PARCEL July/August 2022

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10 WAYS TO IMPROVE YOUR MATERIAL HANDLING AND PACKAGING SEE PAGE 26

JULY-AUGUST 2022

PARCELindustry.com

WE ASKED, YOU ANSWERED: HOW SHIPPERS’ OPERATIONS HAVE CHANGED POST-PANDEMIC. PAGE 16

PROTECTING BUSINESS CONTINUITY WITHOUT BREAKING THE BANK. PAGE 24

WHEN IS IT TIME TO RENEGOTIATE WITH YOUR CARRIER? PAGE 28

SIX KEY STEPS FOR A SUCCESSFUL PEAK SEASON. PAGE 20

O T E E R E IB H R K C C I CL SUBS


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CONTENTS /// Volume 29 | Issue 4

16 20 22 24

28 06 EDITOR’S NOTE Gearing Up for Peak By Amanda Armendariz

07 SPEND PERSPECTIVES E-Commerce Post-Pandemic – Can Carriers and Retailers Find Common Ground? By John Haber

08 REVERSE LOGISTICS Free Returns May Be a Thing of the Past By Tony Sciarrotta

10 OPERATIONAL EFFICIENCIES Let’s Examine the “What Ifs” of Your DC By Susan Rider

12 SUPPLY CHAIN SUCCESS Employing a ‘Growth Mindset’ Over an ‘Emergency Mindset’ in a Carrier’s Market By Chelsea Snedden

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14 PACKAGING Custom Fulfillment at Scale By Harry Drajpuch

16 2022 SHIPWARE & PARCEL SHIPPER SURVEY RESULTS: ALTERNATIVES RISING

28 WHEN IS IT TIME TO RENEGOTIATE WITH YOUR CARRIER? By Josh Dunham

SPONSORED CONTENT

By Josh Taylor

20 SIX POWERFUL TIPS FOR PEAK SEASON PLANNING By Cassidy Hardy and Scott Bounds

22 DON’T KEEP THE USPS OUT OF YOUR CARRIER MIX By Mikel Richardson

24 WALKING THE TIGHTROPE: PROTECTING BUSINESS CONTINUITY WITHOUT BREAKING THE BANK By Andy Dyer

09 DON’T LET CHANGING PACKAGING TYPE OBSOLETE YOUR MHE 15 A PERFECT OPPORTUNITY TO AUTOMATE 26 10 WAYS TO IMPROVE YOUR MATERIAL HANDLING AND PACKAGING


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PARCEL (ISSN 1081-4035) is published 7 times a year by MadMen3. All material in this magazine is copyrighted 2022 © by MadMen3. All rights reserved. Nothing may be reproduced in whole or in part without written permission from the publisher. Any correspondence sent to PARCEL, MadMen3 or its staff becomes the property of MadMen3. The articles in this magazine represent the views of the authors and not those of MadMen3 or PARCEL. MadMen3 and/or PARCEL expressly disclaim any liability for the products or services sold or otherwise endorsed by advertisers or authors included in this magazine. SUBSCRIPTIONS: Free to qualified recipients: $12 per year to all others in the United States. Subscription rate for Canada or Mexico is $35 for one year and for elsewhere outside of the United States is $55. Back-issue rate is $5. Send subscriptions or change of address to: PARCEL, P.O. Box 259098 Madison WI 53725-9098 Allow six weeks for new subscriptions or address changes. REPRINTS: For high-quality reprints, please contact our exclusive reprint provider, ReprintPros, 949.702.5390, www.ReprintPros.com. P.O. Box 259098 Madison WI 53725-9098 p: 608.241.8777 f: 608.241.8666 PARCELindustry.com

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EDITOR’SNOTE

GEARING UP FOR PEAK By Amanda Armendariz

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ecently, I participated in a virtual panel with other industry professionals. During the live event, we talked about a variety of issues facing shippers today, so, naturally, preparing for peak season was on the list. During our dry run, some of us were laughing about how it seemed strange to start preparing for the holiday shopping season when temperatures were often sweltering and people are more likely to be purchasing swimsuits online rather than holiday gifts. But, as anyone who has been in our industry for any amount of time knows, summer is exactly when your peak season plan should be well under way. However, if you haven’t put the finishing touches on yours yet, don’t worry. We’ve compiled six best practices that you should consider implementing to make sure that this year’s peak season goes off without a hitch (or, at least as seamlessly as peak season can, now that capacity constraints, new surcharges, and a myriad of other obstacles seem to be commonplace in this new post-COVID environment). Check out the piece on page 20 and see which steps make sense for your operation to implement. I also invite you to look over the survey results on page 16; it provides a fascinating look at how shippers’ operations have changed in the post-COVID landscape. One significant finding was the rise of alternative carriers as shippers attempt to ward of some of the problems they experienced with regards to capacity constraints, contract negotiation, and more since 2019. Of course, the findings were too numerous to fit within a four-page feature, so you are welcome to view the full analysis at PARCELindustry.com/AlternativesRising. I also welcome any comments you may have; I’d love to hear if you feel the findings mirror your own experience. Finally, this ever-changing environment is one that requires tenacity and fortitude to navigate, and it can help to discuss the challenges you are facing with some of your peers. That’s just one of many reasons we hope you’ll join us for this year’s PARCEL Forum in Chicago, October 10-12. Not only will you have a wide variety of conference sessions from which to choose, you’ll also have access to many networking events where you can discuss the operational obstacles your organization is attempting to overcome. For more information or to register, visit PARCELForum.com. I hope I’ll have the chance to connect with many of you in Chicago! And, as always, thanks for reading PARCEL.

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SPENDPERSPECTIVES

E-COMMERCE POST-PANDEMIC – CAN CARRIERS AND RETAILERS FIND COMMON GROUND? By John Haber

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he pandemic certainly accelerated e-commerce; the impact on parcels and the last mile was immense, resulting in record business-to-consumer (B2C) volumes, shortages in last-mile carrier capacity, delivery delays, and higher surcharges to manage the accelerated demand. As a percentage of total retail sales, e-commerce reached a high of 16% to a seasonally adjusted $211.5 billion for the second quarter of 2020. Since then, e-commerce has settled at 14.3%, but higher sales, seasonally adjusted, at $231.4 billion as of the first quarter of 2022. As the pandemic eased, consumers returned to stores, and as a result, many retailers such as Macy’s and Walmart noted slowing year-over-year e-commerce sales during the first quarter of this year. This caused many industry observers to question if e-commerce was normalizing after two years of crazy growth. However, the normalization of e-commerce today is much higher than in the pre-pandemic first quarter of 2019, when it was $137.7 billion. FedEx and UPS Response Much of this e-commerce growth is due to omnichannel investments that retailers have made. According to FedEx analysis presented during the company’s investors’ meeting on June 29, omnichannel represents about 60% of the market, and the remaining 40% is Amazon and other e-commerce pure-plays. FedEx is focused on the omnichannel market and noted that its market growth rate, 29.6% in 2021, has been greater than pure e-commerce, 20% to 22%. To support this focus, FedEx has:

 In-housed its SmartPost parcels  Expanded deliveries to seven days a week to 95% of the US  Expanded Ground network  Introduced FedEx Freight Direct for big and bulky deliveries  Introduced drop-offs and pickups from Walgreens and Dollar General retail stores across the US  Acquired Shoprunner UPS has also made significant investments in e-commerce and omnichannel delivery services, including expanding its Ground network and deliveries seven days a week and acquiring Delivery Solutions. This platform offers shippers, among other things, multi-carrier and same-day delivery options. In addition, UPS has expanded its digital access program, DAP, which includes such partners as EasyShip, Shopify, and BigCommerce. More than 500,000 new DAP customer accounts were created in the first quarter, three times the number of new accounts created in the first quarter of 2021. Also during the first quarter, UPS began shipping DAP packages that originated outside the US. DAP is now available in 27 countries. UPS’ DAP revenue target is $2 billion by the end of this year. However, both providers face volume declines and higher operating costs as the economy slows. In response, FedEx and UPS will focus on revenue management. In addition, FedEx plans to emphasize bundled services such as Express and Ground.

