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Parcel

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Stamps.com and the new USPS  速

Swooping in to save your profits Page 29

Need more insight into your shipping spend? page 16 Single-sourcing or dualsourcing; which is right for you? page 18 Even Michael Jordan had an agent: When it makes sense to use a third party. page 20

#1 USPS速 TECHNOLOGY PROVIDER


MARCH-APRIL 2012 | volume 19 | issue 2

PARCEL PUBLISHER Marll Thiede EDITOR Amanda Armendariz amanda.c@rbpub.com

DEPARTMENTS 6

Going Global

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Global Shipping Contract Tips BY TOM STANTON AND DOUG CALDWELL

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Transportation ABCs

Using Group Purchasing to Lower Your Transportation Spend BY KEVIN MCCASKEY

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Regional Alternatives

When Free Shipping Is Not Enough BY MARK MAGILL

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Ship Right

Undeliverable Mail & Parcels: How to Fix this Costly Problem BY JEFF STANGLE

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Inbound Is the Main Event BY ROB SHIRLEY

2901 International Lane Madison WI 53704-3128 608-241-8777 • Fax 608-241-8666 www.PARCELindustry.com

Four Critical Reports that Will Improve Visibility into Your Shipping Spend

Is Dual-Sourcing Right for You?

Whether you single-source or dual-source your network can have significant impact BY MIKE WILLIAMS

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Even Michael Jordan Had an Agent

When it comes to reducing your transportation spend, a third party is sometimes a necessary component BY DOUG STARCKE

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The Not-So-Mad World of International Optimization What optimization is and how it can benefit the global shipper BY RAJIV SAXENA

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Now that the rate increases have taken effect, a look at the severe financial consequences of not understanding the changes BY KEN WOOD

EXTRAS Editor’s Note

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PARCEL Counsel

The CSA/Schramm Problem — Part I: A Complex Situation BY BRENT WM. PRIMUS, JD

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Product Spotlight

REPRINTS For high-quality reprints, please contact our exclusive reprint provider. Scoop Reprint Source • 800.767.3263 ext. 144 www.scoopreprintsource.com PARCEL (ISSN 1081-4035) is published 6 times a year by RB Publishing Inc. All material in this magazine is copyrighted 2012 © 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.

UPS and FedEx 2012 Rate Increase

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Josh Vogt 785-320-7950 josh@rbpub.com

Supply Chain Pivot

The consequences of living without good reporting could cost you thousands BY THOMAS ANDERSEN

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ADVERTISING Ken Waddell 608-442-5064 ken.w@rbpub.com

Supply Chain Management

FEATURES 16

GRAPHIC DESIGN Kelli Cooke

Taking Advantage of NAFTA – Exporting to Canada BY SAM KARAM

Parcel Perspectives

Impressive Cost Savings with Non-Production Shipping BY PETER STARVASKI

PRODUCTION DIRECTOR Chad Griepentrog

Packaging

Sealing Your Package Securely for Safe Transit BY JAY F. PERDUE

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CIRCULATION Rachel Spahr | rachel@rbpub.com

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.

Follow Us on Twitter @MST_ParcelMedia.


EDITOR’S NOTE AMANDA ARMENDARIZ

Minding Your Transportation Ps and Qs Transportation: that’s the theme of our March/April issue. In one sense, it was hard to narrow down the articles to include in this edition. To the rest of the world, “transportation” is just a general term that describes how to get from Point A to Point B. But for people in our industry, “transportation” is so much more and covers so many aspects. Our feature pieces range from improving visibility into your shipping spend, to deciding between single-sourcing and dual-sourcing, to determining whether a third party will help you reduce your shipping costs. But as wide and as varied as these topics may seem, they all deal in some way with transportation — and with data. In fact, it seems that data could be a secondary focus of our issue, even though we didn’t start out with that intention! One common theme that appears in all our feature articles is the importance of data as it relates to your transportation operation. Whether you want to optimize your transportation structure, or improve visibility into your transportation spend, “data” is the key word that ties these topics together. Like they say, “You can’t manage what you don’t measure,” and you can’t measure anything without accurate data. I hope that this issue is a helpful one for you as you strive to improve whatever area of transportation you are associated with. Don’t miss our product spotlight section on page 30, where some of the top transportation solution providers in the industry showcase some of their latest offerings. And don’t forget that we provide many other resources as well; our monthly e-newsletters, our Twitter account, our LinkedIn group, our digital magazine, and, of course, the PARCEL Forum. So connect with us in whatever way you prefer, and we’ll navigate this often-changing industry together. As always, thanks for reading PARCEL.

MARCH-APRIL 2012 | www.PARCELindustry.com

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GoinG Global with Tom

Stanton & Guest Doug Caldwell

Global Shipping Contract Tips When it comes to global parcel and freight forwarding agreements, caution should be the rule of the day. Why? Because these agreements can often contain difficult to interpret terms or conditions, which could affect your shipping costs either now or in the future. The end result should be a fair agreement for both sides, with terms and conditions clearly delineated. And don’t be afraid to seek outside professional assistance before signing on the dotted line. Carriers are understandably reluctant to reopen an already completed agreement, so it’s important to have the necessary T&Cs right the first time. Here are a few tips, gleaned from many years of experience.

GRI: Another important consideration regards GRI (General Rate Increase) terminology. Although beyond the scope of a quick tip, we have developed strategies that limit rate and accessorial exposure during the second and third year of pricing agreements. GRI terminology can be expressed in many different forms. Our goal is terminology that is fair to both parties, while limiting the scope and impact of future increases to a reasonable, pre-agreed upon amount.

Data Bedrock: Solid shipment characteristic data is vital to

Accessorials: We are often asked about which accessorial

achieving reasonable contractual discounts. It is worth the time and effort to take last year’s shipment data and this year’s sales projections and convert them into accurate, detailed shipping volume estimates for both domestic and international volume estimates.

Definition: One thing to keep in mind at the outset is that what we often refer to as “carrier contracts” are actually pricing agreements, and typically do not mention the word “contract.” Typically, these agreements have a 30-day cancellation provision, by either party, and without cause. In our experience, however, it’s unusual that a carrier will exercise the cancellation provision and pull the pricing on agreement prior to the expiration of the agreement. Inclusive Discounts: Oftentimes we have seen some agreements that did not include discounts for all the services our clients were using. It is important for a shipper to have discounts in place for the services he intends to use and then to alert those shipping where the discounts are applicable. For example, in some cases an express service may have a lower net cost than an economy service based on the carrier discounts being offered. The users should understand that next AM type services typically are not discounted or have limited discounts so that a 10:30 service is much cheaper for around two hours’ difference in delivery time.

Flexibility: Some pricing agreements include provisions that may limit your flexibility, either in the event that your shipping volume decreases, or that you wish to explore other carrier options. These provisions can be in the form of tier based incentives, deferred incentives, reduced discounts, rebate checks, or even cash penalties if certain conditions are not 6

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met. As a general rule, we advise our clients on strategies to avoid those provisions whenever possible.

charges can be either be reduced or avoided altogether. Our simple answer is the pricing needs to be looked at in its totality. For our clients, we seek the best combination of service, base rates, and accessorials, which results in the lowest overall costs at the end of the day. Is it possible to get some accessorial charges waived entirely? Depending on your characteristics and spend, yes, it might be. But it is also highly likely that the waiver will be compensated by higher base rates. The take away should be: “Look at the bottom line total.”

Dimensional Weight: Dimensional charges are another hot topic, since a number of carriers continue to lower their dimensional factors, which has the effect of raising costs on packages with less than favorable cube characteristics. We consult with our clients on a number of dimensional related initiatives, and we believe that carrier pricing should reflect the totality of your shipping characteristics with that carrier. For instance, dimensional penalties do not take into account your overall cube (as represented as lbs. per cubic foot or kg per cubic meter), but instead penalize individual packages or shipments with less favorable cube. Summary: When developing your global shipping contract, there are a number of factors to consider. Good data and solid advice from an experienced professional are essential to development of a solid global contract. Careful review of accessorial fees, GRI, discount tiers, dimensional factors, and overall discounts can all contribute to cost savings. p

Thomas m. sTanTon, AFMS international Analyst, can be reached at tom. stanton@afms.com.


TRANSPORTATION ABCs with Kevin

McCaskey

Using Group Purchasing to Lower Your Transportation Spend Groupon might have made group purchasing popular in recent years, but the concept has been around for much longer than most people realize. Group purchasing organizations (GPOs) can be traced all the way back to farmers’ cooperatives of the early 1900s. GPOs have come a long way since the 20th century. Today’s GPOs are highly organized and streamlined associations that provide excellent benefits to purchasers and vendors in all types of industries the world over. The main reason to join a GPO is to combine your limited purchasing power with the purchasing power of other companies. The synergies that GPOs create increase opportunities for businesses to receive highly competitive discounts that typically aren’t made available to stand-alone companies. In an economy that is improving but still volatile, supply chain professionals who haven’t embarked upon a GPO initiative may want to seriously consider doing so in 2012. As you are undoubtedly aware, vendors typically offer much better rates and discounts when certain volumes and spend thresholds are reached. This is particularly true in the parcel industry. In addition to enabling you to achieve greater savings, becoming a member of a GPO can help you increase your company’s national or international presence almost immediately. When you become a member of a GPO, you become more visible as a result of having corporate exposure. New access to a global network of vendors allows you to consolidate and streamline your company’s vendor relationship portfolio. It also reduces the amount of separate fees and other costs involved in maintaining multiple partnerships.

