TIME TO TAKE YOUR SMALL-PARCEL OPERATION TO THE NEXT LEVEL? DESIGNING YOUR OPTIMAL SUPPLY CHAIN. P.18
IF IT’S TIME FOR A NEW TMS, HERE’S WHAT TO KEEP IN MIND. P.22
EVALUATING YOUR PEAK SEASON PERFORMANCE — AND PREPARING FOR THIS YEAR. P.26
OVERCOMING OBSTACLES TO INTERNATIONAL EXPANSION. P.30
CONTENTS /// Volume 24 | Issue 2
14 18 22 24 26 06 EDITOR’S NOTE Managing Rising Expectations By Amanda Armendariz
08 SUPPLY CHAIN SUCCESS 2017 UPS and FedEx Weekly Fuel Surcharge Calculations (Ground) By Mark Taylor
10 OPERATIONAL EFFICIENCIES To Buy, Build, or Replace? By Susan Rider
12 SPEND PERSPECTIVES What Brexit May Mean for Small Parcel By John Haber
14 EVALUATING YOUR SHIPPING NEEDS AND CARRIER OPTIONS Considering LTL vs. UPS and FedEx hundredweight programs. By Chris Franzen
18 DESIGNING OPTIMAL SUPPLY CHAINS Don’t overlook this crucial component of your operation. By Terry Harris
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22 CHOOSING THE IDEAL TMS SOLUTION If a new TMS is in your future, here are some factors to consider. By Bob Fischer
24 TOP TIPS TO ANALYZING YOUR SHIPPING PROFILE Understanding your profile is the first step to effective transportation management. By Tim Sailor
26 THE BEST 7 QUESTIONS TO ASK ABOUT YOUR PAST PEAK SEASON PERFORMANCE Here are some lesser-known (but just as important) questions to ask that could change your whole parcel game this year. By Roy Humes & Troy Narron
30 OVERCOMING THE HURDLES TO INTERNATIONAL EXPANSION International shipping provides a myriad of opportunities, but with that comes challenges. Eugene Laney
32 PARCEL COUNSEL The New FSMA Regulations: Four Things to Know and Do… Now By Brent Wm. Primus, J.D.
34 WRAP UP Parcel “Uberization” By Michael J. Ryan
APPLICATION ARTICLES 11 Storied History Turns to Future of Parcel Analytics ClearView Audit
13 Solving the multi-carrier integration challenge ShipWorks
16 Optimize the Customer Experience While Boosting Your Business ProShip, Inc. by Neopost
PUBLISHING PRESIDENT CHAD GRIEPENTROG PUBLISHER KEN WADDELL EDITORIAL EDITOR AMANDA ARMENDARIZ [ firstname.lastname@example.org ]
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PARCEL PARCEL (ISSN 1081-4035) is published 6 times a year by RB Publishing Inc. All material in this magazine is copyrighted 2017 © by RB Publishing Inc. All rights reserved. Nothing may be reproduced in whole or in part without written permission from the publisher. Any correspondence sent to PARCEL, RB Publishing Inc. or its staff becomes the property of RB Publishing, Inc. The articles in this magazine represent the views of the authors and not those of RB Publishing Inc. or PARCEL. RB Publishing Inc. and/or PARCEL expressly disclaim any liability for the products or services sold or otherwise endorsed by advertisers or authors included in this magazine. SUBSCRIPTIONS: Free to qualified recipients: $12 per year to all others in the United States. Subscription rate for Canada or Mexico is $35 for one year and for elsewhere outside of the United States is $55. Back-issue rate is $5. Send subscriptions or change of address to: PARCEL, P.O. Box 259098 Madison WI 53725-9098 Allow six weeks for new subscriptions or address changes. REPRINTS: For high-quality reprints, please contact our exclusive reprint provider, ReprintPros, 949.702.5390, www.ReprintPros.com.
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MAR-APR 2017 PARCELindustry.com 5
MANAGING RISING EXPECTATIONS By Amanda Armendariz
ecently, I was contacted by a reporter for a Japanese newspaper that was doing a piece on the parcel industry in Japan, and he wanted to discuss what was similar in the US and what differed. As the interview ended, he asked me one final question: If I had to pick one thing that has changed the most in the small-parcel industry in the last 10 years, what would that be? I answered, without hesitation, that it would be the change in customer expectations. As we all know, the Amazon effect is a real thing. Ten years ago, five to seven days was a perfectly acceptable delivery window. Now, people often expect twoday delivery (or sooner!) from all merchants, not just those with Amazon’s infrastructure and pocketbook. This can be
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a huge challenge for smaller shippers — how does one keep customers happy with a short delivery time, without breaking the bank? There is no easy answer, of course, and there will always be some things the giants can do that the smaller shippers simply can’t implement. But I believe those things are fewer than people sometimes think, and there are steps smaller shippers can take to shorten the gap. One of those things is making sure your supply chain is in optimal condition — and if it’s not currently, it’s time to design it so it is! Terry Harris’s article on page 18 is a great place to start. Another resource that shippers should utilize in their efforts to manage these rising expectations is attendance at industry trade shows, like the PARCEL Forum. The sessions found there can provide shippers with a variety of ways to differentiate themselves from the competition — even if their delivery times simply can’t be on Amazon’s level. After all, there are multiple ways to increase customer satisfaction and loyalty, and shows like this are a great way to learn to do it. I hope to see you at the PARCEL Forum, September 18-20, in Nashville! As always, thanks for staying connected with PARCEL.
Here are some of the most-read articles on our site in recent weeks. If you haven’t already checked them out, you might want to — there is some great information in there!
What Are Evergreen Contracts, and Why Are They Important to Shippers? By Brent Wm. Primus, J.D.
The Growing Distribution Challenge of Rural Retail. By Ralph Lieberthal
Keeping Your Transportation Spend New Year’s Resolution. By Stephen Craig
View on Website
2017 UPS AND FEDEX WEEKLY FUEL SURCHARGE CALCULATIONS (GROUND) By Mark Taylor
WHAT DOES THE NEW CALCULATION LOOK LIKE? Depicted below are each carrierâ€™s ground fuel surcharges for 2016, using the monthly method vs the new weekly method. The two most obvious observations are: the fuel surcharge follows the fuel prices more closely, and the weekly fuel surcharge calculation is higher for approximately half of the year. WHAT ARE THE EXPECTED IMPACTS OF THIS CHANGE? The impacts to shippers are dependent on many program-specific parameters, but generally, the seasonality (shipping pattern) and market fluctuation are two of the most important. In the case of 2016, e-commerce shippers with the typical October to December peak would have received the higher
s part of their 2017 rate changes, UPS and FedEx changed the way they calculate fuel surcharges as of February 6. Instead of calculating based on the monthly diesel average price two months previous, they will be calculating based on the weekly average two weeks previous. This is the next step in the evolution of fuel surcharges. Historically, these two carriers were in lockstep for almost five years (2006-2011); their fuel surcharges and indices were exactly the same. In 2011, they began to diverge with different fuel surcharge indices. In 2015, both carriers adjusted their indices to match a cheaper fuel market. This latest change will align more closely with continuously changing diesel prices.