Outlook Just like FedEx and UPS, omnichannel retailers are also having to mitigate costs and may have to look beyond UPS and FedEx for shipping services that not only meet their needs but also fit their budgets. Buy Online, Pick Up in Store (BOPIS) has proven successful for many retailers as a no-cost shipping option for customers. In contrast, other retailers, such as American Eagle, have acquired logistics and delivery capabilities to help reduce their last-mile costs. FedEx and UPS remain the largest US nationwide last-mile delivery carriers. Still, options continue to grow as retailers diversify their last-mile carriers to satisfy service requirements and shipping costs. E-commerce and omnichannel sales will continue to grow but perhaps not at the rapid pace we’ve seen over the past couple of years. Morgan Stanley expects the e-commerce market to increase from $3.3 trillion today to $5.4 trillion in 2026. However, can last-mile carriers provide the right services at the right prices for retailers while also financially benefiting?

With over 25 years of supply chain experience, John Haber has helped some of the world’s leading brands drive greater efficiencies through their supply chain operations while reducing transportation, distribution, and fulfillment costs. After a successful UPS career, John founded Spend Management Experts, now part of Transportation Insight.

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REVERSELOGISTICS

FREE RETURNS MAY BE A THING OF THE PAST By Tony Sciarrotta

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igher transportation, labor, and warehousing costs are driving up returns costs. According to the latest Returns Index Survey from the Reverse Logistics Association (RLA), 55% of survey respondents noted increases in both the number and volumes of returns during the second quarter. Since RLA started its Returns Index Survey last year, returns costs have been a particular concern. Among the comments that survey respondents have made include:  “Labor increases and required surge pay needed for lack of labor.”  “Mainly driven by the cost of freight.”  “Returns take up a lot of increasingly expensive warehouse space, and transportation costs are rising.” Like “free shipping,” “free returns” policies are evolving to reflect retailers’ higher supply chain costs. Buy Online, Pickup in Store (BOPIS) has become the new “free shipping” option that retailers are offering to customers. Otherwise, the faster customers want an item, the more they’ll likely pay for such convenience. Likewise, “free returns” policies are being scrutinized. Retailer Zara, for example, recently revised its returns policy by charging customers $2.00 to $4.00 to return items by mail.

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However, a return fee does not impact returns to Zara’s stores. By getting customers to return items directly to a store, retailers save on transportation costs and time to process returned goods. In addition, increased foot traffic into stores is likely to result in a purchase. RLA members Best Buy, Walmart, and Amazon have generous returns policies. Best Buy’s Totaltech members have a longer time to return items than nonmembers and no restocking fees. Plus, members also receive free two-day shipping. Walmart, meanwhile, offers customers up to 90 days after purchase to exchange or return (note: there are some product exceptions). Customers can return items in-store for free, by mail, or a scheduled pick-up from the customer’s home. Amazon allows returns at 18,000 physical locations, including the ability to drop off items without a box or label at Kohl’s, UPS, and some Whole Foods stores. There’s also a Try Before You Buy program for Prime members designed to make returns for clothes even easier, with return labels already included in the box. And, like many retailers, Amazon allows customers to keep some “returned” items while still refunding them. Retailers cannot grow their businesses without looking at the end-to-end cost of

their businesses, including reverse logistics costs. Zara recognized these costs and will likely become stronger because of the change in its returns policy. One of the best ways to mitigate returns costs and volumes is to keep returns from happening in the first place. While this is highly unlikely ever to happen completely, improving websites, for example, can help mitigate some returns from occurring. For example, the rise in e-commerce has generated large volumes of returns due to the practice of bracketing. Bracketing involves customers buying multiple sizes or colors of an item knowing they will return some of what was purchased. Bracketing can be mitigated by retailers improving their websites to offer realistic sizing charts, improved color quality and description of items, and introducing such capabilities as virtual dressing rooms. While returns are not going to ever disappear entirely, there are ways to mitigate costs and manage the volumes.

Tony Sciarrotta is Executive Director of the Reverse Logistics Association. The RLA offers various tools, white-papers, and monthly webinars that provide best practices in managing reverse logistics.



OPERATIONALEFFICIENCIES

LET’S EXAMINE THE “WHAT IFS” IN YOUR DC By Susan Rider

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cross the country, everyone is facing the same challenges: How do I get more done with less? Less space, tools, time — and, of course, fewer people. What If You Can’t Find Enough Workers? The lack of available talent is a consistent problem and isn’t getting better. Facilities are more diversified with multiple languages being spoken, which is wonderful from an equity standpoint but unfortunately can result in communication issues. Compounding the problem is the fact that human resource centers were not prepared or trained on how to work with a diversified group. Many are still operating like they were 10 years ago. It’s time to change. All data will need to be translated for your workforce. In the facility, all signs and special instructions need to be posted in many languages. If you have more than four different languages spoken in your facility, consider using a QR code for translation. Of course, this creates a need for all workers to have the ability to scan the code. What If You Are Still Picking with Paper? Paper is the least productive picking process. Consider the time it takes to find locations, areas, etc. You may want to color code areas besides naming them. Making sure the locations are easily discernable is key. Reducing any amount of search times adds to your throughput. For example: reducing the following processes could speed up the team, increasing throughput.  Readily available pick list (no returning to order desk): 10 minutes +  No searching for location: 1-3 minutes

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 Opening of boxes (area is ready and preset for picking): 20 seconds  Product available when picker is there to pick order (wait time is costly): 5-20 minutes +  Right product in slot. Make sure the replenishment task includes verification of replenishment. Picking the right slot but not the right product is not only time-consuming but costly if the QA process doesn’t catch it: 5-20 minutes +  Removal of shrink wrap, banding, trash, etc. can be fulfilled by a housekeeping person and not the picker. When order pickers are required to do it all, it severely slows the process, affects throughput, and tires the picker, affecting rates later in the day: 1-5 minutes HINT: Some companies have found great success by adding special needs staff. The National Association for Down Syndrome may be of local assistance in helping you hire dependable and reliable staff to do this job each shift. This workforce boosts morale, and they feel a part of the workforce family: a win/win. In the heat of summer, make sure you have good air flow, available water stations, and cooling towels. The heat slows productivity and job focus, creating errors. If the temperatures really soar in your location, you may want to consider starting the day shift one hour early.

What If Your Company Has Not Embraced Technology: How Do You Start? First, break it down into chunks and do an ROI (return on investment) analysis on each. Examine your worst problems; sometimes ROI is greatest in these areas. Don’t forget to put in the cost of not upgrading, as this usually opens management eyes. By breaking it down in chunks, you are limiting the risk, spreading out the cost, and limiting the change management.