Other potential benefits of becoming a GPO member include:

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The ability to work confidently with vendors already endorsed within your industry;

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Rebates (determined by how much your group purchases), which entitle your company to benefits for which it does not necessarily have to pay;

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Increased buying power in multiple areas of your supply chain, e.g., a food service buying group that gets excellent discounts on restaurant equipment might also be able

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to get great discounts on linens services, disposable food containers, office supplies, airfare, and more;

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Strategy sharing and vendor referral opportunities within your GPO, and

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Bottom-line savings that are immediate and easy to measure.

Keep in mind that a GPO’s organizational decisions are usually made by its members. As a member of a GPO, you should always have a voice when it comes to which vendors are approved and the services that are eligible for GPO discounts. You should also reserve the right to make final decisions regarding how much is purchased by your company. If your company isn’t large enough to qualify for a GPO, you may still be able to reap transportation savings through a 3PL that also uses buying power to leverage strong discounts. A good 3PL will have in place much better rates than any small or mid-size company would be able to achieve. Normally, it could cost you $220 to move a $1,500-pound pallet from Chicago to Los Angeles. If your 3PL has negotiated competitive LTL rates, the cost of moving the same pallet could be as low as $175. Partnering with a 3PL to gain leverage that allows for better rates and discounts isn’t the same thing as group purchasing, but it may allow you to obtain many of the same benefits — without having to sign complex agreements or commit to participating in a group. The recession might be over, but post-recession challenges continue to require supply chain professionals to look outside of their own organizations for high-level cost-saving solutions. Streamlining operations and making cutbacks can increase budgets up to a point, but sooner or later, it becomes necessary to turn outward rather than inward to achieve significant, ongoing savings. A GPO or 3PL partnership that leverages combined purchasing power can go a long way towards helping you meet your transportation savings goals. p

Kevin MCCAsKey is Senior Project Manager — Market Analysis, BridgeNet Solutions, a Chicago-based supply chain technology solutions provider. Kevin specializes in LTL, FTL, parcel, and international shipping. He currently works with BridgeNet’s local and international clients to execute high-level cost-savings initiatives that result in ongoing savings. He can be reached at kmccaskey@bridgenetsolutions.com.


REGIONAL ALTERNATIVES with Mark

Magill

When Free Shipping Is Not Enough

The online retail industry passed the $200 billion mark in the • The Texas Triangle 2011 revenue estimates released last month. Projections show • The Phoenix Sunbelt it will grow by another 60% in the next five years and cross the • The Great Lakes $300 billion threshold by 2016. These are staggering figures • The Front Range of Colorado when you consider that e-Commerce still only comprises about • Southern California seven percent of retail sales. This has had a profound impact on the parcel delivery marThe population of these Mega-regions totals nearly 200 milket. An industry once dominated by the commercial segment lion consumers and the overwhelming majority of e-Commerce has been inundated by business-to-consumer deliveries. At last deliveries are shipped to them. If you would like more details, count, it had exceeded 40% of all shipments and it is relent- an Internet search of Mega-regions will provide you with full lessly approaching the halfway point. The fiercely competitive color maps of their locations. e-Commerce landscape has caused free shipping to become The solution to your faster time in transit requirements are the an almost standard offering on most websites. This has caused regional parcel carriers that are located in most Mega-regions. the volume of postal consolidators to spike up sharply because These carriers have a next-day Ground delivery footprint that is they are the lowest cost shipping method. But what are your much larger than that of UPS and FedEx. They offer guaranteed alternatives when free shipping is not enough to satisfy the next-day delivery to Zone 4 destinations as far as 800 miles demands of your customers? from point of origin. For example, with a distribution center in The seven to 10 day delivery commitment offered by postal the Boston area, you could provide your customers with next-day consolidators may be a satisfactory option for inexpensive delivery to Philadelphia, with a distribution facility located in items ordered online (sometimes humorously referred to as Minneapolis your customers in Chicago would receive next day “cheap and cheerful’). But what are the realities when your delivery and with a distribution center in Reno, you can offer customer is ordering an expensive piece of apparel like a next day delivery to Seattle or Phoenix. The best part about it $700 leather jacket? Is it worth the risk of buyer’s remorse is that the deliveries would be performed at Ground rates. This with that type of high margin item? And what about the risk makes free shipping with faster time in transit a much more of shopping cart abandonment if they need the apparel for cost-effective advantage to offer to your customers. a special occasion and balk at the high cost of the express Last year I had an in-depth conversation about online delivshipping option on your website? These issues become even ery needs with the vice president of a very large e-Commerce more critical when dealing with the Generation Y/Millennial company. When I asked him his opinion about regional parcel consumers who have an expectation of rapid delivery without carriers, he mentioned that the regional carriers should talk being willing to pay extra for it. about nothing but time in transit because it has become such However, there are viable solutions to these issues in major a competitive factor. The largest Internet retailers are continumetropolitan areas of the United States. To gain a sharper insight ally raising the bar with faster deliveries. Not every company into these solutions, let’s first examine the term Mega-region. can afford to locate a distribution center in every state, but every company that wants to remain competitive can strategically place two distribution centers in the most effective locations to take advantage of the faster time in transit that the a mega-region is a geographical area where a large portion of regional parcel carriers provide. p the US population is concentrated. a good example of this is the Boston-New York-Washington corridor. it is home to more than 50 million people and over 18% percent of the US popuMARk MAgILL is Director of Business Development, OnTrac. Visit www.ontrac.com lation. Other examples are: for more information.

WhAT’S A MEgA-REgIoN?

march-april 2012 | www.PARCELindustry.com

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Parcel PersPectives with Peter

Starvaski

Impressive Cost Savings with Non-Production Shipping While I am generally involved in deploying solutions for large The same professionals may also give out their account number shipping operations, I was recently impressed with some sig- to have items shipped to them. The reality in this situation is nificant numbers that were achieved by employing improve- that the Accounts Payable person has no idea if the $50,000 ments in “non-production” shipping areas. bill is accurate. They have no idea who is shipping or what they The easiest definition of “non-production” shipping is there are shipping. Often, they just pay the bill. is no front-end integration to an order entry or warehouse manBy implementing within a company’s firewall a shipping system agement application. Data is either entered manually or is that is accessible to all employees, the situation improves signifioften pulled from the shipping application’s address book. cantly as shown by the previous numbers. Here are two simple rules that accounted for most of the savings previously mentioned:

What type of numbers are we talking about? 3

The soft drink manufacturer reported savings of nearly 1 million dollars, annually

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The laboratory posted $250,000 saved An online merchant saved $80,000

From someone who is involved in calculating ROI for large shippers, these non-production numbers are impressive; how did they achieve these savings? First, you need to realize that for many companies, the non-production shipping involves samples, contracts, displays, any number of items not directly related to an order that would come to a production shipping area. Quite often, this shipping is done in a very ad hoc manner with few controls; indeed with all three instances the impetus for looking at a solution was not from someone who ran the shipping operation — it was from someone in the finance team. Imagine Accounts Payable receiving a shipping bill for $50,000 with no real way of saying “This is accurate” or “That’s what was shipped by us, and here is how it was allocated across the company.” The problem with the ad hoc shipping methods of scientists, sales professionals, lawyers, doctors, and whoever might have a need to ship an item is that they go to the UPS or FedEx Store, or the post office, or they swing by the warehouse with a piece of paper taped to a box and interrupt the folks on the dock to get a package out for them. The receptionist at the front desk might be the shipping clerk for the office employees.

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Rule one: It very rarely has to positively, absolutely be there overnight. And even when it does, Standard Overnight (as a rule for the preferred carrier service) can provide significant savings as compared to an ‘early a.m.’ service. Indeed this simple change accounted for the majority of the nearly one million dollars in savings by the soft drink company.

Rule two: Everyone has to use the online system, and everyone has to enter their department or cost center. Sounds simple, right? This not only provides the accounting professional with an easy way to allocate shipping charges by department, it can also facilitate a very easy method to determine what was NOT shipped on the company’s shipping solution. The laboratory savings of a quarter of a million dollars was primarily due to recovering misuse of their account number with non-approved third party billing to their account. A quarter of a million dollars saved in one year by just being able to see who was shipping against their corporate accounts who were not employees of the company. I find that amazing and in my opinion is a form of identity theft that I did not realize was as prevalent as I’ve come to understand it is. So where did the $80,000 come from with the online merchant? Duplicate billing errors. The lesson here is that when you give the finance team the ability to determine if the shipping bill is actually what they shipped and should be seeing for an invoice, you’ve enabled them to uncover all sorts of errors when the numbers don’t match up. Many software solutions for shipping provide for the capabilities I’ve discussed, quite often with a low entry cost that enables you to start realizing ROI right away.