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fuel surcharge resulting from the weekly calculation method. This would have compounded the cost of their more frequent shipping, and resulted in a higher spend for their peak. There are cases in which the new calculation would actually have presented a savings. The beginning of the year when volumes are typically lightest and August would have been a reduction in fuel surcharge. If fuel prices continue to have a steady increase in 2017 as they did in 2016, shippers will have a higher fuel surcharge cost. The US Energy Information Association (the same organization that produces the On-Highway Diesel and Jet Fuel averages on which fuel surcharges are based) has forecasted that diesel fuel will continue to increase throughout the course of 2017 and 2018. Note: as with any forecast, there can
be errors for either supply or demand that can drastically affect actuals. HOW CAN I REDUCE THE EFFECTS OF THE CHANGES IN FUEL SURCHARGE? Every package is subject to fuel surcharge. For this reason, the fuel surcharge change compounds other GRI increases and changes (like the increased cost of the 2017 dimensional weight factor reduction). Since fuel surcharge is a multiplier of transportation and some surcharge costs, the best remediation strategies for the impacts are the following: Negotiate better terms on transportation and surcharges Negotiate fuel surcharge incentives Reduce the costs of transportation by utilizing the least cost service Reduce the frequency of surcharges on which fuel surcharge is applied (like large package surcharges, delivery area surcharges, etc.)
Mark Taylor is a Transportation Project Manager at enVista and a recognized transportation expert. He has over 16 years of experience in Transportation, most of which has been in the Parcel industry. He works with clients to guide them through contract analysis and negotiation processes as the Project Manager. With a background that includes operations, transportation network engineering, new service development, and parcel spend management, he brings a unique perspective to managing parcel programs.
Note: Shaded areas on the graph are where the weekly calculation results in a higher ground fuel surcharge.
Note: Shaded areas on the graph are where the weekly calculation results in a higher ground fuel surcharge.
MAR-APR 2017 PARCELindustry.com 9
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TO BUY, BUILD, OR REPLACE? By Susan Rider
hen I started in this industry some 25-plus years ago, some companies were building their own systems and operating with a lot of data entry and a lot of paper. Back then, the argument to build was easier because there weren’t as many WMS companies, and the functionality in the systems offered was basic. Today, systems have matured and are very robust. Newer software systems have been architected with the ultimate amount of agility. As many of the WMS companies have mature systems, the price to purchase and implement has dramatically gone down. Today, if you manage a facility that requires a lot of manual inputs, the odds are, you will find it much harder to compete in the future. Technology has changed astronomically from 10-
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not IT-oriented. But the fact is that someone has to support the system, whether you have an old one or you build or buy one. Through a maintenance contract with a software company (as long as you buy right), the maintenance contract should get you support and new upgrades. If you do the analysis of a new employee hired to support an in-house system (with salary and fringe) versus paying support, you may find out that paying for support is less expensive than building an IT empire. Plus the risk is less! If a small- to medium-sized company decides to support a homegrown system, you have two or three people that know the system. If one moves on or departs this heavenly earth, the learning curve is huge. Whereas with an established software company, there are numerous people, documentation, etc. to avoid such a crisis. Also, a “real” software company would have an established training program with training tools online and classes, etc. Frequently, homegrown systems never get around to documentation or training; therefore a lot of functionality is lost with transition of employees and domain experts. The fact is, technology is what will allow companies to compete in the future. As the workforce ages, new millennials and beyond will demand the technology tools to make their job easier. Companies with the best supply chains will be the winners in the e-commerce world.
Susan Rider, Supply Chain Consultant, Executive/Life Coach can be reached at firstname.lastname@example.org.
By Brad Hollister View on Website
Storied History Turns to Future of Parcel Analytics The commonwealth of Virginia has played an important role in shaping America’s history. It wasn’t until farmers of Virginia could not find quality seeds in 1923 that the farmer’s cooperative known today as Southern States Cooperative (SSC) was formed to provide high-quality agricultural products. Today, SSC generates close to $2 billion in annual revenue through distribution of a widespread range of products from feed and fertilizer to heating oil and hundreds of retail locations. Southern States’ strong relationship has depended heavily on the relationships forged over generations between not only its loyal customers, but strong supplier relationships. Like many companies in today’s challenging business climate, SSC has sought strategies to reduce costs to their clients. Warren Miller, Logistics Manager at SSC, strongly suspected inefficiencies in inbound shipments. “We knew there were areas for improvement on our inbound shipments, but we did not have the tools to fix the problems.” The metrics that Miller and SSC were looking for included enforcement vendor routing rules. “SSC needs to know when vendors are making errors which cost our customers money so that they can stop.” Miller said. “We owe it to our customers to provide the highest quality product at the best price available.” SSC chose ClearView. “We met ClearView Audit and knew they were the right tech team to build the tool the industry was missing. ClearView’s intimate knowledge of the carrier networks and the real-time TMS technology coupled with auditing was like nothing we had seen. We needed to identify vendor exceptions before the shipments even leave the vendor’s dock.” SSC has deployed a real-time dashboard that reports vendor shipments that violate small parcel shipment routing rules spelled out in the SSC Vendor routing guide: 1. Label Compliance: Are the vendors entering the PO # on the shipment in the reference fields? 2. Late Shipments: Which SSC POs shipped after the due date on the PO? 3. Dimensionless Shipments: Which shipments do not have dimensions entered and thus the amount listed on our invoice is less than the final, landed cost?
4. Weight Exceeded: Which products are being shipped in quantities greater than ordered on the PO? 5. Unexpected Address: Which POs are being shipped from locations other than our Vendors Distribution Centers and consequently cause greater shipping costs than expected? 6. Routing Exception: Which shipments are being shipped on the SSC account in method other than optimal method? The new Southern States vendor compliance dashboard for small parcel shipments has helped Southern States Cooperative to strengthen vendor relationships by quickly identifying operational breakdowns of their vendors. “Our vendors have been sensitive to the impact of the shipping errors they have made that cause SSC extra shipping costs. We have found that vendor exceptions and routing guide errors are down to a handful of instances each month.” Finding the right technology was difficult. “We gave up. We looked at small parcel auditors. We looked at Parcel TMS companies. Nobody understood what we were asking for,” Miller said. It took cutting edge solutions, written in the latest and most advanced technologies, to make Southern States’ dream a reality. “These real-time statistics could never exist in an antiquated SQL database environment. There are not many companies in the world with the infrastructure to pull this off, and ClearView is years ahead of anything else we have seen in the market,” Miller said. The future of supply chain is real-time visibility of all shipments. Southern States has leveraged the power of a centralized control tower for all inbound shipments and are exploring strategies to expand this cutting edge technology to other areas in its supply chain. ”Without real-time visibility to shipments, we would never know when shipping errors are happening, let alone how to fix them. We had no idea how many shipments were coming in each day until the UPS truck backed up to our dock.” For more information about Southern States Cooperative, visit: http://southernstates.com Warren Miller Logistics Manager Southern States Cooperative 6606 West Broad Street Richmond, VA 23260 Ph 804.281.1512 email@example.com
http://clearviewaudit.com firstname.lastname@example.org 608.709.8050
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WHAT BREXIT MAY MEAN FOR SMALL PARCEL By John Haber
n June 29, 2016, the UK voted to leave the EU in what has become known as Brexit. This historic event has created great uncertainty across European markets. The timeline that the British Prime Minister established to invoke Article 50, the formal two-year negotiation with the EU, is quickly approaching (March 31). What is evident is that trade will change within the EU and around the world, possibly creating costly additional requirements within the logistics industry. A primary concern of the negotiation is whether the UK will remain in the customs union, which facilitates free trade between EU states by ensuring no tariffs are applied on goods moving between countries within the union. The customs union also established uniform tariffs that member
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countries use to charge for goods that move between non-member countries. According to the UK’s Office of National Statistics, 44%, or approximately $274 billion, of the country’s exports go to the EU. Without the customs union, import tariffs and administrative costs are likely to rise significantly. An analysis from The Independent, a UK media outlet, forecasts the cost to UK exporters in extra tariffs alone could exceed $5.6 billion per year. Tariffs and administrative costs may not be the only areas to be negatively impacted as ports could also see backlogs as ships and trucks enter or exit the UK. A UK customs trade lawyer noted, “You will need to at least double the number of customs officials than you have now.” The movement of small parcels will be affected for both B2C and B2B. As a B2B example, the automotive industry has long been dependent on small parcels for their just-in-time business model. Almost 60% of the parts in the average British-assembled car are made abroad, and some components travel to and from the continent several times in the manufacturing process. This same concern is a massive issue in the United States with Donald Trump’s proposed changes to NAFTA and Mexican import tariffs. From a B2C perspective, the UK parcel market is growing
rapidly thanks to e-commerce. According to IMRG, the UK industry association for online retail, and Capgemini, the market is estimated at £10bn (about USD $12.5 billion). Most of this growth is B2C, with internet sales accounting for 15% of total UK retail sales. Cross-border shopping is big, with an estimated 54% of consumers making at least one purchase on a foreign website as reported in a 2015 Payvision study. According to Ecommerce Europe and the Ecommerce Foundation’s joint industry report, 6.1% of UK GDP comes from online sales as 20% of UK online merchants sell cross-border to the EU. Brexit could have negative impacts on both the British and the European e-commerce sector. This could include higher prices for UK consumers as well as increased vulnerability. For instance, the EU’s proposals for harmonized protection, which include regulations against geoblocking (where users in a geographic region are prevented from making online purchases from another region or country), will no longer apply to the UK. Speculation on the impact of Brexit will continue, but what is clear is that top management of major parcel carriers strongly oppose these new protectionist policies and believe they will negatively impact customers in the form of higher prices and increases in shipping costs.