The cost of operation will continue to escalate as you try to remain competitive to attract talent. This will give you a strategic plan to “catch up” and bring your facility to the 21st century over a period of three to five years. Make sure you include the risks regarding: • Lack of qualified people • Added space because technology is not available to optimize space. • Reduced throughput • Risk of growth potential for new sales (if the old facility can’t handle the increase). • Increased cost in shipping rates since systems aren’t available


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to optimize shipping. Software and automation have advanced dramatically over the past 10 years. Just make sure that you keep a backup plan in case the system goes down. What If You Know What You Need to Make Changes, but You Aren’t Sure Where to Start? There are several options: 1. Call on an independent consultant that has no bias toward specific software or material handling equipment. 2. Work with a material handing distributor; just know the solution they recommend will probably be one they represent. 3. Go directly to the solution provider that has a product you think might work and get quotes from multiple vendors, learning as you go. What If You Need a Software Solution but Don’t Have a Large Budget? The cloud WMS/TMS solutions have matured over the years. If you choose one with expertise in your industry,

they may be more likely to have the functionality needed. There are many companies today offering a subscription-based software solution. These systems allow you to pay as you go with a monthly fee. What If You Choose to Do Nothing? The cost of operation will continue to escalate as you try to remain competitive to attract talent. Throughput and productivity will continue to suffer, and your company’s competitive edge will diminish. DTC (direct-to-consumer) companies will continue to

improve and perfect their processes in order to retain and grow their piece of the consumer pie. As stores close and consumers continue to get more comfortable with purchasing online, DTC will continue to increase. There will continue to be a “click war” among the big online retailers and boutique retailers. Service will be the solution for the winner.

Susan Rider, President of Rider & Associates, Supply Chain Consultant, and Executive Life Coach can be reached at susanrider@msn.com.

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SUPPLYCHAINSUCCESS

EMPLOYING A ‘GROWTH MINDSET’ OVER AN ‘EMERGENCY MINDSET’ IN A CARRIER’S MARKET By Chelsea Snedden

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hy do some shipping programs thrive in uncertain times while other equally invested peers do not? The answer to this puzzle may lie in how a shipper views their own program.

Emergency Mindset

Those who manage their programs tactically may employ an “emergency mindset” in times of supply chain uncertainty. These are shippers that struggle with increasing costs year-over-year, may reject helpful technological advances, and may not account for service delays in times of peak demand. They are only thinking in terms of the latest emergency — the latest fire to be put out. As a result, shippers may lose out on fruitful carrier

Those who believe that their own capabilities can expand over time, however, live with a “growth mindset.” negotiations, may miss out on important data-backed insights, and could see lowered customer satisfaction due to service delays.

Growth Mindset

Reasoning

Comparing this year to 2019

“2019 is the last normal year!”

Shipper knows it is not wise to compare 2022 to 2019 as there is no “new normal” in the shipping environment.

The shipping environment has changed rapidly, with more dynamic fuel tables and peak surcharges erupting from the pandemic to account for steep pricing changes. E-commerce demands also grew 20% in less than a year, which put pressure on both major carrier networks.

Capacity

“I am not sure about our capacity and am not sure the steps to take to add more.”

Shipper is aware of capacity issues and makes plans in the next fiscal year to add more capacity, utilizing more regional carriers like DHL or OnTrac.

Bottlenecks have been common at major ports in the United States. This has added to the struggle for shippers to get pickups from the major carriers. Shippers are now penalized for going above forecasting with UPS and FedEx, causing more peak surcharges and higher costs overall.

Service Delays

“What are these peak surcharges? Why is my network struggling to fulfill orders in Q4?”

Plans for service delays and has a protocol for alerting customers during peak times.

Shippers can think ahead and proactively move inventory to store locations. These shippers will often utilize a ship-from-store model to reserve DC capacity for those orders that must come from the DC. Spreading pickups means a shorter transit time and brings the shipment closer to the potential customer.

Technology

“I don’t know the technology available to my shipping program or the insights my data can provide.”

Knows that having proper business intelligence tools and accurate reporting can give insights into cost.

Shippers will often gain insights from business intelligence tools to investigate their most used service levels and shop around for better rates on a service they utilize often. There are services that allow shippers to rate shop across multiple carriers at the lowest cost to the customer based on a set due date.

Source: enVista

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Those who believe that their own capabilities can expand over time, however, live with a “growth mindset.” Below are some strategies for developing a growth mindset in your shipping program, based on common issues seen among peers. Shippers with the growth mindset tend to demonstrate the resilience required to convert the supply chain’s setbacks into future successes for their operations and their customers. Shippers who thrive in these markets often move inventory before peaks, utilize technology to keep visibility on program performance, and set up quarterly check-ins with their incumbent carriers. Their ability to learn from longer-term experience increases their program’s vitality and fitness in the current carrier’s market. Which leads one to ask: Is it possible to shift from

the emergency mindset to a growth mindset? Absolutely! Shippers can build a better program from defining their future state goals, favoring real-time data on costs, and making room for future growth in their shipping programs. Shippers can also partner with qualified experts in the shipping industry to make this mindset shift more streamlined and customized to their program size.

Chelsea Snedden is a Transportation Consultant at enVista. She works with clients to model transportation scenarios, often interpreting complex agreements and evaluating historical data as the primary data analyst. With a background in sustainability and logistics, she brings a future-oriented perspective to managing transportation programs. Some of the customers she has worked with include Canva, GNC, Covetrus, and many others.

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PACKAGING

CUSTOM FULFILLMENT AT SCALE By Harry Drajpuch

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2C merchants will break the bank to create programs that connect customers with their brands and build loyalty. Then they’ll ship products out using uninspired packaging in plain brown boxes to create a totally generic, totally forgettable brand experience. What a disconnect! And what a wasted opportunity. D2C brands need to consider custom fulfillment solutions to create memorable brand interactions that build loyalty and repeat business. Most brand interactions are digital — emails, social community participation, loyalty program communications. But the point when consumers open your package in their homes is the real moment of truth. It’s when they experience your product and your brand directly. Yet brands pour buckets of money into digital interactions and pinch every penny when designing the order fulfillment process. When your customer receives and unboxes their order, your brand should be the star. Make it count. What Is Custom Fulfillment? Whether you manage your order fulfillment operation with an internal team or through a third-party fulfillment company (3PF), you have the freedom to design a custom fulfillment approach. Here are some examples of how brands create a more personalized packaging process:  A nutrition supplement company uses a custom box with its logo and brand colors  A direct selling company uses high-end tissue paper in its purple and pink brand colors as filler material  A children’s toy company uses playfully designed and branded tape to seal boxes  A wellness company includes a hand-signed note with every shipment: “carefully packed by _____” with the signed name of the packer. It’s these little touches that help your brand stand out and create a stronger emotional bond with customers.