Peter starvaski is Director, Product Management at Kewill


PACKAGING with Jay

F. Perdue

Sealing Your Package Securely for Safe Transit One of my pet peeves is the improper sealing of packages, so this article on the topic of package sealing is one that I wish everybody in the shipping industry would read. As someone who is on the delivery side of the trip that your package makes, there are things that I see as I deliver your package that you should know about. Since you have taken great care to select the right package and packing material for your shipment, let us talk about the best option to seal your package. There are some people that are not going to like me for saying this, but here it goes anyway. In my opinion, paper tape, specifically water-activated adhesive paper tape reinforced with fiberglass yarns, is never a good option. This paper tape sounds like a great choice for sealing packages when you look at the features it has to offer. Put a roll into a special tape dispenser made specifically for paper tape, add a little water, make adjustments for the length of tape you want, and just pull the handle on the tape dispenser. The tape comes out in the exact length you want with the glue side wet. All you have to do is put the tape on the package and press down for a second or so until it sticks. The fiberglass yarns are incorporated into the paper for added strength and reinforcement. A person could practically seal a package almost as fast as he could pull the handle of the tape dispenser. However, there is a downside of using paper tape. First, the price of table dispensers range from a couple of hundred dollars to approximately a thousand dollars. Second, the glue only sticks to clean cardboard. Finally, there is always going to be movement within the box structure during transit no matter how securely the box is packed and sealed. Boxes sealed using this method are prone to damage and fall outs because the tape tears and the fiberglass yarns break due to the movement within the box. The best solution for your package sealing is clear pressure sensitive carton sealing tape, which is available in many widths from less than two inches to over four inches with thicknesses of 1.6 ml to 3.5 ml. Side load dispensers (tape guns) range in price from $10-20. Usually a case purchase of clear carton sealing tape will come with a free tape dispenser. The cost per foot of the “economy” clear tape compared to paper tape is approximately the same. Examples of this clear tape include: polypropylene with acrylic adhesive

for strong economic sealing; solvent acrylic adhesive tape for quiet applications; PVC film backing with natural rubber adhesive for strong backing, less stretch, and quiet application; and polypropylene with hot melt adhesive for economical light to moderate duty applications. Additional varieties are available. As a general rule, the acrylic adhesive tapes are the best for most applications because they can be applied in a wider temperature range (32o F to 150o F), they have a higher tolerance for low and high humidity conditions, they are cheaper than rubber or hot melt adhesives, and they just stick better to packages.

BeneFits oF using CleAr CArton seAling tAPe: • Will not tear like paper tape • Withstands box structural movement during transit • Wraps easily around irregular sized boxes or containers • Sticks to most surfaces such as cardboard, wood, plastic, fabric, and metal • Can apply over address labels and packing slips and still be able to read through the tape • Has superior adhesive capability compared to water activated paper tape • Provides various types for the different applications you may have

As you can see, I am a huge proponent of clear package sealing tape. I see too many packages that are sealed with paper tape get rips and tears in the tape, allowing the contents to fall out. If you want to be confident that your package will stay sealed during transit, please use clear package sealing tape and avoid using paper tape. p

JAy F. Perdue is passionate about packaging because he handles other people’s packages all day and every day. He is a driver for UPS for 26 years and is in the top four percent of drivers with 26 years of safe driving. Contact him at jperdue@austin.rr.com. march-april 2012 | www.PARCELindustry.com

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SHIP RIGHT with Jeff

Stangle

Undeliverable Mail & Parcels: How to Fix this Costly Problem One of the most common — and expensive — mailing and shipping problems is un-deliverability. Not only does it result in returned mail and parcels, it can negatively affect customer relations, billing, and other critical business processes. Although mail volume is shrinking, “return to sender” mail is down just 0.62% since 2004, with around 1.6 billion pieces each year.* This is an acute problem for all types of mailers, but most of the topical published articles focus on letter and flat mail like billing, explanation of benefits (EOBs), and regulatory notifications. Let’s take a look at the impact to parcel mailers, which is significantly higher…

ScopInG THe TRue coSTS By our estimates, each piece of letter return mail costs the sender an average of $3 per piece, resulting in more than $4 billion to the mailing industry each year. The cost of an undeliverable parcel is significantly higher than $3 per piece because:

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Postage / shipping costs for parcels – Compare a first class stamp at $0.45 to a minimum charge of $0.80 for a lightweight parcel.

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Labor cost of handling returned parcels

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Manual labor to physically process parcels Labor to retrieve order information Labor to facilitate credit or refund Inventory Management — Re-stocking merchandise returned to the warehouse. Restocking fees can cost upwards of $7 per item. Address Correction Fees — An expedited carrier may charge up to $10 in value-added service fees in order to “correct” a single package address, so a merchant with a million shipments per year may pay upwards of $100,000 $400,000 in additional shipping costs annually.

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What these costs don’t address is the impact to customers. A parcel mailing may be a company’s only chance to make a positive impression on a client. If I don’t receive a product that I ordered online, chances are that I won’t do business with that company again. I’m definitely going to call the customer service line or tweet and complain, and I’m likely to cancel my payment to the company. So the customer impact of an undelivered parcel is exponential compared to an undelivered letter communication. When evaluating total cost, it is critical to look at the quality of name and address records that you are receiving. We’d all like to think that the quality of name and address records are the same for all mailings, but the source of a record for a parcel mailing will be different from a recurring statement. The package that you are sending may be the very first communication that you send, which means that it is the very first time that you are using their name and address information. Typos in an online ordering tool that doesn’t perform realtime delivery point matching can cause a higher undeliverable rate on parcels than on traditional letter mailings. If someone hasn’t updated their online profile with recent move information, that will impact your undeliverable rate.

Point Solutions Mailers can begin solving their return mail problem with USPS address tools. There are also third-party solutions, such as NCOALink and LACSLink, which work with postal certified databases. To make sure your return mail solution has maximum bottom line impact, you need the right tools and services to obtain, check, and develop the data and then take proper actions. It’s critical to work with a technology solution provider to develop a roadmap and constantly review the latest tools and services.

The Right Answer The most effective solution for reducing operating costs and fines is to develop a centralized, automated managed address service. This integrates technology at different points in your end-to-end process and will close the loop between pre-shipping address processes and returned (undeliverable) packages. This centralized service model has five key places to get connected with your customers. * USPS 2011 National Postal Forum


1. Get it right at data-entry. Your best chance of getting the address correct is when your customers are interacting with your company. Leverage CASS (Coding Accuracy Support System) tools that validate to the delivery point that the address exists. Be sophisticated with your CASS engine — missing or incorrect apartment numbers can make the difference between a package that gets delivered or ends up on the floor of the building. 2. Use postal certified address management tools prior to shipping. Postal hygiene tools will give you great indications as to which records are deliverable, which are suspect, and which ones will not get delivered. They will also correct many of the common addressing errors. 3. Build a workflow that uses other (non-postal) data. If postal data tells you that an address is undeliverable, don’t just ship it. There are additional resources available today to update a person’s address using third party data. 4. Convert your returns to data. Barcodes and scanning technology have been used effectively in the industry for years. Put them to use when managing a parcel that has been returned because it was undeliverable. Once physical return mail is converted into data files, there are many options to update the address and resend the parcel to your client. 5. Reporting, auditing, and metrics. The information generated by your process gets you to the root causes of your company’s address issues. Tracking, analysis, and documentation provide metrics to close the loop on your name and address management system. Because of the complexity of the issues, it’s advisable to work with a consultant with postal expertise to design and implement the correct solution for your company — the benefits can be huge. Our research confirms that taking a centralized, automated approach to return mail can reduce operational costs by up to 70%. The rest of the total cost, such as missed payments, are 100% returned to the bottom line! p

JEFF STANGLE CMDSM, MQC, Six Sigma Black Belt is Director of Solutions Development, Enterprise Postal Consulting, Pitney Bowes Management Services. For more information on how you can reduce your return mail expense or to engage a certified postal consultant, please go to www.pb.com/Management-Services

MARCH-APRIL 2012 | www.PARCELindustry.com

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Supply Chain ManageMent with Sam

Karam

Taking Advantage of NAFTA — Exporting to Canada Statistics tell us that Canada is our biggest trading partner. Yet, and sadly enough, thousands of US companies are not aware of that fact and, worse, not many have heard of the advantage NAFTA brings to the trading table with Canada. Let’s start with a look at NAFTA, what it is, and what it means to you as a business owner, operator, or the head of marketing and international sales for your company. NAFTA is the North American Free Trade Agreement, an agreement signed by the governments of Canada, Mexico, and the United States, creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994. The agreement opened the door for open trade, ending tariffs on various goods and services, and implementing equality between Canada, America, and Mexico. NAFTA allowed agriculture goods such as eggs, poultry, and other meats and crops to be tariff-free. This allowed corporations to trade freely and import and export various goods on a North American scale. For more details on NAFTA, please visit this link: http://www.ustr.gov/trade-agreements/free-trade-agreements/ north-american-free-trade-agreement-nafta

IMportant StatIStIcS: • In 2010, Canadian companies spent $248.2 billion to purchase US goods. • US goods exports to NAFTA in 2010 were $411.5 billion, up 23.4% ($78 billion) from 2009, 149% from 1994 (the year prior to Uruguay Round) and up 190% from 1993 (the year prior to NAFTA). US exports to NAFTA accounted for 32.2% of overall US exports in 2010. • The top export categories (2-digit HS) in 2010 were machinery ($63.3 billion), vehicles (parts) ($56.7 billion), electrical machinery ($56.2 billion), mineral fuel and oil ($26.7 billion), and plastic ($22.6 billion). • US exports of private commercial services, excluding military and government, to NAFTA were $63.8 billion in 2009 (the latest data available), down seven percent ($4.6 billion) from 2008, but up 125% since 1994.