John Haber is the Founder and CEO of Spend Management Experts. Contact John at solutions@ spendmgmt.com.
By Wes Clayton View on Website
Solving the multicarrier integration challenge Today’s shippers face many challenges, including the need to keep up with the growth of retail e-commerce sales and consumer expectations. In order to stay competitive, enterprise shippers must offer consumers a choice of carriers, delivery options and shipping rates while keeping up with increasing package volumes and soaring shipping costs. Many companies are rightfully concerned about the overhead and disruption that adding software from multiple carriers to their workflow could cause. There are a lot of moving pieces trying to work together. That’s when you need a software like ShipWorks, designed specifically for multi-carrier workflows. ShipWorks seamlessly integrates all your carriers, order management systems and data sources into a single User Interface (UI) and automates your shipping workflow. The key words here are integration and automation. Let’s look at why they are so important. Why implement an integrated multi-carrier workflow like ShipWorks? An integrated multi-carrier workflow allows shippers to use a single UI to manage all of their shipping across multiple workstations and facilities. This makes it easier and more efficient for businesses to… Meet customer expectations – with multiple carriers, businesses can make choices based on an individual customer’s need for a particular service option (i.e.: same day, overnight delivery, insurance, special handing, etc.). Avoid delivery delays due to carrier issues – shippers can easily move packages from one carrier to another if a certain carrier is experiencing delays or service disruptions. Negotiate better rates – Knowing exactly how many packages are sent via each carrier, and exactly how much was spent on each is powerful information to have at-hand when it comes time to negotiate new rates. Reduce delivery costs through rate shopping Quickly determine the most cost-effective option for each shipment across all carriers on any given day
Know final costs, including residential and fuel surcharges Easily compare dimensional weight to the actual weight pricing of each package Access the most up-to-date rates for each carrier. In addition to providing a single UI for shipping, enterprise-level shippers also need access to automation tools that can help reduce staffing overhead, customize the shipping process and enhance marketing efforts. Why is automation important for multi-carrier shipping? Simply put, automation allows shipping managers or business owners to customize their workflow to meet their specific needs. Automation reduces staff training needs, all but eliminates human error and saves money by allowing shipping managers to program the software to automatically choose the least expensive shipping carrier depending on the needs of each type of parcel. Here are some examples of powerful automation rules in use today by ShipWorks customers: Easily program a pre-defined carrier or mail class based on package weight, size, content, or delivery requirements. Pre-program software to make decisions for workstation staff, resulting in less training, fewer mistakes, and more control. Automatically add parcel insurance to orders that exceed pre-determined dollar values. Automatically including coupons or promotional materials in customer orders based on past purchases. Handle exceptions by routing packages that meet pre-determined criteria to specific warehouse staff members trained to handle specific exceptions. Automatically generate a packing slip as each order is closed. Ensure compliance with current carrier-mandated rules and rates. As e-commerce continues to grow, shipping is an increasingly important area of focus. E-commerce businesses need to think seriously about the tools they use to access their carriers and how those tools can help them gather and analyze shipping and customer data so they can continuously identify efficiencies and areas for cost-cutting.
Wes Clayton General Manager and Co-Founder, ShipWorks 800.952.7784 email@example.com
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EVALUATING YOUR SHIPPING NEEDS AND CARRIER OPTIONS Factors to consider in the utilization of LTL vs. UPS and FedEx hundredweight programs
By Chris Franzen
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or many shippers, the decision to ship freight via LessThan-Truckload (LTL) versus one of the parcel carriers’ hundredweight programs can be challenging, as there are advantages and disadvantages to both. Let’s compare these programs side-by-side. ADVANTAGES OF PARCEL HUNDREDWEIGHT (CWT) PROGRAMS The most obvious advantage to shipping CWT is that there are fewer operational handling requirements such as palletizing, shrink-wrapping, staging, or shipment segregation. In almost all cases, these shipments are handled along the same “line” as the shipper’s normal parcel shipping. On the other hand, moving freight via LTL may be part of more labor-intensive shipping “line.” In addition, CWT offers an immediate reduction in cost as there are no pallets
higher the further from origin. Additionally, volume tendered under these CWT programs contributes to overall parcel incentives.