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Custom fulfillment can even help boost margins. If you market a premium product, you want your package appearance and approach to reflect that premium image. If it doesn’t, it’s like a swanky Four Seasons hotel that makes you wait 10 minutes to check in and then sends a porter with an oil-stained t-shirt to help with your bags. There’s a disconnect with the brand promise that the customer recognizes immediately. Custom Fulfillment at Scale Custom fulfillment is easy if you’re doing it on a small scale in your basement. It becomes more challenging if you’re managing fulfillment on your own, or with a smaller fulfillment partner, and your business begins to take off. It’s just about impossible for high-volume shippers to customize fulfillment processes without the necessary systems and processes. In these cases, you’ll need to make some adjustments to your internal operations to bring efficiency to the customization process. Or, you can outsource to a 3PF designed to deliver custom fulfillment at scale. Such partners can design a fulfillment program that is completely customized but implemented in a way that minimizes labor and keeps per-unit fulfillment costs low. Here are some things you’ll need, either in your own operation or from a 3PF provider.  Process engineers. Your best partners will have engineers that analyze the steps in a

multi-step pack-out process and assist warehouse operators to design the most efficient SOPs.  Systems-aided processes. Rules can be programmed into the warehouse management system to direct the packer to take specific steps (insert flyer, add a free sample, etc.) if certain order criteria are met.  Scalable labor. Some custom fulfillment projects require a short-term labor spike. While certainly doable, that’s tougher to manage if you insource fulfillment. It’s easier when you work with a 3PF that has a well-developed cross-training program (to share labor across different accounts in the warehouse) and strong relationships with temporary staffing agencies. Brands that need highly efficient fulfillment operations as well as a more customized fulfillment process no longer must trade one for the other. You can have both. In fact, you might be surprised just how much customization is possible in the fulfillment process — even on a large scale.

Harry Drajpuch is CEO of Amware Fulfillment, a national logistics company that helps brands scale direct-to-consumer fulfillment operations to keep pace with business growth. With fulfillment centers in every region of the country, Amware enables one- to two-day delivery to 95% of the US.


APPLICATION ARTICLE

A Perfect Opportunity to Automate Solving peak challenges with fit-to-size automated packaging

Most people are familiar with the current e-commerce environment, where everyone is sitting at home pointing, clicking, and ordering. It is now the convenient and comfortable way to purchase, even for those who were accustomed to an in-person shopping experience. This has created a new business environment for a lot of fulfillment centers. It’s extremely exciting, but it’s also overwhelming. What used to be a distribution center’s peak season is now the standard, with peak season layered on top of that. Because of this, fulfilling orders can be a major operational challenge. Previously, companies would add more labor resources to get more production, which only serves as a temporary bandaid. This, in addition to increased labor costs and difficulty recruiting and retaining, creates an operational variability that even the largest organizations find unsustainable — especially during peak season. In addition to navigating modern labor challenges, organizations must also keep up with shifting customer expectations. The connection that companies have with their customers is critical, but for many customers, the only point of contact that they will have with the organization, besides the website, is at the moment of unboxing. Companies must think about right-sizing their packages for specific products and ensuring they don’t send out oversized boxes packed with void fill. With higher order volumes during peak season, there’s an increase in the use of unnecessary packing materials that lead to increased DIM weight and transportation costs, leaving a bad impression on customers and your bottom line. For these reasons and more, organizations are now turning to automation to transform a variety of areas of the fulfillment center. And given that packaging isn’t typically automated, there are some real opportunities to find efficiencies in this area.

Fit-to-size automated packaging solutions like the CVP Impack and CVP Everest from Sparck Technologies solve labor challenges, optimize order fulfillment, and reduce package volume for shippers across a variety of industries. Both autoboxing systems measure, construct, seal, weigh, and label each variable dimension single- and multi-item order in a custom fit-to-size box while eliminating or reducing the need for void fill materials. The CVP Impack creates a right-sized box every seven seconds while the CVP Everest creates a right-sized box every three seconds, offering up to a 50% reduction in shipping volume and an average of 88% reduction in packing labor. These solutions also reduce freight by an average of 32% and reduce material costs by an average of 38%. Some customers see a full return on investment in six to eighteen months, depending on parcel volume. With cost savings and productivity gains at these levels, Sparck’s automated packaging solutions aren’t just for the holiday season but keep delivering a return on investment throughout the year.

https://sparcktechnologies.com/us/ sales.packaging@sparcktechnologies.com


By Josh Taylor

2022 SHIPWARE & PARCEL SHIPPER SURVEY RESULTS: ALTERNATIVES RISING

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t’s easy to look at the results of this year’s Shipware/PARCEL survey and conclude that aggressive cost increases by UPS and FedEx, plus the growing disparity in power between shippers and their carriers, are the main storylines. But buried underneath the easy headlines is something more exciting: true alternatives to FedEx and UPS are becoming viable — even popular. CARRIER RATE INCREASES FORCING CHANGE Respondents to this year’s survey suggest that UPS and FedEx are negatively impacting shippers’ bottom lines and the spending power of the American public. When asked if the accelerated rise in shipping rates since 2020 had forced them to make changes to their business, 82% of respondents said yes (see Figure 1 for these changes). If everyone were in this together, these sacrifices could be easily justified, but UPS achieved record-high profits during the same period, resulting from multiple pricing actions, downsizing, and service degradation.

SHIPPERS FEEL HELPLESS Almost half of respondents (49%), believed that UPS and FedEx held all the cards throughout 2021 and into 2022, and that they, the shipper, had few alternatives and little negotiating leverage (see Figure 2). Perhaps as a result, loyalty to a carrier is low, with only five percent unwilling to leave their current carrier for any reason (see Figure 3). Conversely, almost 40% reported being willing to switch for so little savings (10% or less) that switching costs might outweigh any shipping savings in Year 1. Among respondents, the same number were loyal to UPS, FedEx, and the USPS, despite UPS being the primary carrier almost twice as often — 42%, 24%, and 24%, respectively, while two percent reported their primary carrier being a regional, three percent chose postal consolidators, and five percent of respondents chose “other.” This is a concerning but predictable trend for UPS, which traditionally justified its higher prices by promising higher-value partnership. Since taking over as UPS CEO in mid-2020, and consistent with her

early years as CFO at The Home Depot, Carol Tomé has commoditized customers and employees, eliminating much of what differentiated UPS from its competition, while still demanding a premium. This Six Sigma-like approach to human interaction is reminiscent of what caused UPS Teamsters to strike in 1997, and similar results are already unfolding. THE ENTITLED PUSH AND PULL UPS and FedEx capped package volume unexpectedly in late 2020 (28% of respondents reported experiencing it, and of these respondents who answered yes, 14% were from companies that spent less than $1 million per year, as you can see from Figure 4). These are private, for-profit networks, but while no one questions their right to control the packages they are willing to accept, the difficulty for many affected companies was how these caps were applied, and what happened afterward. UPS and FedEx often employed contract language limiting a shipper’s ability to employ multiple carriers or renegotiate their incentives more than once every three years (this practice is still common).

Figure 1

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Figure 2

Figure 3

Figure 3A

18% of respondents expect no savings (or even worse!) if they pursue contract negotiations with their existing carrier.