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are You readY to trade wIth canada? Eighty percent of Canadians live within 100 miles of the border cities of the USA. The good news is that your product can reach the end user more quickly than you previously thought. However, what tools do you need when exporting to Canada? 1. A Canadian agent that will act like a selling office for your goods in Canada. The U.S. Department of Commerce office in your area will help you to set that up. They will come to you, learn about your business, products, and your competitive advantage. They will help you select the right selling agent in Canada. Please contact your local office and set up the appointment. 2. A logistics expert that will provide you with services that will transition your exported goods in a timely fashion while reducing your cost of doing business and maximizing your profit. There are many companies that provide those services; choosing the right company is the key.

Many first time exporters to Canada will find it challenging to deal with documentations and other regulatory compliances. Therefore, finding the right logistics expert is the most important key to your success in Canada. Canada is the number one importer of US goods, so take advantage of the opportunity and remember, it is not the size of the logistics company that determines their expertise; it is the history of successful practice that makes a company an expert. Choose wisely. p

SaM KaraM is Branch Manager, purolator international, houston, Texas uSa. he is the author of the people Buy from people Blog at http://sellingtomorrow.blogspot.com. Contact him at skaram@purolator.com or visit www.purolatorinternational.com for information and to locate the uS office nearest to you.


Supply Chain Pivot with Rob

Shirley

Inbound Is the Main Event Garbage in, Garbage out (GIGO) easily translates to the supply chain because it is a continuum that is dependent on the right information to deliver the right product, at the right time, with competitive cost, because the customer can and will find another supplier. Inbound logistics as part of the supply chain is definitely as critical — if not the most critical part — in the process.

Fortunately, there are opportunities to improve your competitive strengths that may currently be costing profit and customer satisfaction: 1. The relationship between purchasing, logistics, sales and marketing is not always optimally aligned. 2. The shipper (often a vendor) is in control and responsible for selecting the mode and carrier, leaving the purchaser with only product selection, leaving half of the benefit of supply chain management as an open opportunity. 3. Single sourcing and/or reduction of suppliers produce short-term cost savings but lack emergency solutions and flexibility for problems that are not predicted. 4. Information on what and when product will be delivered is not always complete or available in real time. 5. Printed routing orders are no longer effective in an electronic environment. Elegantly performing this entire process well is what the market really demands. I spoke with Steve Leggett Jr., Senior Manager of Commodities and Logistics for Gradall, to understand how he is succeeding in this environment. Gradall manufactures big excavators that weigh 20-40 tons. They are using high tech effectively with one of the largest robotic welders in America, lasers, 340 employees, and a sophisticated supply chain management process. Gradall’s inbound freight is from over 400 vendors in the US, includes over 3,500 SKUs and makes up 85% of their transportation cost with the remaining 15% utilized to move their final manufactured excavators. Total annual transportation spend is approaching $2,000,000, and managing the supply chain is a key to the whole company’s competitive differentiation.

Gradall is a division of Alamo Group (www.alamo-group.com), and Steve began improving the process two years ago with these changes:

3 Focus on four to five carriers for each lane segment with

decisions being made on order to delivery time, quality, low damage, and price. Steve negotiates with each carrier himself and is effectively saving cost on shipments. All 3 vendors use the same process because it reports in real time on orders that are quoted, pending, in transit, and delivered. The data can be accessed by Steve and his team by product, purchase order, summary, lane segment, and many more variables. Viewable order information makes coordination with sales, customer service, inventory, manufacturing, and shipping a coordinated network. 3 Carriers are automatically ranked first to fifth on each shipment and the vendor is instructed to pick the top carrier in the ranking when they electronically receive the purchase order. Steve has elected to shield carrier pricing from vendors and is notified if a vendor doesn’t follow the selection protocol. 3The solution saves time and money as opposed to a standard transportation management system (TMS) that requires rekeying data when a carrier’s tariff changes. Rate changes are done automatically and in real time. 3 Steve provides the carrier reps a comparison by lane segment so they can use them with their pricing department to offer better pricing for Alamo’s carriers. Once approved by the carrier, it is immediately available online to all vendors. Cost savings begin immediately. Alamo has a 98% fill rate, but in cases where their cus3 tomer needs a part ASAP, it is shipped directly to the customer from the vendor and the freight is billed to Alamo as a third party, with their negotiated rates, providing complete control for outbound, inbound and third party shipments for pricing and visibility. Surprisingly, I can’t find a word that is the opposite of GIGO in the overall lexicon, so we will call the more efficient supply chain system — SCIXY (Supply Chain Information Multiplies Yield). p

Rob ShiRley is president of ExpresShip, inc. a strategic partner in the global supply chain. Contact him at rsxpship@gmail.com. march-april 2012 | www.PARCELindustry.com

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4

CRITICAL REPORTS that Will Improve Visibility into Your Shipping Spend By Thomas Andersen

In the course of a given week, I speak to a handful of our clients and invariably, I find one common theme that separates exceptional shipping departments from their average counterparts. Simply put, the exceptional departments have access to concrete data that gives them unique insights into their operation and — this is the key part — they act on that

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data to enact substantial and meaningful change. Even more impressively, when I talk to our clients who have implemented change based on the data provided, I’m amazed at how one simple report can generate such a monumental difference in the day-to-day operations of most facilities. In short, good data engenders great results.


Let me give you an example. I just returned from speaking with one of our newest clients in New York City. The company distributes generic vitamins and over-the-counter pharmaceuticals to large retailers like Walgreens, CVS, and Wal-mart, among others. As I walked through the warehouse with the shipping manager, reviewing his operation, the conversation turned to their small parcel spend. I brought up the subject because after looking through their data prior to the meeting, I noticed that their packages were being billed at a relatively high weight — 38 lbs., to be precise. I asked the shipping manager about this, and he said they had tried to figure out why they were being billed at such a high rate given that their commodities simply aren’t that heavy. In fact, he referenced to me that most of their shipment weights did not exceed 17 lbs. Continuing through the warehouse, we rounded a corner and came across a few packages that were being prepared for FedEx pickup. The Shipping Manager explained that those were the packages in question. To me, they looked slightly larger than three cubic feet, yet the dimensions weren’t marked, so we pulled out a measuring tape to check. With the dimensions measuring 21”x21”x14”, the packages were measuring out at 6,174 cubic inches (beyond the 5,184 cubic inch threshold set by FedEx). So with the 166 dim factor in play, these packages were being billed at 38 lbs. — which is the dimensional weight — rather than 17 lbs., or the actual weight. What does this mean for the client? Essentially, with a 2012 base rate of $20.48 for a zone 5, 38 lb. package versus $10.65 for a zone 5, 17 lb. package, a slight change to the packaging could reduce the transportation spend by nearly half. Sadly, this had been going on for years, simply because no one knew any differently. One look at the data changed all that and showed this client why having good data that accurately reflects the shipping operation is, quite simply, mission critical.

IMPROVING VISIBILITY We depend on having visibility to the data, and not just shipment/piece count and averages for weights and zones, but rather detailed reports that paint a holistic picture of an organization’s distribution operation. But with myriad data to sort through and ability to slice it six ways from Sunday, how is any busy shipping manager supposed to know which reports can have the biggest impact? After all — the data is great, but if it doesn’t tell you anything, it’s nothing but a bunch of numbers. To that end, I’ve detailed the four most critical reports that any organization should access regularly in order to make informed decisions:  Detailed Zone Analysis Report: This report provides the ship-

ment count by service level, zone, and weight, in addition to a summary of the volume and cost by service level and zone. This essential report offers an organization insight into the activity for each zone and the respective costs that are associated with shipping to each zone. Why is this essential? By tracking trends by zone, you can spot areas that may help you to reduce cost. For example, if there is a package that is

typically shipped air, a Zone Analysis Report will show if you can save costs without sacrificing service by changing that shipment to ground. Without that report, you may go on like the above example — unknowingly paying an unnecessary extra $10 per shipment.  Charge Mix Summary: This report will provide a breakdown of all costs by service level. It will then split out all accessorial charges including common fees such as fuel, residential surcharges, delivery area surcharges, and the “surprise fees” like address correction, late fees, large package, residential adjustments, and shipping charge corrections. This helps manage overall expenses and address the cost of fees either through negotiations or internal changes.  Dashboards for C-level Employees: Comprehensive dashboards that offer clear and precise high-level, summarylevel information, typically focused on KPIs, can offer an “at-a-glance” strategic review of operations. In addition, dashboards help measure the overall health of an organization’s transportation spend as measured against the cost of goods sold.  Billing Mix Summary: This report helps identify invalid and unexpected charges. This can often be for “sub-services” such as third party, freight collect, returns, and inbound shipments, which may not be receiving discounts. It is common for agreements to contain pricing for some of these services, while ignoring others. Most people are often surprised by the unexpected charges that they come across in these reports, which is why it’s essential to constantly monitor this area and ensure that you’re getting the appropriate refunds from the carriers. Depending on your organization, having access to other reports such as mode-optimization, GL code summaries, consolidated shipments, and others can also be extremely beneficial. Although it’s a challenge to create and manage these reports on your own, your freight audit company should have this information available to you and should review this with you regularly. If not, finding a way to access these reports will offer an overall strategic view of the operation that most organizations can’t live without. After all, the consequences of living without good reporting could cost you thousands.

THOMAS ANDERSEN is Director of Pricing for Logica. He and his team have helped to negotiate over 25,000 contracts with UPS, FedEx, and DHL. Often considered one of the foremost pricing experts in the industry, Thomas contributes frequently to Parcel Magazine and other industry publications. He is a sought after speaker, thought leader and writer and is considered at the forefront of helping organizations gain visibility into their logistics spend. He can be contacted at tandersen@logica.net.