to buy, and accordingly, the weight of the pallets would not factor into the calculation of your transportation charge. CWT fuel surcharges are also much lower than LTL. As an example, the February 6, 2017 UPS Freight (LTL) fuel surcharge is 21.4%, compared to only 5.5% for UPS Ground. Many of the common accessorial charges that are applied when shipping via LTL — such as liftgate and inside delivery — are not applicable when shipping CWT. For shippers with many different commodities, there is the added benefit of not having to determine the class for each package or the entire shipment, as specification of class is not a requirement to ship CWT. Especially when considering outer zone shipments, minimum charges for CWT are less than those of an LTL carrier, as the charges for the equivalent destination state for the LTL carrier may be much
ADVANTAGES OF LTL PROGRAMS In most cases, LTL liability limits are much higher than FedEx and UPS CWT programs. As an example, a shipment weighing 350 pounds at freight class 50, one LTL carrier would limit liability to $700.00 ($2.00 per pound), whereas the parcel carriers would limit liability to $100.00 for the same shipment. Each LTL carrier has its own specific liability limits in relation to a loss or damage claim. Therefore, you should review your carrier’s rules tariff. Over-dimensional packages that can be palletized are often a much better fit in an LTL environment and are not charged any additional handling or large package fees unless over a certain length (typically over 12ft or more in length). The amount of time each package is handled is greatly reduced when moving through an LTL network. By palletizing and shrink-wrapping the shipment, you will reduce pilferage and the risk of damage to individual packages. Depending on destination, transit times can also be improved. In looking at a shipment from Houston, Texas to Little Rock, Arkansas, FedEx Ground has a published transit time of two days, while the LTL carrier Averitt Express offers a one-day transit. Due to the fact that the LTL marketplace offers a competitive landscape — there may be as many as 20-25 carriers and multiple LTL resellers (brokers) that can service any specific lane — shippers are likely to have a significant negotiating advantage that can help lower costs and decrease transit times. DISADVANTAGES OF PARCEL HUNDREDWEIGHT (CWT) PROGRAMS One of the greatest challenges of CWT programs is being able to determine the most advantageous cost/transit routing decision. It may require sophisticated software to
compare CWT pricing and transit, not only in relation to CWT vs. LTL, but also CWT pricing in relation to your current parcel pricing program. If not familiar with CWT pricing and the different components of how the rates are structured, many shippers may feel at a disadvantage when presented with pricing from the carrier. Like any transportation pricing, many components are open to negotiation. Points of negotiation would include the following: commodity tiers, discounts, deficit weight (e.g., 100 vs 200), minimum package charges, FSC differential, accessorials, etc. Unless multi-sourcing your regular parcel business, it very likely could mean the shipper only has one avenue for CWT pricing, and less competition is never a good thing. DISADVANTAGES OF LTL PROGRAMS One of the disadvantages of an LTL program is that there is some risk of the entire shipment not arriving on time or being lost in transit, versus one or two boxes of a CWT shipment failing to make delivery on time. Even though there is less handling of the shipment, there is greater likelihood of damage with LTL providers because the freight is handled via a forklift and is frequently double-stacked in a trailer. The proper use of dunnage, as well as blocking and bracing practices, are imperative to ensure a damage-free delivery. Finally, LTL volumes don’t automatically contribute to parcel revenue-based incentives. Unless your FedEx Freight or UPS Freight contract specifically states so, the volume (revenue) tendered to the LTL carrier will not contribute to the incentive received from the parcel carriers. SUMMARY There is no clear winner in the debate, so most often, the decision will be based on your specific operational constraints or those of your customer.
Chris Franzen is Executive Vice President of Shipware LLC, an innovative parcel audit and consulting ﬁrm that helps volume parcel & LTL shippers reduce shipping costs 10%30%. He welcomes questions or comments at firstname.lastname@example.org. MAR-APR 2017 PARCELindustry.com 15
By Tim Casey View on Website
Optimize the Customer Experience While Boosting Your Business Order fulfillment is critical for retailers. It’s part of the customer experience — and also the cost of doing business. It’s even more critical as order volumes increase and the marketplace becomes more competitive. Many successful retailers are using innovative shipping software to manage order fulfillment activities between inventory sources. Fulfilling orders from the source nearest the customer minimizes delivery time and shipping costs while exceeding customer expectations. End to End Fulfillment To stay ahead of customer demands and save on costs, retailers use shipping software that can automate rate shopping by reviewing all the negotiated rates from every carrier to give a complete picture of pricing. This capability provides a time-in-transit and rate matrix to give retailers the information they need to select the most cost-effective and time-efficient method of delivery. As part of the fulfillment process, retailers need to decide which delivery routes will be best for each order. Various final-mile delivery options are available to customers, like buy online, pick up in-store or parcel lockers. These options allow retailers to choose a variety of routes to get orders to their customers. Whether it is through traditional carriers or using their own trucks, retailers can utilize shipping software to determine the best option for final mile delivery that will not only save on costs, but add customer convenience as well. On-time Delivery Advanced date shopping allows retailers to optimize the information from their carriers to provide the on-time delivery that is such a critical part of the total e-commerce experience. Here’s how it works: 1. Retailers input the holiday schedules, special conditions, expanded timeframes, rates and other information from each of their carriers into the shipping software. 2. The software maintains all the information and handles the
complexity of the dates and special conditions. 3. The shipping software automatically selects the best shipping option and generates an accurate delivery date for each shipment. In addition to on-time deliveries, another benefit for retailers is the ability to leverage the special conditions of their carriers to save money and create customer promotions that can help drive sales. If a carrier offers two-day shipping at the same cost as three-day shipping, retailers can also offer this special shipping promotion to customers. Other special conditions that carriers offer include shipping deadline extensions. Utilizing advanced date shopping allows retailers to get more orders to a carrier at a lower cost point while using a faster delivery method. Optimizing the Customer Experience Shipping software can optimize the customer experience and boost business for retailers. From using the lowest negotiated rates with carriers, to final-mile delivery and taking advantage of special conditions, retailers can guarantee orders are delivered to customers in a cost-efficient and convenient manner. Tim Casey is President of ProShip Inc., a Neopost company, that is a global provider of logistics software and product solutions, including enterprise-wide, multi-carrier shipping and manifesting software, automated packing solutions and intelligent parcel lockers.
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DESIGNING OPTIMAL SUPPLY CHAINS Your supply chain can make or break your small-package operation. Here’s how to design the best one for you. By Terry Harris
upply chain design — if it wasn’t important before, it surely is now. Online selling’s dramatic growth has energized supply chain design, bringing with it a lot of questions. How many warehouses should I have? Where should they be located? What should I stock in them? How will my supply chain help me sell more? The benefits of e-commerce — principally fast delivery — ripple through the broader economy; even B2B consumers ask, “Why can’t you deliver it like Amazon?” We’re spoiled! All material things begin and end in “Mother Earth.” In between, they’re in a supply chain. Supply chains are everywhere. For an organization designing or just improving their supply chain, there are two dimensions to wrestle with — service and cost. Providing service to customers is the sole purpose of a supply chain. Because you can spend your way to virtually any service level you wish, cost is the other core dimension critical to any well-designed supply chain. Each of these dimensions has components.
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SERVICE AND MARKET SHARE Many believe the service dimension can be sorted into several components. They cite lead-time, availability or fill, resolving problems, returns, and so on. Interestingly, these can all be collapsed into one component — lead-time. If your supply chain minimizes the time it takes your customers to get what they want, you’ll have all the service bases covered. So significant is your lead-time that it drives market share. Everything else being equal, the market share/lead-time relationship looks like Figure 1. This relationship stems from the recognition that one day out of a long lead-time, say 20 days, is minor (five percent). But a day out of a two-day lead-time is 50%. That difference gets noticed by shoppers and drives the buying decision. So lead-times, always important, are more critical in short lead-time markets; all the more reason to know your competitors and design your supply chain to provide even shorter lead-times than theirs. LEAD-TIME OPTIMAL WAREHOUSE NETWORKS You can actually design a supply chain to minimize the lead-time provided to your customers. It’s not a bad idea, so let’s do it. Take the US population as if they or some uniform subset of the population were your customers. Let’s design a warehouse network to minimize the lead-time to get to these customers. Figure 2 on page 20 is the result. This means that if you put a single warehouse in any place other than Vincennes, IN, your average transit lead-time will
be greater than 2.28 days. If you put two warehouses in any place other than Ashland, KY and Porterville, CA, your average distance to customers will be more than 491 miles. These are service-based networks. They have been specified on the basis of their distance (and, consequently, their leadtime) to customers. COST-OPTIMAL WAREHOUSE NETWORKS At a high level, the critical components of the cost dimension of supply chains are three: transportation, warehousing, and inventory. That’s the normal importance sequence too. Let’s look at all three. TRANSPORTATION Transportation costs often decrease as warehouses are added to a network. This is due to the generality that transportation costs decrease as distances decrease, and adding warehouses to a network decreases distances from them to customers. A regional warehouse has products closer to its customers, which diminishes the average distances in the whole network. Of course you have to pay the freight to get material to the regional warehouse. This can often be financed from the savings in the shorter outbound distances to customers. It’s why efficient inbound freight (ocean, rail, LTL) coupled with less efficient outbound (LTL, parcel, currier) augers for multi-warehouse networks. Yet this effect has limits. It doesn’t work within small territories — inside a parcel zone, transportation costs are the same. WAREHOUSING If you consider that variable warehousing costs — such as receiving, putaway, and picking — have to be done regardless of the number of warehouses, then you’re left with fixed warehousing costs that change with the number of warehouses. These are costs for docks and staging areas, management, systems, and technology. Yes, variable labor costs depend on the region of the country, but they can vary even more between the relatively nearby urban and rural areas than across widely separated regions. So addressing how close your warehouse is to an urban center is often critical. INVENTORY Finally, supply chains have inventories. If they are in one warehouse, they can’t be in the wrong warehouse! Storing MAR-APR 2017 PARCELindustry.com 19
inventory in multiple regional warehouses leaves you open to more stock-outs and more inventory needed to cover them. Dividing up the country into multiple regions makes slower movers out of every item. Slower movers are harder to fore-
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cast; their demand is more variable. This variability requires proportionately more safety stock to achieve the same availability levels. Inventory increases.