Figure 3B

Many shippers remain in the dark about the most effective ways to drive discounts. JULY-AUGUST 2022  PARCELindustry.com 17


UPS, for example, often threatened a large monetary penalty if a shipper failed to use UPS for less than 95% (or more!) of their controllable package volume. When UPS and FedEx informed shippers in the run up to peak 2020 that they were suddenly unwilling to carry the packages demanded in their contracts, those shippers were left scrambling for options. Unfortunately, without alternate shipping contracts already in place, and with many smaller carrier networks already full, comparable alternatives were scarce and expensive. Still, if this had been the worst of it, fewer shippers might now be looking to eliminate UPS and FedEx from their supply chains. Having scrambled to find capacity on short notice during the busiest time of the year, and in the middle of a pandemic, some shippers were horrified when UPS or FedEx returned months later threatening to exercise the anti-competitive penalty if the shipper failed to return the business UPS or FedEx had declined to carry. Others were forced to give up their hardfought incentives in the middle of their contract term, resulting in unprecedented increases as high as 30%. An unfortunate few were hit with both. Multiple UPS account executives, frustrated with the way they were forced to treat their clients, or simply unhappy because UPS made no allowances in their commission structure for the package volume they were forced to turn away, explained in detail how UPS justified these increases by first altering their measures of profitability, then claiming the accounts were “unprofitable.” Even companies unaffected by the volume caps, anti-competitive penalties, or mid-term contractual changes were still hit with extraordinary cost increases, including new surcharges, new triggers for old surcharges, general rate increases higher than any other year in the previous decade, and multiple increases to fuel surcharge tables expertly masked to appear unavoidable. Alternatives Gaining Popularity Thankfully, angry shippers looking for new alternatives now not only have access to more companies, but also varied services across multiple business models. 18 PARCELindustry.com  JULY-AUGUST 2022

Figure 4

Figure 5

Figure 6

Over one third of respondents, 36%, already used four or more carriers (see Figure 5.) Figure 6 shows what shippers have done in the past 12 months to cut costs. In the next 12 months, many shippers plan to increase USPS usage,

renegotiate rates, audit invoices, and add regional carriers (among other things; the full list can be found online). Our survey asked about the concessions sought by shippers, and their answers go beyond normal discounts


SUBSCRIBE FOR FREE! to directly address the tactics UPS and FedEx deploy to improve their yield. Many of these same requests may be unnecessary with alternative carriers, including simpler contracts free of punitive language, flat pricing, and fewer volume and revenue commitments. Alternative carriers also have lower list rates, fewer surcharges, and lower rates for the surcharges they do have. Additionally, many alternative carriers deliver faster within their geographic coverage than FedEx and especially UPS, allowing users to reduce service upgrades for next-day and two-day deliveries. SO, WHY ISN’T EVERYONE USING ALTERNATIVE CARRIERS? UPS and FedEx have, in a sense, funded the rise of their new competition. Capping package volume forced some shippers to try carriers they never would have considered. Aggressive rate increases sent other shippers on an existential quest to find cheaper alternatives. And venture capital firms, which for years had been eyeing transportation as an industry overdue for disruption, have invested heavily as shipper frustration has grown. The technology gap has narrowed. Most shippers now use a single platform to process packages for almost any carrier. Tracking services have been similarly consolidated. And while UPS and FedEx retain some advantages important to certain industries (e.g., healthcare), the differences fail to register for shippers in many other industries. Plus, UPS and FedEx have encouraged shippers to fulfill from multiple locations by hiking up surcharges on longer zone shipments, making geographic coverage increasingly irrelevant, especially for larger shippers. As cross-country movements decline as a percentage of shipments and shippers gain access to new regional and local providers, many alternative carriers are proving just as capable of meeting shippers’ coverage needs as the legacy carriers. Still, executive leaders like Tomé cling to the claim that shippers are willing to pay more for UPS’s increasingly irrelevant “end-to-end network.” Despite all of this, it is still common for decision-makers to dismiss the

Figure 7

idea of using any carrier other than UPS, FedEx, and occasionally the USPS. Some may hesitate based on old information (e.g., 72% of respondents cited service and reliability concerns as their top reason to stay with FedEx or UPS, and 17% cited concerns with driver or vehicle image), others may contend with inflexible IT systems (35% cited the complexity of managing multiple carriers, and 23% cited automation constraints), and many shippers have constraints placed upon them by contractual commitments or anti-competitive language in a UPS or FedEx contract (46% cited the loss of FedEx or UPS revenue-based discounts). While perception concerns remain, alternative carriers are making progress. Roughly 30% of respondents rated the service of each alternative carrier type as better than, or about the same as,

FedEx and UPS (see Figure 7), and only 15% of respondents said they would not consider using regional carriers in the future. THERE IS HOPE As the industry becomes more competitive, UPS and FedEx will find it harder to increase prices as aggressively as they did from 2020 to 2022. Their value propositions will improve, forcing some of their new competitors to merge or exit. Ultimately, shippers and consumers will end up with more carrier and shipping options than they had before the COVID-19 pandemic, better overall service, and more reasonable rates.

Josh Taylor is Senior Director of Professional Services at Shipware. Visit www.shipware.com for more information.

For more information and analysis of these survey results, visit PARCELindustry.com/AlternativesRising. JULY-AUGUST 2022  PARCELindustry.com 19


By Cassidy Hardy and Scott Bounds

SIX POWERFUL TIPS

FOR PEAK SEASON PLANNING

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eak season is fast approaching, and whether you have already created and are implementing your plan, or you are still seeking the final touches, there’s never a wrong time to review lessons learned from the past to create a future of peak season success. For a variety of reasons, peak seasons during the pandemic have eaten away at both peak season fulfillment plans and budgets for shippers of all sizes. And while GMT expects this year’s peak season won’t be quite as volatile as the recent past, it’s imperative that shippers not only prepare early and often for peak season, but also seek to continuously gain and apply lessons from their whole network to optimize for both peak season and the whole year. Today, proper peak season planning is a mix of data science, fiscal responsibility, 20 PARCELindustry.com  JULY-AUGUST 2022

and behavioral intelligence, but — to truly reap the rewards — it’s important to hone where these abilities are best applied. Here are six key practices we see our customers implementing right now to prepare for the upcoming peak season. Educate your executive team about expenses and factors out of your control, such as the global economy. This runs the gambit from peak season accessorial/ surcharges, residential surcharges, delivery area surcharges, inflated fuel, and even the war in Ukraine. The war has only heightened the cost of fuel, but it also slows down the larger global supply chain, which will impact your network in the US. Prepare for the items that you have visibility and (some) control over, such as accessorial/surcharges, but plan and communicate as much as

possible for costs associated with issues unseen, such as the global supply chain and its related economy. Setting clear expectations internally will go a long way toward creating more realistic budgets and reducing friction when a strategic pivot becomes necessary. You’re (hopefully) already partnering with regional carriers to diversify and ease capacity constraints but take additional steps to create flexibility within your network should plans go awry (as they’re apt to do). In peak seasons past, national carriers implemented extremely cost impactful peak fees, which, when coupled with capacity constraints and growing consumer demand, made regionals an even more attractive option for peak season and beyond. Still, it’s important to keep in mind that regional


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carriers have their own limitations. They cannot serve your whole network, and some regionals have collapsed during the last two peak seasons, causing last-minute shifts to a more expensive and constrained network. Although this cannot always be avoided, it is in your best interest to have a gameplan for when a carrier partner (national or regional) falls short. Beyond engaging early with partners about peak season planning to make certain better preparation and strategy, ensure you’ve identified the metrics that matter most to your network, such as cost savings, delivery speed, reduced loss or damage, etc. Apply these metrics and network lessons to steer your carrier partner selection, and communicate openly and frequently with these partners to ensure as much visibility and as few surprises as possible. Rather than apply diversification with a broad brush, identify underperforming or troublesome lanes that need immediate prioritization. A great way to highlight your critical internal lanes is by reviewing carrier performance during past peak seasons. Which area struggled the most in terms of carrier performance, customer experience, and capacity? Based on conversations with carrier partners and internal metrics, are those lanes at risk again this year? With a solid understanding of how carriers performed in previous years from region to region, or lane to lane, you have a rich amount of powerful data to guide you when it comes to segmenting your volume to the right carrier for the right cost and the right customer experience. Related, consider an alternative or non-traditional delivery partner, such as Instacart. Like regional carriers, alternative partners will not be able to serve your whole network; however, they may be the best partner to help meet a niche component of the metrics mentioned above — whether that’s a same-day delivery commitment or delivery area that has become too costly for more traditional partners.