Find the information you need to improve your transportation operation. Check out page 30 for our Transportation and TMS Resource Spotlight.

MARCH-APRIL 2012 | www.PARCELindustry.com

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Is Dual-Sourcing Right for You? Whether you single-source or dual-source your network can have significant impact By Mike Williams

It

is a common question heard throughout the parcel industry: Should I singlesource or dual-source my network? The reality in today’s shipping environment is that the vast majority of shippers have chosen to single-source their domestic parcel network with either FedEx or UPS. And usually it is the shippers who are currently single-sourced that are asking the question. All shippers dream of an environment where both carriers are engaged in supporting their network and good old-fashioned competition keeps prices low and service high. And having the flexibility of a dual-sourced network sounds like a great idea to those shippers that are currently on the other side of the fence. But dual-sourcing is certainly not right for every shipper. By understanding the characteristics that determine whether or not a dual-sourced network can realistically be achieved, shippers will be able to more effectively develop their sourcing strategy.

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The first characteristic that can drive a shipper to a dualsourced solution is the shipper’s overall parcel spend. Typically when a shipper’s annual parcel spend reaches $70 Million, the shipper has the package volume to warrant a dual-sourced solution for their network without significantly impacting pricing. While it is very difficult for a $70 Million package shipper to move from a single-sourced to a dual-sourced solution, it is usually larger shippers who are engaged with both FedEx and UPS and are leveraging their overall volume to find ways to keep both carriers as major players in their network. The second characteristic is the volume of air versus ground packages. If a shipper has a significant volume of both ground and air shipments, they may be able to implement a dual sourcing model even though their overall spend is less than $70 Million annually. Selecting one carrier for air shipments and a different carrier to handle the ground shipments is a viable strategy but only if the annual volume in each service type is significant. Discounts can be


achieved with both carriers based on the service they are providing, which would equal the discounts in a single sourced scenario. On the flip side, a shipper who has all their shipments centered in one service type (air or ground) would see a cost increase if they tried to split their shipments between two carriers. In addition, the operational complexities that can be required to support a dual-sourced ground network, for example, would be significant. The primary driver of the procurement decision for many shippers is cost. How important is it to your organization to have the lowest possible cost structure? Is cost the primary criteria for making carrier choices? Or are you willing to implement a more expensive solution that provides superior customer service and is a better fit to your operational requirements? If cost is king, then you are most likely going to end up with a single-sourced solution. Carriers put a premium on locking out the competition and can provide an

gaining the volume that is currently being shipped with the other provider. For some shippers, this can be a procurement nightmare. If you are used to managing your network with an annual bid process, then the constant evaluation of pricing proposals may not have an impact. But if your organization runs a standardized procurement process, awarding business on 24 or 36 month cycles, then a dual-sourced environment may create additional work and not be a fit for your organization. Most companies who operate in a dual-sourced environment are constantly tweaking the network for optimal efficiency. Volumes flow to and from carriers based on pricing, service requirements, capacity, and opportunity. Each carrier maintains a large portion of business, but 20% of the shipper’s network is in a constant state of flux. Managing this flux is a process that not every organization can support and should be taken into consideration when making the decision on how to source your parcel network.

Multi-Carrier Solution

Single-Source Solution

Spend over $70M in parcel annually

Spend less than $70M in parcel annually

Have a large volume of both ground and air shipments

Volume heavily weighted in either ground or air

Cost-conscious, but service is primary concern

Cost is the primary carrier selection criteria

Require flexibility and risk mitigation

Unconcerned with carrier service interruptions

Entertain annual carrier bid events

Make carrier awards on a 3 to 5 year cycle

overall better value proposition for medium to small shippers if they are handling 100% of a shipper’s parcel network. If cost is not the primary carrier selection criteria, then dualsourcing becomes a more viable option. An interesting reason often given for entertaining a dualsourcing solution is to mitigate risk. Back in 1997, UPS flirted with a labor strike that threatened the stability of the parcel market. Shippers went scrambling to FedEx for capacity, and for a brief period (15 days), the parcel world was sent into a tail spin. The impact of the UPS labor strike is forever etched into the minds of every shipping professional and is often used as the evidence for a dual-sourced solution. Some shippers today choose to mitigate their risk by splitting their network across multiple carriers regardless of cost. While I understand the thought process, I believe that both FedEx and UPS have learned from previous history and have worked diligently to eliminate the risk of strikes and work stoppages across their operations. But, if redundancy is what drives your decision making processes, then you would obviously look to implement a dual-sourced solution. Finally, it is important for a shipper to understand the impact that a dual-sourced solution would have on their own internal procurement process. In a dual-sourced environment, each carrier is constantly looking to gain additional business. Even if business has been awarded, and contracts signed, carriers will be providing additional proposals in hopes of

Finally, let me say that there are many benefits to having multiple carriers engaged in your network. Each carrier has something unique that they can bring to the table and most companies would benefit from finding ways to engage multiple carriers in the overall network solution. Here are just a few of the advantages of operating a multi-carrier network: } Support of customer choices } Gain best pricing across entire network } Ability to match customer’s service requirements to carrier’s

strengths/products } Ability to mitigate risk

In the end, shipper characteristics drive the single-source vs. dual-source decision process. If a shipper understands their network they are more likely to know if one carrier or multiple carriers is the right solution.

Mike WilliaMs is Vice President of Consulting Services at Green Mountain Consulting, LLC, a spend management company focused on reducing cost services for large parcel shippers. You can reach Mike at 877.397.2834 or via email at mike@gmcps.com.

march-april 2012 | www.PARCELindustry.com

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Even When it comes to reducing your transportation spend, a third party is sometimes a necessary component By Doug Starcke

U

nless you’re the most avid of sports fans, you have probably never heard of David Falk. Listed among the “100 Most Powerful People in Sports” for 12 straight years from 1990 to 2001 by The Sporting News, Falk is best known for his representation of Michael Jordan throughout Jordan’s entire career. Jordan’s fame and fortune are well-documented, but depending on who you ask, you’re likely to get very different stories about his agent. Players loved Falk because he could negotiate deals that owners and companies seeking endorsements said could not be done. Those owners and companies? Well, I’m sure they would portray him in a different light. Sound familiar? In the current climate of ever-increasing parcel costs, it is as important as ever to obtain savings for your company by any means necessary. Increases in accessorial charges, pricing and fuel surcharges (the top three biggest complaints about a company’s primary carrier in the most recent PARCEL annual industry survey) have forced companies to get outside the box and proactively find solutions to combat rising costs. 20

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Let’s face it: you know your business, and the carrier knows its business. The difference is that the carrier probably knows a lot more about your side than you know about theirs. Why? Because they have thousands of customers like you that depend on them for their shipping needs. That’s an awful large data pool. So when UPS and FedEx announced similar rate increases, as has become customary, that took effect in January, it was no surprise that the 4.9% net increase they announced failed to accurately portray the true effect that the changes might have on any given company’s bottom line. Remember the three biggest complaints — about accessorial, pricing and fuel increases? Hidden amongst these increases are a plethora of minimums, tiers, and additional surcharges that are all designed to make the carriers money. It’s working. FedEx announced 76% Q2 profits in December, raking in more than $497 million. These are impressive results considering the drop in volume for its Express and Freight services. In January, UPS followed suit with record profits of its own, in Q4, announcing a six percent total revenue increase, up to $14.2 billion, and a 17% bump in adjusted operating profit, to more than $2 billion.


Of course, this is great news for shareholders. Pop “United Parcel Service” or “FedEx” into your Google News search bar and the returns will be inundated with stock market blog and finance news results pertaining to dividends, profit forecasts and, depending on when you search, 52-week highs. But who’s footing the bill? Below is a breakdown of the net impact of each carrier’s 2012 rate increases:

uPs } The charge for additional handling will

increase $0.50, to $8.50, up 6.25%. } Commercial delivery area surcharges (DAS) will

increase $0.15, to $2.00, up 8.1%. } Extended residential DAS for UPS Ground and Air

Services will increase $0.25, to $3.25, up 8.3%. }The charge for Declared Value will increase $0.05,

}

}

} }

to $0.80, per $100 of the value declared and the minimum will increase $0.15, to $2.40, both up 6.7%. The charges for Delivery Confirmation Signature Required and Adult Signature Required will each increase $0.25, to $3.50 and $4.50, respectively, up 7.7% and 5.9%. Residential Surcharge for UPS Air Services will increase $0.25, to $3.00, up 9.1%, rates for Ground services jumped $0.10, to $2.55, a 4.1% hike. Hundredweight Residential surcharge will increase $2.00, to $26.00, up 8.3%. Large Package Surcharge will increase $5.00, to $55.00, up 10%.

FeDex } The Additional Handling Surcharge will increase $0.50, to

$8.50, up 6.25%. } Commercial Delivery Area Surcharges (DAS) will increase

$0.15, to $2.00, up 8.1%. } Extended Residential DAS for Ground shipments will increase

}

}

} }

}

$0.25, to $3.25, up 8.3%. The surcharge will remain at $2.75 for FedEx Home Delivery shipments. The charge for Declared Value will increase $0.05, to $0.80, per $100 of the value declared and the minimum will increase $0.15, to $2.40, both up 6.7%. The charges for Delivery Confirmation Signature Required and Adult Signature Required will each increase $0.25, to $3.50 and $4.50, respectively, up 7.7% and 5.9%. Residential Surcharge and Ground shipments will increase $0.25, to $3.00, up 9.1%. Residential Delivery Charge for FedEx Ground and FedEx International Ground service to Canada will increase $0.25, to $3.00, up 9.1%. FedEx Home Delivery will increase $0.10, to $2.55, up 4.1%. Oversize charge will increase $5.00, to $55.00, up 10%.