OPTIMIZING So we have our two dimensions, service and cost. What’s the connection between them and how do we “optimize” our supply chain? Figure 3 (above) illustrates this concept quite well. In this illustration, you cannot be in the lower right corner; it takes some inventory, some cost, to provide high service. You cannot be very close to customers without warehouses. So between where you are — the black dot — and where you cannot be — the lower right corner — there has to be a barrier — the blue line — that you can’t cross. Options on this line are optimal; the highest possible service for a given cost and the
lowest possible cost for a given service. Optimization means being on the blue line. The actual optimization process — constructing the blue line — can be done by sorting through all the options, at least implicitly. There are many software tools useful in performing the calculations. They come with a variety of price tags; some in the six figures and some free. Deciding where along the blue line to target generally requires understanding where competitors are positioned and how customers respond to your collective service offerings. As service becomes more of the buying criteria, you’ll need to move up the curve. If cost minimization is your strategy, you will move toward the left. Just understand that the dependence between these dimensions — optimality or being on the blue line — means there’s a tight trade-off between service and cost. Be consoled, however, by that trade-off being the best one possible. Designing optimal supply chains has become a necessity in our fast, highly served economy. The benefits are dramatic. We need only look at the performance of the companies we buy from while sitting at our desks for crystal clear proof.
Terry Harris is Managing Partner, Chicago Consulting and frequent speaker at the PARCEL Forum. He can be reached at email@example.com.
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CHOOSING THE IDEAL TMS SOLUTION If a new TMS is in your future, here are some factors to consider.
ransportation management solutions (TMS) are getting a lot of attention these days as companies look for ways to optimize their delivery networks and get control over rising freight costs. It’s a good time to be evaluating new solutions. New technologies and new vendors have given TMS systems a serious overhaul in terms of usability, configurability, deployment, and the total cost of ownership (TCO). However, as many shippers have learned, identifying the best TMS solution for their specific industry and operations can be daunting. A quick search on the internet shows dozens of TMS systems offering a wide range of functionality from the planning of small parcel shipments to booking ocean freight and everything in between. Not surprisingly, honing in on the right solution takes time. Following are some thoughts to keep in mind: SHIPMENT PLANNING Some TMS systems are built for multi-modal planning while others focus on one or two modes, so it’s important
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to vet each solution and the depth of functionality it truly delivers in the modes you use most. It should be built by logistics technology experts who have in-depth experience working with companies who match your shipping profile. For companies who primarily ship via LTL, truckload, rail, and/or ocean freight, a multi-modal TMS planning system is often the best choice, deployed upstream of the WMS system. However, for companies who predominantly ship small parcel freight, a better planning solution may be a robust shipping execution system that dynamically optimizes the shipments during execution after they’re received from the WMS system. The best systems include tools for shipment consolidation and the comparison of postal, small parcel, LTL, and regional carriers for lowest-cost delivery. When executed well, you should expect your TMS to yield significant savings and a measurable ROI. Small parcel freight savings of up to 40% can be uncovered when shippers can compare small parcel carrier rates to the USPS and regional or local carriers.
SHIPMENT EXECUTION Once the plan is set, what does the TMS solution offer to automate shipment execution and processing? This functionality crosses over from planning and into operations, but it should be a requirement because it can yield significant savings by eliminating manual shipping procedures. The system should offer a library of carrier-compliant shipping labels, carton contents labels, packing lists, advanced shipment notifications (ASNs), and other documents required by your trading partners. When automated label and document generation is well-integrated into the fulfillment workflow, the labor savings can be tremendous. CARRIER INTEGRATION How are carrier rates and services managed by the TMS system? Has the vendor already onboarded the carriers you use into its system and, if so, how are rates, services, and updates handled? How are surcharges managed so that they can be included during planning and not show up as unexpected costs on the freight bill? Which other carriers does the TMS vendor work with? If, for example,
By Bob Fischer
they’ve already integrated the USPS shipping rates and regional carriers into their platform, you may have the opportunity to reduce freight costs by leveraging these carriers. VISIBILITY To control freight costs, it is vital to have comprehensive visibility into your carrier costs and delivery performance. A good TMS solution will provide reporting and analytical tools to support this process. It should also provide you with real-time visibility to track orders after they pass from planning to delivery, whether through EDI updates to partners and/or integration with your other host systems. DEPLOYMENT COSTS Years ago, a TMS was a high-priced solution purchased by large shippers. One reason for this was that implementations were complex, time-consuming, and required senior resources to deploy them. Today, customers can purchase cloud-based solutions, which are much easier and faster to deploy. A fair number of companies still prefer onsite installations, but fortunately, the deployment
time for these configurations has also decreased as technology has evolved. Related to this, user-configurability is another aspect to consider. The best solutions are moving toward user-configurable tools that enable the customer to change the software as their business changes, rather than relying on the vendor to make the modifications. As you are vetting solutions, come up with some scenarios that address this and compare how each system accommodates the changes. OTHER FACTORS As in any major purchasing decision, take the time to thoroughly review your vendor before signing a contract. How long have they been in business, and are they financially solid? How many companies use their solution? How large is their product development staff and support team? Also, ask for references that highlight success stories as well as challenging implementations that show how they resolved them. This is a partner you’re relying on to manage a core function of your operations, so you want to be sure that they have all the credentials to be a longstanding partner.
PLAN FOR CHANGE Without a doubt, change is now a constant in supply chain management as the internet continues to revolutionize the way we source products for our businesses and homes. Accommodating these new business practices takes nimble technology that facilitates effective planning and execution.
Bob Fischer, founder and CEO of ADSI (www. adsionline.com), is a recognized logistics expert with 30 years of logistics technology experience. He can be reached at firstname.lastname@example.org.
FOR HELP ON PARCEL TMS, PLEASE CONTACT: ClearView Audit www.clearviewaudit.com Engineering Innovation www.eii-online.com Pierbridge, Inc. www.pierbridge.com ProShip, Inc. by Neopost www.proshipinc.com RateLinx www.ratelinx.com
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TOP TIPS TO ANALYZING YOUR SHIPPING PROFILE Short of quantifying the GRI, understanding your profile is the first step to effective transportation management.
ith the recent GRI increase and carrier tariff changes that have become effective, it is a very good time to review your company’s shipping profile and costs. Most people know that their year-over-year shipping costs have increased, but they probably don’t know by how much. This is also complicated by the fact that the annual increases vary by service level, zone, and weight. And, as shippers have figured out over the years, the actual increase is always more than the “average increase” announced by the carriers.