Prioritize the final touchpoint in the network. It is important for your DCs to prepare well in advance to maximize efficiency and cost-savings opportunities. DCs have never felt more strain due to lack of staffing and COVID-19 related absences than they did in 2021. Use previous years’ operational DC staff numbers, in conjunction with your previous/future peak package volumes, to provide a baseline of workforce needs. Seasonal workers in the last two to three years have been a popular but expensive option for many shippers. If the DC must resort to outside hire, forecast this labor expense to the financial team as early as possible. Though few and far between, there are some trending cost-savings opportunities that creative shippers have sought out to optimize their networks throughout the whole year. Consider how these might apply to your peak season planning: Engage your IT/TMS departments early and often. Accurate carrier selection network-wide will not only create a more cost-effective shipment but will also drive a better customer experience. However, this often requires a heavy technological investment. Optimize physical packaging and packing to save space (and money). Shippers will pay the price for packages taking up valuable cubic feet. Using the most logical, compact methods for shipping to your customers will help reduce unwanted accessorial charges during a time where every dollar (and cubic foot) counts. Ship-from-store (SFS) to ease your DC strain and alleviate costs associated with delivering directly to consumers (although this is another step that often requires a significant technological and inventory management investment). Speaking of inventory, inventory management is one of the most critical cost-savings opportunities that exists today. Not only does inventory accuracy create a more fluid and symbiotic relationship between the shipper and customer, but it is proven to increase

sales when combined with other network strategies like omnichannel. Best practice inventory management also sets your network up to successfully implement a variety of creative or new order fulfillment strategies (like SFS and microfulfillment) with near immediacy — and timing is often the difference when it comes to peak season success. Key here is the ability to connect your inventory to your network goals, and then using that visibility to steer and optimize forward. The past two peak seasons have been full of record challenges, ranging from capacity constraints, unprecedented increases in e-commerce shopping, and a winding global supply chain with a complicated economy. The overwhelming takeaway should be to leverage your network performance data to implement your network goals — be they cost efficiency, customer commitments, delivery speed, etc. Ensure you’re seeking out data that allows you to plan, monitor, and optimize those efforts, especially as they relate to the efforts that matter most during peak season: carrier partner strategy, DC optimization, and inventory management. Preparing the carrier network with multiple back-up strategies will be impactful for both cost and customer experience. Setting up DCs and stores for success will help alleviate strain on the network and the bottom dollar. Aligning parcel and LTL ecosystems through deliberate preparation can provide the best experience to the network — and, most importantly, the customer.

Cassidy Hardy is a Strategic Solutions Engineer at Green Mountain Technology (GMT), a Parcel and LTL Spend Management service provider for shippers with over 10 million parcels per year. In this role, Cassidy partners with customers to provide GMT’s strategic Spend Management solutions – Network Optimization, Spend Analytics, and Contract Management. Scott Bounds is a Solutions Engineer II at Green Mountain Technology. Scott assists his customers with Strategic Forecast, Network Optimization, Cost Allocation, and Spend Solutions.

JULY-AUGUST 2022  PARCELindustry.com 21


LA to NY would look something like this: USPS Priority Mail: $13 - 2 days USPS First: $6 - 5 days UPS 2nd Day Air: $31 - 2 days UPS 3 Day Select: $27 - 3 days UPS Ground: $14 - 4 days FedEx 2 Day: $34 - 4 days FedEx Express Saver: $33 - 5 days FedEx Ground: $21 - 6 days Here, you can see that USPS is not only cheaper than the Big Two, but the shipping time for Priority Mail is also considerably faster. Now, let’s up the size and weight of the package to 13 x 9 x 2 inch and five pounds. Here’s what we get:

DON’T KEEP THE USPS OUT OF YOUR CARRIER MIX

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UPS 2nd Day Air: $55 - 2 days UPS 3 Day Select: $42 - 3 days UPS Ground: $20 - 4 days FedEx 2 Day: $51 - 4 days FedEx Express Saver: $42 - 5 days FedEx Ground: $26 - 6 days USPS’s fastest option is still less expensive than both UPS and FedEx.

By Mikel Richardson

hipping is a critical part of every e-commerce business. Not only do you need to be sure your products reach your customers promptly and in good condition, but you also have to figure out which carrier and service will be most economical to meet the customer expectations for delivery. Implementing a multi-carrier shipping strategy definitely helps get your packages from point A to point B, but could you be writing off an important option? In recent years, the United States Postal Service (USPS) has emerged as a top contender for e-commerce businesses, but many businesses remain hesitant to add the USPS to their carrier mix. The government-sponsored carrier isn’t known for having the best customer service, and there have also been complaints about its tracking capabilities. On the other hand, UPS

USPS Priority Mail: $17 - 2 days

and FedEx, the “Big Two” carriers, are often preferred over USPS businesses due to their in-person service, more expansive insurance options, and less expensive rates for large parcels. While USPS may not have all the advantages of its competitors, it definitely has improved over the past decade by adding a number of benefits. USPS Can Save You Money The USPS is one of the most affordable carriers available for e-commerce businesses. In fact, it’s often the cheapest option available when it comes to small, lightweight items under five pounds. Since the USPS is a government-run carrier, it isn’t as constrained by the same rules that most private carriers, such as FedEx and UPS, encounter. As a result, USPS can offer lower rates on these smaller items. For example, your options for shipping a 0.5 pound, 8 x 4 x 2 inch package from

USPS Provides a Larger Network than Most Carriers The USPS delivers almost half of the world’s mail, reaching more than over 163 million homes and businesses in the US. That is a lot of addresses, which provide businesses with plenty of potential customers to reach. USPS is also the only carrier that can get to every door, mailbox, and PO box in the country. This is because the USPS is obligated by law to deliver to all US postal addresses. And the USPS’s capacity doesn’t stop there — when it comes to shipping internationally, USPS has multiple options for businesses ready to open up their products to a global market. It’s Important to Not Put All Your Shipments in One Basket The perfect carrier simply doesn’t exist, and while you may have a preferred carrier that you use most of the time,