If you increase your price while keeping operating costs constant, then you don’t have to be John Maynard Keynes to understand that your profits will soon be on the rise. If you raise your prices enough, then even a drop in volume, as seen with certain carrier service offerings, won’t be enough to dampen the returns.

What’s a Consumer to Do? In an industry where competition is so thin, the consumer is at a steep disadvantage. So if MJ needed an agent in a 30-team market, he would have been more likely to need an army if the NBA were a two-team league. There is, of course, one primary difference that some customers will point out when entertaining the thought of bringing in a third party — the delicacy of the carrier relationship. Well, if you thought Chicago Bulls owner Jerry Reinsdorf was happy to see David Falk walk through his door, think again. But unlike the line drawn by UPS and FedEx, Reinsdorf wouldn’t dare say, “I’m sorry Michael, but I refuse to do business with people who use a third party.” If you think about it, it’s almost comical. In today’s world, third parties are everywhere you turn. Business as we know it — that is, fair trade — couldn’t exist without them. Rest assured that both FedEx and UPS use third parties to drive profits. “Our improved performance was largely a result of effective yield management programs and strong demand for FedEx Home Delivery and FedEx SmartPost services,” said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer, in the company’s Q2 FY12 earnings release. That’s an interesting statement considering that the latter of those two services — FedEx SmartPost — relies on what? You guessed it… a third party. UPS employs SurePost to service its customers in the same capacity. The third party (the USPS in each scenario) doesn’t answer your phone call, doesn’t process your claim, but delivers your package! Isn’t that what you’re paying your carrier for? Despite the glaring imbalance between what each carrier demands from its customers yet implements in its own business practice, the biggest hurdle we face when working with current and potential clients is the fear of damaging that relationship. Often, a company has been working with one or both, and its rep, for some time, and is fearful of messing up a good thing. Any business man or woman worth his or her salt knows that this is a good practice. But during the current economic crunch, does the cost outweigh this perceived consequence? At the end of the day, business is business, and you shouldn’t be afraid that asking for an additional discount will ruin your relationship. Your carrier certainly isn’t afraid to ask for — no, demand — an increase, is it? And I’m sure that if you asked Michael Jordan how he figured out how much to ask for in his contract negotiations, his answer would be pretty simple. He hired an expert.

Doug Starcke is managing partner at First Flight Solutions, a Transportation Impact company. You can contact him at 910.200.8836. march-april 2012 | www.PARCELindustry.com

21


THE NOT-SOMAD WORLD OF

inteRnatiOnal OptimizatiOn

What optimization is and how it can benefit the global shipper By Rajiv Saxena There are times when a single word can completely change the meaning of an expression. Just look at Greta Garbo, whose misquote, “I want to be alone,” was repeated so often (and was so off-base) that even she felt the need to clarify that what she’d actually said was, “I want to be left alone.” Or consider what happens each time you add the word “global” to any supply chain. As any international shipper knows, that seemingly small addition comes packed with a host of extra complexities, including: Different currencies Various time zones Diverse infrastructures Multiple government agencies that may or may not touch a shipment } Thousands of additional possible trade lanes } Countless untested scenarios } } } }

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And often it requires an army of professionals, an iron constitution, and many extra hours to successfully navigate them. Fortunately there are several engineering techniques, such as optimization, that can help.

OptimizatiOn Re-Visited The fact that optimization exists is not breaking news. The practice has been around since the 1940s, and over the past two decades, it’s virtually become a household name in the transportation industry. However, like Garbo herself, it’s frequently been misunderstood, which is why it’s helpful to review a few key particulars: } Optimization is both a mathematical and technological pro-

cess. It uses a combination of sophisticated systems and various mathematical models (linear, non-linear, and integer), and both are highly important to its success.


} The practice is by its very nature predominantly strategic.

} Global shipping load utilization. Finding the best combina-

However, its disciplines are just as applicable to tactical functions, which is why in the logistics industry you’ll frequently hear the term associated with everything from over-the-road freight and distribution center selection and network design to equipment selection and load building. } Its end result is (as its name suggests) the optimal solution for the challenge at hand — delivered more economically, more quickly, and with a higher level of certainty than simple rule-of-thumb or manual processes.

tion of ocean container dimensions (which range from 20 to 53 feet), transport arrangements (less than containerload or full containerload), and loading scenarios (single country consolidation, multi-country consolidation or co-loading) is considerably less time-intensive using the latest optimization tools. Plus these tools can help companies plan individual containerloads that maximize cube utilization and minimize shifting while products are in transit. } Increased risk. Optimization tools cannot fully eliminate supply chain risk, because in the real world business contingencies (such as product delays or changes in vessel schedules), political situations and natural disasters can crop up in an instant. However the better-designed ones can help companies quickly and decisively identify and implement the most appropriate Plan B to ensure that deadlines, cost parameters and other important business rules continue to be met. } Balancing delivery timing and costs. Companies can weigh all of the above — finding the best routes and lead times while examining each shipment’s lowest possible cost options, grouping and building the most efficient loads, and ensuring a constant ability to respond to any supplier, carrier or market changes — against their specific business rules and make changes at any time.

It’s also important to note that optimization has some highly relevant operating instructions and caveats, among them: } Just as a Formula One racecar will operate differently

depending on whether it’s being operated by a teenage boy or by Danica Patrick, optimization tools won’t work as well as they should unless they’re being applied by career engineers or highly trained technical specialists — because they usually are more complicated than most people realize } It is a decision support tool rather than a precision tool. It’s ideal for addressing the question of “Which one?” — be it a shipment, a venue or a shipping configuration. But it’s less helpful if your company wants to be 100% certain that the solution recommended is truly the best one or that it will continue to be the best one if you throw in a number of other variables. (That’s why other engineering tools such as simulation exist.) Most significant of all, it’s essential to mention that optimization continues to evolve — and unlike some evolutions (see Joan Rivers) it’s largely evolved for the better.

GloBAl ShIppInG, Meet GloBAl optIMIzAtIon For example, until recently optimization couldn’t truly be applied to international shipments, because the number of additional variables and constraints ruled out the possibility of using the relatively simpler linear mathematical models so often used for domestic shipments. But now some engineers and IT professionals have succeeded in deploying an algorithm that bridges the global optimization divide. As a result, optimization has recently become a far more viable option for international shippers that routinely face making supply chain decisions or addressing challenges such as: } International mode and route selection. In a typical Asia-to-

US shipment, companies could be choosing from all-air, air-sea, all-water to the East Coast, water to the West Coast combined with a transload, or West Coast MLB. They also might be sorting through a staggering number of carrier and route options. (For example, in the maritime segment alone, there are approximately 400 liner shipping services providing regularly scheduled sailings, according to the World Shipping Council). Now they can use optimization to rapidly and decisively filter through all of these options as well as expedited offerings such as time-definite ocean shipping.

A FInAl Word Needless to say, optimization cannot eliminate all of the hard work, challenges, and occasional sleepless nights that seem to go part-and-parcel with the decision to source or sell internationally. After all, even though it is a powerful tool, it is still just one tool in what should be a robust and diverse toolbox of many such global transportation business resources. (Others include web-based visibility systems, industry consultants, third-party logistics providers, “local” partners in each country, and a strong network of consolidation centers, deconsolidation centers and warehouses.) Nor is it a substitute for recruiting, hiring, and retaining the best logistics talent — because even the most optimally designed plans of mice and men are only as good as the individuals entrusted to implement them. However in a world where so many other elements such as rising fuel prices and the ongoing truck driver shortage often seem to be conspiring to make the typical transportation professional’s job more fraught with stress, it’s encouraging to know that there are a few things specifically designed to do just the opposite. Any way you look at it, that’s an optimal outcome.

Rajiv Saxena is vice president of global supply chain engineering for APL Logistics, an international provider of supply chain services that recently introduced ShipmentOptimizer, the industry’s first global shipment planning platform capable of automatically generating the best shipment plan against three concurrent objectives (cargoes arriving at final destination on the preferred date; maximizing space and load utilization; and minimizing overall transportation costs on a door-to-door basis.)

march-april 2012 | www.PARCELindustry.com

23


UPS and FedEx

2012

Rate Increase

Now that the increases have taken effect, a look at the severe financial consequences of not understanding the changes By Ken Wood

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The

beginning of the year — a time when UPS and FedEx simultaneously increased their rates. Wouldn’t you know, once again both companies’ increases are almost identical. I cannot imagine that this increase comes as a surprise to anyone who ships with UPS or FedEx or who works in the transportation industry, as this has become an annual tradition. The rates have gone up consistently over the years despite weakening economies and tightening budgets. As a shipper, it is absolutely vital to your organization to truly understand the carrier’s rate increase and the effect that the increase has on your company’s bottom line; after all, transportation is likely your company’s second or third largest expense. And by now, a few months after the increases took place, shippers have been seeing the effects on their budgets. According to its website, UPS’s 2012 Ground and Air rates increased a net of 4.9%. If you listened to and believed this propaganda, you were unpleasantly surprised when you saw your carrier invoice. When you take a closer look at the carriers’ rate tables, you get a more realistic and accurate view of the actual increase and how the increase will affect your particular business based on your company’s unique shipping profile. How is it possible that the carriers can continue to quote an average rate increase of 4.9% when the average increase to the typical shipper is much greater? It is

important to realize that the announced 4.9% rate increase is an overall average based on shipping one pound through 150 lbs. to every single cell in zones 2 through 8. There is not a shipper in the United States who fits that shipping profile. Nearly 75% of shipments weighing between one pound and 35 lbs., which is common for most parcel shippers, have increased between 6.5% and 8.8%. Shipments weighing between 71 lbs. and 150 lbs., which are much less common, have increased less than 2.8%. This allows the carriers to quote a 4.9% average increase. The following chart illustrates examples of the average percentage increases for Ground Packages by weight breaks as well as the increases for Air Services. Ground Service

Air Services

Average Rate Increase

Average Rate Increase

1-5 lbs.