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Other than quantifying the GRI, understanding your shipping profile is the first step to effective transportation management. With data and insight, you will do a better job managing your carriers as well as ensure that your carrier contract is best suited for your unique shipping profile. This knowledge will also give you a great deal of credibility with your carrier reps and level the playing field when you renegotiate your agreements. There are several simple and effective ways for you to identify and quantify what factors are driving up your costs — without the use of specialized software or outside analysis.
START WITH THE BASICS Almost all of the information you need is contained in your weekly electronic billing files from the carriers. While FedEx and UPS don’t make their billing formats very user-friendly, there are ways for you to get some valuable insight. Begin by eliminating as many data fields as possible. This will make it easier to manipulate. At a minimum, the fields you should keep are tracking number, service level, shipment weight, zone, tariff and net shipment cost, incentives, and accessorial costs. To start, break out the shipment detail by service level and tracking
By Tim Sailor
number. This will tell you what services you use the most. Quantify both the shipment count as well as the revenue. Many times you will be surprised that a bigger part of your shipping dollars go to services that you don’t think you use, and these services may have poorer discounts or none altogether. Also, once you summarized the service levels, you can calculate what your average cost per shipment is. This is helpful if you are trying to cover free shipping offers or deciding what your standard shipping charge should be. DISCOUNTS, ZONES, AND ACCESSORIALS Another analysis we conduct is to look at actual discounts you receive on a shipment-by-shipment basis. Most carrier invoicing shows both the tariff rate as well as the net rate. By comparing the net rate to the tariff rate, you can determine what discount percentages you actually receive. Many times, shippers discover that they are receiving fewer discounts than they thought. You can take this data and look at your contract incentives to make sure
that they match. Since most contracts contain both incentives and thresholds, you want to make sure that you are maximizing all the discounts and incentives in your agreement. Many of your ground shipments can be affected by the Zone 2, one-pound minimum shipment charge, so it is vital to analyze its impact. This year, it is especially critical as FedEx and UPS will have different minimums for the first time. Once you have established your net shipment cost, sort the charges and look for shipments costing $7.25 (FedEx) or $7.32 (UPS). For a lot of shippers, more than 50% of their shipments are impacted by this minimum charge. Essentially, because of the minimums, these shipments go out undiscounted. If this is the case for you, it is probably more important for you to ask your carrier for a minimum reduction than it is to negotiate higher discounts. Once you have established your base shipping charges, it is important to look at your accessorial costs. These add-on charges can easily exceed 20% of your total shipping expenditures or more. These add-on charges are also part of the General Rate Increase each year and usually go up more than the tariff shipment rates. Typically, they are also not covered by most GRI caps, so you are subjected to full market increases. The two most common surcharges, Delivery Area Surcharge and Residential Delivery Surcharge, went up 6.5% and 6.2%, respectively, this year with FedEx. Also, for the first time, the carriers will be calculating the fuel surcharge on a weekly, not monthly, basis. Most carrier invoicing will break out each accessorial charge. Sort and subtotal these charges to find out the additional cost per shipment and which surcharges are impacting your expenditures the most. Like your base shipping charges, these surcharges can and should be discounted depending on your volume. If you ship oversized packages, it is particularly important for you to understand your shipping characteristics and box sizes. Over the last two years,
the dimensional rules and costs have changed dramatically. Some surcharges, like the Additional Handling Fee, have seen double digit increases. Now, all package sizes are subject to dimensional pricing, and the dim factor continues to go lower (it’s now at 139). These changes mean that your shipment weight and costs have gone up. The first analysis you should perform is to look at the entered weight and then the billed weight column. Subtract the difference on a shipment-by-shipment basis to see how much more the package billed weight is. If your invoicing does populate with your L x H x W dimensions, multiply it out and then divide by your dim factor. Doing these calculations will also allow you to perhaps get a customized dimensional factor, where the shipment weight and billed weight are more equal. Knowing your dimensional/billed weight for your shipments may also become a factor in deciding whether or not to look at different services like UPS SurePost and FedEx SmartPost, which have different thresholds and dimensional factors. Your shipment costs will go down because of the different rate structure and a lower billable weight. CONCLUSION We have found that for most shippers, there are many disconnects between usage and these agreements. For those shippers that commit the time and resources to understanding and evaluating their shipping profiles, they will lower their shipping costs considerably and obtain much better carrier agreements going forward. Good luck!
Tim Sailor is the founder of Navigo Consulting Group, which specializes in contract optimization, distribution analytics, and strategic sourcing. Since 1995, Navigo has reduced its clients’ shipping costs by 20%-30%. Tim has been recognized as a Distinguished Logistics Professional by the American Society of Transportation and Logistics, Inc. and has contributed to the transportation industry for over 30 years. You can reach Tim at 562.621.0830 or Tim@NavigoInc.com. MAR-APR 2017 PARCELindustry.com 25
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THE BEST 7 QUESTIONS TO ASK ABOUT YOUR PAST PEAK SEASON PERFORMANCE You already know the major factors to examine when evaluating your peak season performance. Here are some lesser-known (but just as important) questions to ask that could change your whole parcel game this year.
here are many things about football season that change from week to week. There are others that seem as predictable as the presence of the pigskin. Such is the case with what many sportscasters call the “keys to the game.” Although they pretend to be saying something original each time, the truth is they’re usually presenting a variation of the same five or six points. (After all, who doesn’t want to avoid turnovers, control the clock, stop the run, and protect their quarterback?) It’s a similar story where peak season post-mortems are concerned, at least in
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BY ROY HUMES & TROY NARRON terms of the advice that’s being dispensed. You already know, for example, that you need to take a good hard look at what percentage of your deliveries arrived late or were incorrect. And you’re aware of the need to assess how accurately you predicted everything from shipping volumes to overall costs — and to scrutinize KPIs like average order-to-delivery speed and customer satisfaction levels. Just as important, you probably have ample tools in place to make these analyses happen. In light of that, we’re going to give you “a bye” from sifting through these important but well-known tactics and focus instead on several less obvious questions
you should consider. Some are large; others may seem small. But if answered honestly, all have the potential to be major game changers for next year’s peak. 1. How accommodating/sufficient were the receiving hours at your fulfillment centers? Freight that’s delivered late to a warehouse or fulfillment center can quickly put your company’s order fulfillment rate behind the power curve, so it’s important to determine whether your middle-mile carriers were unduly delayed by long waits for dock doors once they arrived at your locations. When we put this question to one of our key carriers after 2015’s peak season, we discovered that we could free up up considerably more of their capacity
by expanding our receiving hours. That was the key to obtaining most inbound freight early rather than late in 2016. 2. Did you have to cap any of your facilities at lower productivity levels, and if so, how often and by how much? If your company had to cap a fulfillment or delivery operation at a significantly lower productivity level during any part of 2016’s peak season, it could mean lost opportunities for substantial cost savings, delivery efficiencies, or both. More important, if the root cause of that cap remains unidentified and unaddressed, it could spell trouble for your 2017 peak. With that in mind, compare the frequency of your peak door turns versus your non-peak door turns. Poll your lastmile carriers about their average wait time for a door. See if you can get some candid answers about how many carriers turned around and left when they got to
your facility and discovered a long line. And try to get a read on whether there were significant amounts of inventory at rest before or after sortation took place. Most important, don’t just focus on your facilities’ sortation efficiency — even though that’s a critical component — because at the end of the day, it’s still just one part of timely order fulfillment. 3. What was the average cube for the boxes you sent out during peak season? No one’s going to dispute the wisdom of consolidating multiple orders or items for the same shopper in the same box. It’s a money-saving practice that works well and is especially common around Black Friday or Cyber Monday, when shoppers are prone to placing several orders with the same company within a short time span. But it’s essential to properly account for the impact of these combined orders because it can
substantially increase box size and the number of trucks you’ll require. When we examined this phenomenon at some of our operations, we discovered the average outbound box size during early peak was a whopping 30% larger than usual, and this meant that we could get 15-20% fewer packages onto each last-mile delivery truck. Interestingly, we also discovered a correlation between customer orders placed from certain geographic latitudes and box size. The higher the latitude, the larger the average box size per shipment during peak season. It’s also a good idea to look into how well each of your facilities matched orders to their intended, smallest possible model of box, especially now that dimensional sizing has become such a large aspect of shipping cost. It’s possible you may have shipped bigger boxes than necessary.