SUBSCRIBE FOR FREE! it’s important that you know about the advantages that come with competing carriers, such as FedEx and UPS, as well as when to use a particular carrier. We frequently hear these three common themes from e-commerce businesses when it comes to shipping: reliability, speed, and price. Unfortunately, no one carrier is going to provide all three of these in a way that benefits a business in every scenario. For example, when it comes to affordable expedited shipping, or shipping alcoholic products, FedEx may be the more favorable option. For businesses that need to fulfill international orders or competitive pricing on large parcels, UPS is typically better. For merchants who ship domestically and primarily deal with small items, USPS is the carrier to use. Regional carriers, like OnTrac and LSO, can also be great for meeting last-mile parcel delivery needs. However, you may find that sometimes rates for FedEx are suddenly higher

than usual for rushed shipping, making it beneficial to pivot to UPS. Or if you happen to be shipping a medium-sized package thousands of miles away, USPS could be more cost-effective. You ultimately have to weigh the pros and cons of each carrier in order to make the best decision for your business. Don’t Let a Bad Experience Keep You from Delighting Your Customers While we always hope for the best, sometimes things just don’t go as planned. If you’ve had a negative experience with USPS in the past, that doesn’t mean you should keep it out of your carrier mix altogether. Just as your business is evolving, so are the carriers you use. Technologically, USPS has come a long way. Some of their improvements on the innovation side include an enhanced Package Processing System (EPPS) that can sort through 25,000 packages/ hour, optical character recognition technology that can read almost 98%

of all handwritten letters and 99.5% of machine-printed mail, and the world’s largest gantry robotic fleet that can move 300,000 mail trays/day. USPS is also continuously making adjustments to improve its on-time delivery performance, with the average time for mail and packages taking 2.4 days. The last decade has shown that USPS is striving to be a best-in-class shipping carrier. Its unique attributes, like shipping to every address in the US and improved delivery options, speed, and cost should encourage you to consider USPS as you curate a balanced carrier mix.

Mikel Richardson is Vice President of Product at ShipHawk. Mikel is an expert in the development of fulfillment and logistics SaaS solutions that are changing how SMB and mid-market companies approach cloud-based inventory and fulfillment to scale their businesses. Your questions are welcome at mag@shiphawk.com.

JULY-AUGUST 2022  PARCELindustry.com 23


BY ANDY DYER

WALKING THE TIGHTROPE: PROTECTING BUSINESS CONTINUITY WITHOUT BREAKING THE BANK

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or logistics operations, change has become a constant. The COVID-19 pandemic created major disruptions that still linger today, with 72% of businesses reporting negative effects due to the pandemic. And the global impact of the current regional conflict between Russia and Ukraine sheds light on just how vulnerable all economies are when globally interconnected. Whether inconsistent inventory availability or a lack of transportation capacity, the results of disruptive forces are easy to spot. Stories about container backups at ports, empty shelves in grocery stores, and empty automotive dealer lots have become common fixtures in local and national news. For modern logistics networks highly dependent on precision and reliability, unplanned shocks can leave businesses facing uncertainty, scrambling to secure critical transportation capacity and inventory. Transportation Risks Freight networks are struggling to find enough capacity to go around, which causes backups, delays, extended wait times, and in some cases, rejection of cargo. Just turn on the news and you’ll see that the US container shipping network is backed up, bottlenecked,

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and maxed out. The imbalance starts at ports and ripples through entire logistics networks. To keep up with demand and avoid being slowed down by port backups, companies are shifting goods that would normally be shipped in containers onto trucks, increasing freight demand exponentially. What about parcel? LTL is not the only mode facing overwhelming demand. With parcel moving more business-to-consumer goods, business-to-business freight is getting pushed back to LTL. But LTL carriers are not waiting with excess capacity to pick up the slack. Instead, faced with overwhelming demand, LTL carriers are forced to be selective when choosing what orders to fulfill. Similar to railroads metering intermodal freight last fall and parcel companies implementing higher rates and placing increasingly tighter constraints on which packages they will receive and ship, LTL carriers are taking action, too. They continue to be aggressive with pricing, opting to reject what they perceive to be inefficient freight and levying hefty accessorial charges that go beyond normal pick-up and delivery requirements. Inventory Risks Manufacturers need raw materials and components to make their goods. Justin-time approaches have guided them to

keep inventories lean and hold minimal excess stock in order to maximize efficiency. Even in calmer times, inventory availability can be disrupted due to flawed forecasting, unreliable suppliers that deliver shipments late, shelf-life limitations, product loss, and damage during delivery. But add unprecedented disruption from pandemic shutdowns and other recent shocks, and major manufacturers have had to slash production due to insufficient inventory. While manufacturers are experiencing the pain of limited production, trading just-in-time strategies for piles of excess inventory is not an option. Profit margins that are often less than 10 cents on the dollar mean manufacturers cannot afford to abandon the just-in-time philosophy’s extreme cost-consciousness. Redundancy, Diversification, and Optionality Redundancy, diversification, and optionality are key principles that can equip businesses to navigate transportation and inventory risks. For transportation management, redundancy means building a roster of multiple carriers for LTL, truckload, and parcel, while diversification means equipping yourself with the ability to switch between modes and customize shipping cadence. For inventory management, redundancy comes from securing multiple suppliers across multiple geographies for the same materials, and diversification means adding greater variety in sourcing and management options, including both in-house and outsourced approaches. Together, redundancy and diversification give businesses optionality — the ability to adjust and pivot to different options to keep business moving in the face of changing circumstances. Adapting to Capacity Challenges and Record Pricing In practice, optionality in transportation management can help control costs and maintain business continuity in the face of capacity constraints. Having a strong lineup of carriers across modes can enable shippers to quickly pivot to another carrier and maintain business continuity in the event a load gets


SUBSCRIBE FOR FREE! rejected — which can happen on very short notice. To find relief from growing LTL rates, shippers can work with their customers to adjust shipping mode and cadence, such as consolidating several LTL deliveries per week into a single weekly truckload shipment. Contract negotiations are another important tool for managing exposure to high costs. Rates have been driven steadily upward over the past year and a half, but with some reports indicating softening freight demand, consider shortening transportation spend cycles. Rather than a year, going for a three- or six-month duration can avoid locking in a high rate for an extended period and allow shippers to take advantage of more favorable market conditions. Securing Inventory Supply Rethinking inventory sourcing and management with a 4PL can help strike the balance of maintaining critical supplies without overwhelming balance sheets with higher costs. Thin margins can make carrying high levels of safety

ER

stock prohibitively expensive for some businesses, but a 4PL can take control and financial ownership of inventory while in transit and storage. Financial ownership is key, because the shipper secures access to safety stock, but avoids the burden of excess stock on their balance sheet. The 4PL provider holds stock at a low interest rate in a strategically located warehouse, then releases it once inventory is required for availability that matches production needs. This type of approach is meant to address issues with suppliers that have long lead times or who are unable to deliver reliably to a just-in-time production model. But not all inventory is a good fit. Something with a limited shelf life, such as fresh produce, or that frequently changes, like seasonal clothing, would not be the right type of inventory for a 4PL program. However, items that do not frequently and fill a lasting need — like semiconductors, fasteners, or other components in the automotive industry — are well-suited for outsourced inventory management through a 4PL.

Shift Away from Zero-Sum Thinking A common label that shippers aspire to is to be a “shipper of choice.” A major step shippers can take to deliver on that promise is to address internal inefficiencies before they become external issues that their trading partners must also work to resolve. For example, if a shipper’s WMS inventory list has errors, that can then result in erroneous bills of lading. While the WMS might say products weigh 700 pounds, the carrier’s scale may prove otherwise, leading to administrative back-and-forth to fix the error and creating unnecessary friction between shipper and carrier. In a market of myriad shocks, disruptions, and tight capacity, shippers must do what they can to be reliable and efficient consumers of transportation services. As a shipper, work with — not against — your carrier.

Andy Dyer is President, Transportation Management, AFS.