7.9%

Next Day Air Early A.M.

6.5%

6-10 lbs.

7.5%

Next Day Air

7.6%

11-20 lbs.

7.1%

Next Day Air Saver

7.6%

21-30 lbs.

6.4%

2nd Day Air A.M.

6.4%

31-70 lbs.

4.6%

2nd Day Air

7.3%

71-150 lbs.

2.7%

3 Day Select

7.9%

MARCH-APRIL 2012 | www.PARCELindustry.com

25


Unfortunately, the base rate change itself is only half of the bad news. Package surcharges and accessorial fees can add as much as 30% or more to the cost of shipping a package. These additional fees, such as address corrections, residential surcharges, dimensional weight charges and delivery area surcharges (to name a few) account for a very large portion of both UPS’s and FedEx’s profits. Year after year, these accessorial fees have been increasing at a higher percentage than the base rates. As an example, in 2012 the “Large Package Surcharge” increased by 10% (from $50 to $55), the “Residential Surcharge” for air shipments increased by 9.1% (from $2.75 to $3.00), the “Delivery Area Surcharge” (DAS) for commercial shipments increased by 8.1% (from $1.85 to $2.00), and the “Residential Delivery Area Surcharge” for air shipments increased by 9.1% (from $2.75 to $3.00). If your company ships to residential locations or locations outside of major cities, which is becoming more and more prevalent due to the e-commerce boom, the 2012 increases are momentous. The following is a listing of the 2012 Accessorial Fee (surcharge) increases:

AccessoriAl Fees* residential air Surcharge: Increased $.25 from $2.75 to $3.00 (9.1%) residential Ground Surcharge: Increased $.10 from $2.45 to $2.55 (4.1%) residential 100 Weight Surcharge: Increased $2.00 from $24.00 to $26.00 (8.3%) Delivery area Surcharge air residential: Increased $.25 from$2.75 to $3.00 (9.1%) Delivery area Surcharge commercial: Increased $.15 from $1.85 to $2.00 (8.1%) Delivery area Surcharge “Extended” residential: Increased $.25 from $3.00 to $3.25 (8.3%) Delivery area Surcharge “Extended” commercial: Increased $.15 from$1.85 to $2.00 (8.1%) Delivery area Surcharge 100 Weight: Increased $.75 from $9.25 to $10.00 (8.1%) Declared Value (insurance) minimum: Increased $.15 from $2.25 to $2.40 (6.7%) Declared value (insurance) per $100: Increased $.05 from $.75 to $.80 (6.7%) additional handling Surcharge: Increased $.50 from $8.00 to $8.50 (6.25%) large package Surcharge: Increased $5.00 from $50 to $55 (10%) cOD (collect on Delivery) Fee: Increased $.50 from $10.50 to $11.00 (4.8%) Delivery confirmation Signature required: Increased $.25 from $3.25 to $3.50 (7.7%) Delivery confirmation adult Signature required: Increased $.25 from $4.25 to $4.50 (5.9%)

26

march-april 2012 | www.PARCELindustry.com

Delivery intercept Surcharge: Increased $1.00 from $14 to $15 for requests made by telephone (7.1%) hazardous materials Surcharge air/Ground: Increased $2.50 from $35.00 to $37.50 for Air (7.1%) and from $25 to $27.50 for Ground (10%) *The above Accessorial Fees are for UPS. FedEx Accessorial Fees vary slightly. For detailed FedEx surcharges and fees, visit http://www. fedex.com/us/2012rates/surcharges-and-fees.html

What is surprising is that most companies do nothing to “push back” on their carriers regarding these yearly rate and surcharge increases. There are several reasons as to why many companies just sit back and accept the increases: (1) Many believe that since they have a contract, rate increases do not apply to them. (2) The overwhelming majority of UPS/FedEx customers do not fully understand the impact that the rate increase has on their businesses, nor do they have the means to quantify the increase. Most accept the carriers at their word when they state a 4.9% increase. (3) Many shippers believe that they are not able to renegotiate their carrier contract until their current contract expires (you can renegotiate your agreement any time with 30 days’ notice). (4) Due to the perceived lack of competition, many companies are intimidated and fear repercussions from their carrier if they try to push back. (5) Many shippers are under the impression that their carriers are their “partners” and assume that they are getting the best agreement available. Both UPS and FedEx are excellent at making each of their clients feel as though they are getting the best deal around. Understanding how your business will be affected by these rate increases is crucial to your company’s bottom line. Two things that your organization can do immediately to help offset these annual increases is to (1) audit your weekly carrier invoices with a professional third party auditing firm and (2) get professional assistance and look to renegotiate your UPS/ FedEx agreement immediately.

AdditionAl helpFul links: 2012 UpS rate change information http://www.rates.ups.com/index.html 2012 FedEx rate change information http://www.fedex.com/us/2012rates/rate-changes.html

Ken wood Ken Wood is president, LJM Freight Auditing & Consulting. Contact 631.844.9500, kenwood@myLJM.com, or visit www.myLJM.com for a free analysis on what impact the rate increases will have on your organization.


ApplicAtion Article

Create Efficiencies, Control Costs, Increase Communication The last thing your organization needs is for your transportation management system to become another information silo. But with SendSuite Live, you get a browser-based solution with virtually unlimited integration capabilities, which help break down these silos by providing instant access to information for both internal and external stakeholders across your entire supply chain. Whether you’re shipping from a mail center, desktop, a remote work location, or in a production shipping environment, SendSuite Live helps streamline your operation, reduce costs, and manage business risks while giving you capabilities to create efficiencies you never thought possible.

accounting, and even the C-suite – to have access to a myriad of information which allowed the company to make better business decisions across the entire enterprise, and optimize their logistics network while substantially reducing costs. The client realized Pitney Bowes had the capability to work with them to address their challenges – and create a solution that streamlined processes, sped delivery, and enabled savings while minimizing the time and effort required for integration. Companies have a diverse range of shipping locations - warehouses, stores, corporate mail centers, offices, distribution centers, and even remote home offices. Running a logistics operation is highly complex. Whether you’re managing parcels from the mail center, documents from the desktop or freight from the warehouse SendSuite Live offers the flexibility and scalability to address any shipping environment.

THE PB DIFFERENCE

Consider this: A Pitney Bowes’ customer just secured a new contract for global parts distribution from an auto manufacturer. The customer needed a solution that could be deployed in a production environment quickly and efficiently, with integration into the company’s legacy systems as well as a new SAP warehouse management system. This company thought its options were limited, given the demanding timeline and the complexity of the solution. It was only when the customer met with Pitney Bowes that they realized they had a number of options. Pitney Bowes deployed and integrated its SendSuite Live global transportation management system into both new and legacy systems. SendSuite Live allowed the customer to gain better cost controls through the election of best delivery options across multiple modes of transportation. More importantly, the application’s analytical tools and reporting functionality allowed different departments – purchasing,

SendSuite Live is a powerful web-based solution designed to guide simple to complex shipping operations to the next level in cost management, process efficiency and compliance. This robust solution utilizes a single platform to manage all transportation related activities. It optimizes, integrates and automates all shipping processes while providing the highest degree of realtime visibility, control and choice throughout your operation. SendSuite Live features an enterprise-class Service Oriented Architecture (SOA) platform designed to meet the strictest IT demands for secure, scalable and reliable processing. Built on .NET and Microsoft SQL Server, SendSuite Live can be deployed on a single server or across clustered servers for redundancy. Clients access SendSuite Live applications via a browser and systems can access Web Services via a SendSuite Live API. Pitney Bowes knows logistics. We’ve been helping customers determine the best way to manage their shipping operations for decades. We pride ourselves in our ability to work with each of our clients to solve unique requirements, creating solutions to make their business run more productively and profitably. Contact us at sendsuitelive@pb.com and check us out at www.pbsendsuitelive.com


PARCEL COUNSEl with Brent

Wm. Primus, J.D.