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4. How many packages/last mile shipments could you have sent out earlier than you did? Thanks to the fiasco of the 2014 holiday season, today’s consumers are well-acquainted with the importance of ordering by a company’s last guaranteed shipping date, and most retailers have been wise enough to err on the side of caution when determining that date. But there are other effective ways to prevent eleventh hour bottlenecks as well — including advancing orders as circumstances permit. Our company took frequent advantage of this practice during this past holiday season and found it to be instrumental in helping us stay ahead of what turned out to be record delivery volumes. It also improved our overall productivity, because we were able to do a better job of optimizing our workforce and scheduling shifts and carriers throughout the entire season rather than just one small portion of it.
5. How did things look — literally — at your last-mile DCs/fulfillment centers? Even though we live in a virtual world where vast amounts of data are captured and analyzed electronically, there’s still a lot to be said for using two comparatively lower-tech tools: our eyes. Hopefully, your company had key executives or consultants in place at your hubs to observe everything from your truck yards to your dispatch areas during the height of peak season activities, because few things are more useful than onsite observation for getting your hands around the intangibles that differentiate one facility from another. However, if that didn’t happen, you can still tap into some highly useful visual inputs. For example, do your employees or supervisors have smartphone photos of packed boxes before they were sealed? These images can help you determine why some facilities shipped an inordinate number of orders in larger boxes
than necessary. Security video footage of your facilities’ parking lots or truck yards can provide a birds-eye view of trends and variations — like significant levels of congestion or a change in the size of trucks that a carrier sent in a peak week — that can affect traffic flow during critical periods. Video images of your facility’s dispatch area can also be useful, because floor space that appeared clogged or congested suggests a need for a redesign or overflow space. If you don’t have access to such visuals from 2016, resolve to rectify this before the 2017 peak season. It could pave the way for substantial performance and service improvements and help you spot many minor issues before they turn into major disruptions. 6. Did you have access to the quality of capacity that you needed? And what did you do to help ensure that quality? The high volumes associated with peak
ARE YOUR COLLEAGUES There are undoubtedly people in your organization who need this information as much as you do. So if they are not already a subscriber,have them sign up for a FREE subscription today!
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season can mean working with a wider universe of carriers and temps than usual — and vying for their services along with numerous other companies. But that doesn’t mean you should compromise your standards when it comes to how well these second- and third-string players perform. The immediate months after peak are an opportunity to scrutinize everything from driver churn and on-time inbound freight deliveries to individual hubs’ productivity levels so you can differentiate between the carriers, temp agencies, and 3PLs that collaborated well with you (and perhaps deserve more of your business) and those that need more coaching or should be cut from the team altogether. The first part of the year is also the right time to take a hard look at the way you trained, managed, and motivated your team before, during, and after the order avalanche. Employees typically have to put in a lot of extra effort during peak such as
working longer days, rotating shifts, and forgoing vacation — plus some don’t get to spend as much holiday time with their families as they’d like — in order to ensure that your company succeeds. And if you can’t recall any extra ways your company thanked, acknowledged, empowered, or rewarded them, you didn’t just miss an opportunity, you missed the boat. 7. Whose feedback and data have you been using to help plan and forecast? When it comes to peak season, even the best-performing companies seem to have their regrets. One of the most frequent is failing to give enough people an opportunity to weigh in. Another is overlooking a key input that could have significantly changed things for the better. As you prepare your peak season post-mortem, make sure you’re polling the right internal resources, including IT, facility maintenance, and individual hubs and regions. It’s amazing how
functional areas or organizational levels can have completely different takes on the same performance, and oftentimes a dissonant view can pinpoint a strategy for heading off a repeat bottleneck or a completely new issue you might otherwise not have considered. By the same token, don’t just rely on your data alone. Check your numbers against those of your core middle-mile carriers and last-mile providers. Make sure your clients are keeping you in the loop about the widest possible range of metrics, not just the ones they think you might be interested in. And of course, pay careful attention to the voice of your customers. You can learn a lot from every one of them, not just those who call in to complain.
Rob Humes and Troy Narron are both senior vice presidents of operations for XPO Logistics, a leading supply chain solutions firm. Visit www.xpologistics.com for more information.
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OVERCOMING THE HURDLES TO INTERNATIONAL EXPANSION I nter nation al sh i p p i n g p ro v i d e s a m yri ad o f o ppo rtu n i ti es , but w ith that c o m e s c h a l l e n g e s .
oday, the explosive growth of e-commerce and rapid advances in shipping and logistics have spurred even the smallest companies to reach and engage customers abroad. According to the International Trade Administration, nearly 300,000 US businesses are exporting to countries around the globe, and of those, 98% are small- and medium-sized organizations. Together, these smaller companies account for one-third of merchandise exports, and they are testament to a powerful global reality: 95% of the world’s consumers — and 70% of its purchasing power — reside outside of
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the United States. While the global trade numbers are encouraging, the fact is that less than one percent of the approximately 30 million companies based in the US are involved in exporting. The reasons are numerous, but one stands out: getting a global strategy in place and making it work takes time and financial resources, and complex customs rules and regulations present a significant challenge along the way. While the rewards of going global are clear, the obstacles must be confronted directly. Recently, DHL conducted a survey of more than 4,000 customers, and it reveals exactly what your company
should consider when developing or advancing an export strategy, along with which countries are most promising for future growth. Understanding potential hurdles to trade, along with landed costs and the customs processes in the US and in various countries abroad, can save you and your customers from costly surprises down the road. Here are some key takeaways from the survey: THE ‘BREXIT’ EFFECT In the wake of “Brexit,” 60% of survey respondents remain uncertain about how the move will impact their business, while 25% believe that Great Britain’s exit from the EU will have no impact
By Eugene Laney
on their operations or bottom line. With Britain comprising one-sixth of the EU’s economy, there is little doubt that some companies trading in the region will feel an effect. Some possible impacts include diminished demand for goods in a declining economy, new trade duties and tariffs, and new customs procedures. Companies doing business in Britain or the EU — and those looking to expand to the regions — should carefully study the transition. INTERNATIONAL GROWTH OPPORTUNITIES Customers in the US were also asked which country offers the biggest opportunity for international expansion. China took the lead, followed by India. In 2017, India may be a particularly important export target for businesses looking to grow. There are several reasons why the country’s economic potential has risen, but one leading factor is the emergence of business-oriented Prime Minister Narendra Modi, whose party won the general election in May 2014 by a wide margin. Modi has embarked on plans to boost foreign direct investment (FDI),