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WHEN IS IT TIME TO RENEGOTIATE WITH YOUR CARRIER?

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By Josh Dunham

n the daily conversations I have with shippers across the country, including customers and prospects, there is increasingly a feeling that something fundamental changed. Many, particularly industry veterans who refined their expertise over decades, consider the carriers they do business with to be true partners and extensions of their distribution centers and warehouses. That feeling is often even stronger among shippers at small businesses, where FedEx and UPS are not known as conglomerates or by their stock price, but instead by the drivers and

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sales reps employees know by name and care about. Many are friends they’ve worked with for years. Over the past two decades, I’ve seen these sentiments influence many negotiations. Most shippers wanted the best deal they could get, but they wanted it to be fair. It is for precisely these reasons that the current shipping landscape — one in which carriers’ revenues are skyrocketing and even long-term relationships are being jettisoned in the name of network efficiency — is more than a business challenge. It’s often personal. Shippers in every industry are encountering a new reality. Our largest carriers are doing three things with unprecedented regularity: First, they are increasing their prices more and with greater frequency than ever before. Second, they are making it more difficult for shippers to know exactly what their costs will be by being less transparent. Third, they are actively walking away from business, even accounts that have been in place for many years. Most strikingly, they are willing to do this when it causes real harm to the customer. No shipper wants to consider a scenario when holiday purchases, packaged up and ready to go, remain on a loading dock because the carrier won’t pick them up. But that’s a possibility more than a few shippers encountered in conversations with their carrier rep last winter. As for price increases, the proof, as they say, is in the pudding. Last fall, our data scientists analyzed how much the 5.9% rate card increases FedEx and UPS announced for 2022 would really cost businesses when you included the numerous new surcharges, fees, and rules both carriers unveiled the year before, but did not include on their rate card. When we ran the resulting model on shipments our customers made the year before, the results were eye-opening. They were also accurate, as we now know. What did we find? Fewer than three percent of shippers will see their costs increase by 5.9% — the annual rate card increase — or less this year. The average company using UPS will see an increase of 10.25% and the average company using FedEx will see an increase of 12.86% in 2022. Some businesses will also be hit much harder. Those that use FedEx Ground Economy, previously the most affordable option for many small businesses, will see a whopping 26% increase this year. All of this is reflected in earnings. FedEx achieved its highest operating income ever this past December, a point driven significantly by higher revenue per piece (RPP) — in other words, price increases. UPS achieved its single highest quarterly profit ever in Q4, with an RPP that increased 10.5%. And the increases continue. In its last earning report for Q1 2022, UPS’s RPP grew by 9.5% in the domestic market. Notably, nothing is off limits in the quest for profits. FedEx recently changed the table used to calculate its fuel surcharges — a move that, on its own, delivered another 1.75% of revenue on top of the fuel surcharges the company already unveiled since the war in Ukraine began. The takeaway is that shippers absolutely have to renegotiate with their carriers if they don’t want to absorb what has become an unprecedented and seemingly never-ending litany of overt and


SUBSCRIBE FOR FREE! hidden price increases. When, though, should you renegotiate your contract, and, more precisely, what circumstances should prompt shippers to do so? When Is It Time to Renegotiate? Every business has a unique shipping profile that should be optimized by the shipping contract it finalized with its carrier. For that reason, every shipper should renegotiate whenever and as often as it makes sense. There are, however, times and events when all organizations should immediately endeavor to renegotiate their contract, and, if needed, change carriers altogether.  Annually when the new rates come out: General rates are usually announced in the fall. Ideally, shippers should begin creating their business cases for negotiations as soon as the new rates are known to ensure that they begin the year with negotiated prices, terms, and conditions in place. Remember, though, that you can and should renegotiate at other times, too. The release of the general rate card is but one lever you can use to lower your shipping costs.  A merger and acquisition occurs: More than a few savvy shipping departments have found the exceptional contracts they negotiated negated by a merger or acquisition. The occurrence of either should prompt shippers to immediately renegotiate their contracts, and it is critical to determine whose terms will be in effect until a new agreement is made.

 Whenever contract terms expire: It’s crucial to remember that shipping contracts are not “one” agreement, but instead are a series of agreements in the fine print of lengthy documents. They often include terms that expire before the contract does. I have met with many shippers who did everything right, but forgot, for example, that the surcharge discounts they secured expired after six months, not a year.  A new surcharge: The unveiling of any new surcharges should prompt shippers to look at their shipping data to see if and how it impacts them. Use this information to pinpoint surcharges that are most applicable to your business, and act accordingly. For example, you may frequently ship a product impacted by a new oversized package fee — something that warrants looking not only at the new surcharge, but also whether the dimensions of what constitutes oversized changed and warrant an exception.  Pricing floors and minimums: If you consistently come in under minimum spending amounts or price floors, it’s too high and needs to be looked at and renegotiated.  Dimensional divisors: Carriers use many complex dimensional divisors to standardize their pricing by size and weight. Shippers should consider them in depth. For example, if you are shipping a lightweight but large parcel, you may actually be paying far more because of its dimensional weight, or the amount of space it takes up, rather than if it was calculated by weight.

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By not only negotiating effectively, but knowing when to do so, shippers can ensure that they are getting the best possible prices, terms, and conditions available — not only subjectively, but in comparison to their peers at other organizations with a similar shipping profile. Ultimately, all negotiations should also include the potential of changing carriers altogether. One of the most important steps businesses can take today is to take steps to become carrier-agnostic.

Josh Dunham is founder & CEO of Reveel. Visit www.reveelgroup.com for more information.

What Should You Ask in An RFP With A New Carrier? In negotiations, knowledge is power and data is leverage. Before starting any RFP with a new carrier, it’s imperative to make sure that you come to the process with the shipping intelligence needed to make a compelling business case. This includes having your shipping vital factors: service spend, surcharge spend, the average cost per shipment, dimension weight, minimums and average zone. Notably, the carrier will definitely come prepared. UPS, for example, just equipped its reps with Deal Manager, a new analytics tool. In the words of CEO Carol Tomé during the company’s Q1 2022 earnings call, it “is providing pricing analytics to our sales team as they go about negotiating deals.” You don’t want to show up to a gunfight with a knife. In addition to making sure you have everything you need in the actual negotiations, you also want to ask operational questions that could influence your business and then write related terms into the contract. Some of these include:  What are your capacity constraints and capacity guarantees? Even the best discounts, terms, and conditions are irrelevant if your packages remain on your loading dock.  When will the pickup be each day? It’s imperative to confirm that the pickup time works well for your business and your warehouse operations.  Will you leave a trailer or trailers at the facility for loading each day, and, if so, when? While this is not relevant to all businesses, for some operations having trailers onsite at set times each day is important and can impact how some distribution centers operate.  What is the current percentage of deliveries that are on time? We are seeing service levels slip on some shipping products. Negotiating on-time deliveries is a great way to get in front of it.  Will you guarantee delivery service levels and delivery times? Although related to the point above, it’s especially important for e-commerce companies to ensure that rigid guarantees are in place for on-time deliveries. In the eyes of the consumer, your carrier and brand are inextricably linked. Late deliveries will reflect poorly on your company.  What days on the weekend do you deliver? E-commerce customers want to know when their purchases will arrive and often prefer weekend deliveries. Make sure you address your prospective carrier’s weekend delivery schedule and write it into the contract.

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