The CSA/Schramm Problem, Part I: A Complex Situation In the last installment of PARCEL Counsel, we took a look have pointed out numerous flaws in the methodology used by at the Federal Motor Carrier Safety Administration (FMCSA) FMCSA which distorts the results. Second, BASICs scores are safety ratings, the Safety Measurement System (SMS), not “scores” at all. Rather, they are rankings. This means that and Behavior Analysis and Safety Improvement Categories there will always be carriers with one or more yellow triangles scores (BASICs). In this issue of PARCEL Counsel, we will even if all carriers were safe in an objective sense. consider a very serious consequence for shippers stemming Perhaps the best example of this involves FedEx Ground from the SMS data — their exposure to vicarious liability for Package System, Inc. whose operating authority number is highway accidents. MC-179059. As of February 2012, FedEx Ground had a Driver The problem began in 2004 with an opinion of a U.S. Fitness BASIC score of 78.9 resulting in FedEx Ground having District Court Judge in a case called Schramm v. Foster. Mr. one yellow triangle. Does this mean that shippers should stop Foster was the driver of a truck who fell asleep, ran a stop sign, using FedEx Ground services? I don’t think so. If this was not and severely injured Mr. Schramm, his wife, and another cou- such a serious issue, the very idea would be laughable. ple. C.H. Robinson, the broker who had hired the trucker, was I think all would agree that FedEx spends considerable time, included as a defendant on the theory that it was negligent for money, and effort in providing its services in as safe a manusing an unsafe trucking company. ner as possible. But, what if a shipper were to use a very small The Judge opined that C.H. Robinson may indeed have been carrier whose name is not a household word and which had negligent for using the trucking company because it had a one yellow triangle. If this carrier were to have an accident in SafeStat score of 74 — even though this was one point below today’s legal environment, the shipper could expect to be sued. a score of 75 (or higher) which would have been labeled “defiWhile there has been much discussion of this problem and cient.” Under SMS, this would be the equivalent of having a SMS in general, it brings to mind a saying attributed to Mark BASICs score just below the threshold for receiving a yellow Twain: “Everyone talks about the weather, but nobody does triangle on the FMCSA website. anything about it.” Other things being equal, it will take many Implicit in this opinion is that if the SafeStat score had been years for this situation to resolve itself through the courts. And 75 or higher, the trucking company should not have been used. even then, the outcome is uncertain. Under the SMS system, this would mean that a shipper, in the The next installment of PARCEL Counsel will explore a legisopinion of the Schramm judge, would be negligent if it hired a lative solution to this problem. What I will propose is only one carrier who had just one yellow triangle, let alone two or three. sentence in length and, most importantly, a solution that is In my opinion, the Judge’s analysis was wrong. As discussed mutually beneficial to both carriers and shippers. in the previous column, the SMS system was developed for All for now!p the internal purposes of the FMCSA to have a method to prioritize carriers for inspection for possible safety problems. As stated on the FMCSA’s website at the time of the Schramm BrENt Wm. PrimUS, J.D., is the CEO of Primus Law Office, P.A. and the Senior case, when the SMS is used for other purposes, it “may pro- Editor of transportlawtexts, inc. Previous columns, including those of William J. duce unintended results and not be suitable for certain uses.” Augello, may be found in the “Content Library” on the PARCEL website (www.PARIt was not a stated intention for it to be used to eliminate a CELindustry.com). Your questions are welcome at brent@transportlawtexts.com. carrier from a shipper’s routing guide. There are two primary reasons why the SMS data are not valid criteria for selection of a carrier. First, while a detailed discussion is beyond the scope of this column, many commentators

28

march-april 2012 | www.PARCELindustry.com


ApplicAtion Article

New savings. New services. New USPS. Have you seen what the USPS has been up to lately? Well, if you’re serious about shipping, it’s time to take a closer look. The fact is, if the USPS is not one of your “go-to” shipping carriers, you may be leaving a lot of money on the table. The USPS now offers lower rates, enhanced tracking, and comprehensive delivery services. Plus, with new technologies offered by USPS PC Postage providers like Stamps.com you can now seamlessly access those rates and services with unprecedented ease, reliability, speed, and service.

The USPS… A Critical Component of a Cost-Effective Shipping Mix How have Amazon.com and other large shippers saved money and improved distribution? They’ve made the USPS an integral part of their shipping mix. In today’s competitive marketplace you can’t count on one carrier to handle all of your shipping. Different carriers excel in different areas. So, where does the USPS excel? • • • •

Small domestic shipments (under 5 lbs.) Anything that fits in a Flat Rate envelope or box Anything that fits in a Regional Rate box Almost all international shipments

If you’re not using the USPS for those packages, you’re probably paying too much for shipping.

You Have High Expectations… the USPS Has New Services to Meet Them With the USPS, you don’t have to sacrifice service levels to save money. With new solutions in place, the USPS now offers what matters most to serious shippers. In the past few years the USPS has been dedicated to improving every aspect of its shipping services. And professional shippers are taking notice. Today, with the help of USPS PC Postage technology providers, you’ll find a new USPS that can go toe-to-toe with any private carrier. Commercial Invoicing and Easy Payment Options Pay for your USPS shipping with simple, standard invoices on a 15-day billing cycle or pay using credit cards, checks, bank drafts, procurement card accounts, and ACH debit/credit. 360-Degree Package Tracking Whoever said the USPS lacks tracking hasn’t shipped with the USPS lately. With recent technology improvements in place, USPS tracking events per

package have nearly quadrupled. This gives companies unprecedented visibility into the location of every shipment — from entry to final delivery. Reporting Capabilities Receive detailed reporting by customer, region, shipment type, and mail class for all shipping expenses, including historical trends for the last three years. Services for Every Need and Budget The USPS provides a wide range of mail classes and services to meet your individual needs. Unlike other carriers, the USPS even offers service to PO Boxes and APO/FPO addresses. And while other carriers price deliveries to Hawaii, Alaska, Puerto Rico and Guam as if they’re foreign countries, the USPS still gives you the same low domestic rates. Competitive Pricing The USPS has always been competitive on price. Now they’re taking it to another level by offering distance and weight-based rates and competitive pricing structures — Cubic pricing, Regional Rate boxes, Flat Rate boxes and envelopes, high-volume discounts and custom rates. And of course, if you’re sending international, there’s no more affordable and convenient choice than the USPS. Up-Front Pricing The USPS has always believed in up-front pricing. The price you’re quoted is the price you get. No surcharges or hidden fees. Did you know private carriers have as many as 60 different surcharges they can add on top of their base price? Surprise… you’re paying more than you have to. The USPS has absolutely no surcharges or hidden fees. That includes residential delivery, Saturday delivery, rural delivery area and address correction. For Express Mail International shipments, you even receive free return shipping. Other carriers charge you to return your shipment. Free USPS Shipping Hardware Now you can earn technology credits based on shipping volume. The credits can used to upgrade USPS shipping hardware and software. The more you ship, the more you earn. Needless to say, the USPS and its technology partners are working hard to offer compelling new products and services that not only help your bottom line but can also make your entire shipping workflow run more efficiently. Sebastian Buerba is Chief Marketing Officer at Stamps.com, a leading provider of online postage, shipping software, services and developer solutions for Postal Service customers. He can be reached at 310.482.5865 or sbuerba@stamps.com.


Product spotlight: Transportation solution providers Save Time in Transit with OnTrac OnTrac, the regional leader in overnight and time-critical parcel delivery, can increase your productivity by providing faster transit times than the national carriers. Shipments that normally take two days with national delivery companies now arrive next-day with Ground Service from OnTrac. For Transit Maps and information, visit www.ontrac.com or call 800.334.5000. OnTrac marketing@ontrac.com   800.334.5000 www.ontrac.com

We Negotiate. You Save. Transportation Impact puts money back on your bottom line by utilizing over 125 years of carrier experience to negotiate market-competitive parcel agreements on behalf of companies everywhere. In addition, Transportation Impact provides a best-in-class audit recovery service, as well as reporting and optimization tools, to help clients further streamline their business processes. Transportation Impact info@transportationimpact.com 252.764.2885 www.TransportationImpact.com

Want to Make Shipping A Whole Lot Easier? We think shipping software should be simple to use and ultimately affordable. It should easily fit into your current workflow, should painlessly integrate into your existing IT landscape and support must be fast and comprehensive. It’s all about making shipping straight forward, and that’s why millions of packages each year are processed on systems provided by Nexxio. Nexxio info@nexxio.com 877.463.9946 www.nexxio.com

Shipping Software – Versatile and Affordable DigitalShipper is one of the most robust and affordable shipping applications on the market today. Using DigitalShipper’s Web Services or the standard Plug-in Architecture you can quickly adapt to business changes and solve even the most complicated warehouse problems. Whether you ship 50 packages per day or more than 50,000 packages per day —­ you will benefit from DigitalShipper’s enterprise-level software and its affordability. DigitalShipper sales@digitalshipper.com   651.639.0091 www.digitalshipper.com

Highly Intelligent Transportation Management. Get more visibility and control of your shipping operation. Designed to help your organization manage logistics more efficiently, SendSuite Live provides web-based services that allow the flexibility and power to effectively plan, route and manage shipments to provide a balance of service and cost reduction. Pitney Bowes www.pbsendsuitelive.com

Ship Better, Save Money Lacking the agility to support multiple locations, companies sometimes cannot provide efficient, centralized shipping and logistics services. This limitation may lead to duplicated shipping efforts and redundant carrier services. Agile Ship integrates with multiple carriers and automates the shipping process across multiple locations, and adds greater efficiencies to your logistics solution. Agile Network jim.lerose@agile-network.com 201.230.1284 www.agile-network.com

Put the spotlight on your solutions in the next issue.

Contact Josh: josh@rbpub.com or Ken: ken.w@rbpub.com for details.


PARCEL March April 2012  

Parcel March April 2012

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