it’s all about relationships and how we use them to build more creative ways to get a pack-
JANUARY-FEBRUARY 2015 | www.PARCELindustry.com
age into the customers’ hands. It sounds like that’s what all of you are saying.
RICHARD: It is. There’s a huge benefit to shippers for us to have these relationships with smaller carriers. It’s all about those relationships.
LINDA: Clearly I’m going to agree. When you deal with smaller carriers you deal with the owners. We’re financially invested. We’re there. And we care. We need to work together.
The Customized Logistics and Delivery Association (CLDA) is the voice of the customized logistics and delivery industry, representing those who keep the wheels of commerce rolling in North America. CLDA is the largest trade association in the industry that provides time-critical and last-mile deliveries. Since 1987, the association has promoted and advanced the professionalism of the customized logistics and delivery industry through networking, education and advocacy. For more information see www.theCLDA.com and www.facebook.com/theCLDA
COMPANY PROFILE
Customers Want a Personalized and Customized Approach with Their Small Package Shipping Business continues to be more demanding and the pace just continues to get faster. Customers are expecting more from their providers and requiring customized solutions to meet their needs. This is certainly true in the small package industry. While other larger providers try to establish a “one-size-fits-all” approach, regional providers are listening to their customers and establishing true partnerships that benefit the customer’s needs. Flexibility, personalization, and customization are what customers want and U.S. Cargo is able to deliver. U.S. Cargo is a specialized regional carrier and small package delivery company providing consistent, cost-effective, and reliable Ground, Premium, and Customized services. They offer a personalized approach and commitment to meet the transportation and logistical needs of their customers. Each customer has different needs, and U.S. Cargo can accommodate both standard and unique requirements.
U.S. Cargo’s personalized service starts with understanding the customer’s needs and providing a customizable solution. They have a “hands-on” approach to package sorting and offer better shipment integrity than the competition with only 1 in 6,000 packages experiencing a claim. U.S. Cargo’s dedicated customer service team, operating at both the corporate and local station levels, is available to provide professional, friendly, and quick follow-up and response. The ability to get your small packages delivered how and when you need them does not have to be a challenge; U.S. Cargo provides flexible shipping and logistics solutions for their customers.
www.us-cargo.com
PARCEL COUNSEL BY BRENT WM. PRIMUS, J.D
The Foreign Corrupt Practices Act: A First Look n this column we typically look at laws and legal issues unique to transportation. In this installment of PARCEL Counsel, we will examine a law applicable to virtually any type of business organization — the Foreign Corrupt Practices Act, or FCPA. The FCPA was enacted in 1977. Its primary purpose is to deter US businesses and business persons from participating in the corruption which pervades and debilitates many countries throughout the world. It is a somewhat unique federal statute in that it prohibits activities that could take place entirely outside of the United States as well as within the United States. It is comprised of two principal sections. The first, which we will focus on here, is known as the Anti-Bribery section. The second is the Accounting section. This section prescribes that all transactions be recorded in the company’s records AND that they be accurately characterized. The intent is to deter companies from describing payments as “consulting fees” when they are, in fact, bribes prohibited by the FCPA. The Anti-Bribery section prohibits “offering to pay, paying, promising to pay, or authorizing the payment of money or anything of value to a foreign official in order to influence any act or decision of the foreign official in his or her official capacity or to secure any other improper advantage in order to obtain or retain business.” It should be noted that the term “foreign official” is broadly interpreted. And indi-
rect payments, e.g., to a cousin or friend of the official, are equally prohibited. These prohibitions are not to be taken lightly — there are serious and substantial civil and criminal penalties. In 2010, a large international freight forwarding company and six of its corporate customers paid a total of more than $235,000,000 in civil and criminal sanctions. Some of the charges directly touched the supply chain — evading customs duties, improper expedition of imports, and obtaining false documentation relating to temporary import permits.
have internal policies and controls to ensure compliance by its employees with the FCPA. However, smaller organizations without an internal legal department or persons just beginning to conduct business outside of the United States also need to be very much aware of the nuances and intricacies of the FCPA. It is my sense that at many foreign airports and seaports there are lots of cash payments made on a daily basis… and indeed the FCPA recognizes this by exempting “facilitating payments.” If a payment is truly in the nature of a facilitating payment, then it would fall within the exemption. But if not truly a facilitating payment, it is illegal and prohibited. For those wishing to learn more about the FCPA, I would recommend starting with “A Resource Guide to the U.S. Foreign Corrupt Practices Act” written by the Criminal Division, U.S. Department of Justice & the Enforcement Division, U.S. Securities and Exchange Commission, which can be found at http://www. justice.gov/criminal/fraud/fcpa/guide.pdf. In the next installment of PARCEL Counsel we will draw from this Guide to provide a few examples illustrating very similar activities — some of which would be considered to be exempt facilitating payments and others which would be considered to be prohibited actions.
These prohibitions are not to be taken lightly — there are serious and substantial civil and criminal penalties.
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Interestingly, there is an exception for “facilitating or expediting payments.” This exception applies only when a payment is made in relation to a “routine governmental action that involves nondiscretionary acts.” An example would be an amount paid to a Postmaster to do something that the Postmaster is already supposed to do, i.e., deliver the mail. Such “greasing the skids” is very similar to a bribe, but it is not prohibited. However, if one paid the Postmaster to allocate one of a limited number of post office boxes to the person making the payment, it would be a prohibited act. Virtually all major corporations involved in activities in foreign companies
JANUARY-FEBRUARY 2015 | www.PARCELindustry.com
BRENT WM. PRIMUS, J.D., is the CEO of Primus Law Office, P.A. and the Senior Editor of transportlawtexts, inc. Previous columns, including those of William J. Augello, may be found in the “Content Library” on the PARCEL website (www.PARCELindustry.com). Your questions are welcome at brent@primuslawoffice.com.
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