combat corruption in the public sector, and promote manufacturing in India as a central economic driver. CUSTOMS AND TRADE LAW TIE-UPS A major hurdle for businesses beginning or expanding their exports, identified by almost 50% of survey respondents, is the lack of standardization and consistency in trade laws and customs documentation requirements. According to a US International Trade Commission report, hold-ups in customs can have a real impact on a company’s bottom line. Investigators looked at actual times recorded for Uruguay export transactions from 2002 to 2011. They found that a median increase of 10% in the time spent in customs translates into a 1.8% decline in the growth rate of exports. Impacts are particularly severe for exports of time-sensitive products in destinations with tougher competition and suffering from banking crises. To make sense of ever-changing, complicated trade laws and customs regulations, small businesses should turn to international trade experts for guidance and strategic assistance. By finding ways to improve customs clearance and accelerate time-to-delivery, companies can gain a critical competitive advantage while keeping customers engaged and satisfied. SOLUTIONS THAT COULD EXPEDITE INTERNATIONAL TRADE Customs agencies in countries around the globe, including here in the US, are moving to make the complex process of filing documentation for international shipments easier and to create more uniformity in the processing and releasing of shipments from one point of entry to another. To be successful in this evolving environment, logistics managers and other key leaders across the supply chain need to keep a close watch on new developments. Here are key areas to monitor: Automation: A major advance in automation comes in the form of the Automated Commercial Environment (ACE) or the US Single-Window, a system the US Customs and Border Protection agency planned to be implemented
soon. It streamlines the export and import process, providing a single window for entry processing, cargo release, and export processing. This will save time for importers and exporters by allowing them to submit the same data to different US agencies in one single transmission. The US government is working internationally to harmonize ACE with countries that have instituted a single-window trade processing system. The results could lead to the acceptance of the US’s export data as the destination country’s import data. De Minimis Levels: Another initiative that could speed the global transit of low-value cargo is increasing the de minimis threshold. Earlier this year, the US raised this threshold from $200 to $800, thereby allowing non-restricted items valued up to $800 to ship without incurring duties and taxes. Similar actions in other countries, like Canada, Mexico, and the European Union, where the de minimis is less than $150, could help low-value exports from the US move quicker and more cost-effectively. Trusted Trader: Mutual recognition agreements remove barriers to trade and create consistency in customs on a country-to-country basis, and trusted trader programs provide an avenue for certain importers to receive expedited customs processing benefits. Companies should explore exactly how these initiatives can work to speed delivery of their products. Understanding the specific barriers to successful international trade expansion is a critical first step for businesses looking to grow abroad. By exploring these challenges and understanding the resources and tools that are available to meet them, US companies of all sizes can get their export plans in gear and off the ground in 2017.
Eugene Laney is Head of International Affairs with DHL Express U.S. He has over 20 years of managerial, government relations, and public affairs experience in the non-profit, private, and quasi-public sector arenas. MAR-APR 2017 PARCELindustry.com 31
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THE NEW FSMA REGULATIONS: FOUR THINGS TO KNOW AND DO... NOW By Brent Wm. Primus, J.D.
n April 6, 2016, the Food and Drug Administration published new regulations relating to the sanitary transportation of food. These are sometimes referred to as the FSMA (fez-ma) regulations as they were prompted by the Food Safety Modernization Act. While it is my sense that most parcel shippers deal with manufactured goods, there are certainly others involved in the production and distribution of food products. For those, here is the “tip of the iceberg” of what you need to know… and do now. ONE: The first effective date is April 7, 2017 — in other words, right about NOW. For small businesses employing fewer than 500 persons and having less than $25.5 million in revenue, the effective date is April 7, 2018.
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TWO: Although there are no new criminal or civil penalties included in the new regulations themselves, long existing statutes established under the Food, Drug, and Cosmetic Act make it a criminal act to sell adulterated food. There can be other serious, adverse consequences for failure to comply. In particular, a failure to establish and follow procedures required by the regulations can lead to the products shipped to be “deemed to be adulterated.” The possibility of a shipment being adulterated is treated, for legal purposes, the same as if the shipment was in fact adulterated. Within the supply chain, failure to follow the procedures can lead to disruptions such as imported goods being denied entry into the United States. Another example would be a consignee refusing to accept a shipment of food products simply because there were no FSMA compliant procedures in place. THREE: A parcel shipper’s first task is to determine if it is subject to the regulations. Generally speaking, it applies to shippers, brokers and other intermediaries, receivers, loaders, and carriers engaged in food transportation operations with certain exceptions. One notable exception is a business engaged in food transportation operations that has less than $500,000 in average annual revenue. Although the regulations cast a wide net over any and
all categories of food, including pet food, food additives, and dietary supplements, there are numerous exceptions within the regulations. For instance, food completely enclosed by a container… unless refrigeration is needed for safety (as opposed to needed for quality). FOUR: If a parcel shipper is subject to the new FSMA regulations, then procedures must be adopted and implemented to comply with the regulations. A core requirement of the regulations is to develop measures to ensure food safety during transportation, such as adequate temperature controls and preventing contamination. Along with this is the requirement for the training of personnel. A further requirement is for the shipper to specify in writing to the shipper’s carriers and brokers, loaders, warehouses, and receivers all necessary requirements developed by the shipper for the sanitary transportation of its shipments. It should be noted that this would not have to be done for each and every shipment, but rather could be done through a contractual requirement covering all shipments that would be transported by a particular carrier. Finally, there is a requirement to maintain records that the procedures have indeed been developed and communicated to the carriers. All for now!
Brent Wm. Primus, J.D., is the CEO of Primus Law Office, P.A. and the Senior Editor of transportlawtexts, inc. Your questions are welcome at email@example.com.
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PARCEL “UBERIZATION” Michael J. Ryan
s we all know, Uber has changed the taxi world with technology. They took a very stable business that relied on old technology (radio dispatch system) and made it easier for the consumer. This was also done by utilizing a very mobile and agile workforce — independent people (drivers). They are now getting into the LTL and Truckload space. However, I believe their concept could change the landscape of the parcel delivery business in the near future. Let’s take a look at what is happening in the e-commerce world. Amazon is on pace to handle more packages than FedEx and UPS combined. However, they are building a network that gets them closer to the consumer. The major retailers are building strategies to have the ability to ship
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from brick and mortar (a.k.a stores). This is a quantum shift in the retail industry and will start to move into the B2B world. This type of strategy will require all of them to have a mobile and flexible delivery network. It has taken UPS, FedEx, and the USPS over 100 years to build their networks, but they could all be looking at a very fierce enemy in the near future.
Amazon is on pace to handle more packages than FedEx and UPS combined. This new model will create new jobs for anyone with a vehicle and the time to do this type of work. As the shift from the traditional 8:00-5:00 delivery window changes, this new workforce will be able to make early morning deliveries, late night deliveries, holiday deliveries, Sunday deliveries, or whatever the consumer wants. This kind of network could be built with limited resources and a strong tech-
nology infrastructure (similar to Uber). The fastest growing part of the US economy is small businesses, and there are many independent drivers looking for work. There is some security risk that will come with this model, but you could argue that this was the same issue that Uber faced in the early days, and they have overcome this issue. I envision that these local delivery drivers will bid on specific delivery routes in this network. They will work in a very dense area to optimize their time and earning potential. There are also hundreds of local courier companies in the US that could take advantage of this model, and we have already begun to see this. These are more structured organizations but they carry a larger overhead and may charge more than this new model. Technology will be the driver of this new model… the question is: who is going to put it together first? The consumer is ready for this model, and it will be a game changer in the small package delivery arena.
Michael J. Ryan is the Executive Vice President at Preferred Parcel Solutions and has over 25 years of experience in the parcel industry. He can be reached at 708.224.1498 or michael.ryan@ preferredship.com .
PARCEL March/April 2017