NOVEMBER-DECEMBER 2017 PARCELindustry.com
DATA BENCHMARKING MEANS MORE THAN YOU’VE BEEN TOLD, ESPECIALLY WHEN IT COMES TO PARCELS. P.12
JUST SAY “KNOW:” CRITICAL RELATIONSHIPS TO DEVELOP WHEN SHIPPING OVERSEAS P.16
OPERATIONAL IMPROVEMENTS VS. CARRIER RATE IMPROVEMENTS: WHICH DELIVERS THE MOST BANG FOR YOUR BUCK? P.22
OUT ON THE RIGHT FOOT
PARCEL FORUM ’17 WRAP UP PAGE 26
CONTENTS /// Volume 24 | Issue 6
12 14 16 18 06 EDITOR’S NOTE The Parcel Industry: Music to Our Ears By Amanda Armendariz
14 EXPLORING WAREHOUSE OPTIONS View on Website
07 OPERATIONAL EFFICIENCIES View on Website
Need Qualified Associates? By Susan Rider
08 SPEND PERSPECTIVES View on Website
Breaking Up the Parcel Duopoly with Blockchain By Paul D’Arrigo
10 SUPPLY CHAIN SUCCESS View on Website
FedEx 2018 GRI and the Changes to Come By Sam Simpson
16 JUST SAY “KNOW” View on Website
Here’s a look at eight important compliance contacts every international e-tailer should have. By Raphael Madarang
18 BUILDING A BETTER BRAND STRATEGY View on Website
12 BENCHMARKING MEANS MORE THAN YOU’VE BEEN TOLD View on Website
Meeting the needs of e-commerce and brick-and-mortar retailers takes a variety of warehouse configurations and equipment to be successful. By Brian C. Neuwirth
The marriage of technology and data science has made parcel benchmarking more precise than ever. By Travis Rhoades
4 PARCELindustry.com NOVEMBER-DECEMBER 2017
For better or for worse, your shipping strategy delivers more than product. Here’s how to harness logistics to drive brand strategy. By Matt Weickert
22 REDUCING PARCEL COSTS: OPERATIONAL IMPROVEMENTS VS. CARRIER RATE IMPROVEMENTS
View on Website
Let’s explore these two different avenues as you seek to drive down your costs. By Trevor Outman
26 PARCEL FORUM WRAP UP View on Website
The 2017 PARCEL Forum in Nashville was a resounding success. Here’s a look at what went on at the Gaylord Opryland. By Amanda Armendariz
29 PARCEL COUNSEL View on Website
The Legal Characteristics of FedEx and UPS By Brent Wm. Primus, J.D.
30 WRAP UP View on Website
Fast and Cheap By Michael J. Ryan
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P.O. Box 259098 Madison WI 53725-9098 p: 608.241.8777 f: 608.241.8666 PARCELindustry.com
PARCEL (ISSN 1081-4035) is published 6 times a year by RB Publishing Inc. All material in this magazine is copyrighted 2017 Â© by RB Publishing Inc. All rights reserved. Nothing may be reproduced in whole or in part without written permission from the publisher. Any correspondence sent to PARCEL, RB Publishing Inc. or its staff becomes the property of RB Publishing, Inc. The articles in this magazine represent the views of the authors and not those of RB Publishing Inc. or PARCEL. RB Publishing Inc. and/or PARCEL expressly disclaim any liability for the products or services sold or otherwise endorsed by advertisers or authors included in this magazine. SUBSCRIPTIONS: Free to qualified recipients: $12 per year to all others in the United States. Subscription rate for Canada or Mexico is $35 for one year and for elsewhere outside of the United States is $55. Back-issue rate is $5. Send subscriptions or change of address to: PARCEL, P.O. Box 259098 Madison WI 53725-9098 Allow six weeks for new subscriptions or address changes. REPRINTS: For high-quality reprints, please contact our exclusive reprint provider, ReprintPros, 949.702.5390, www.ReprintPros.com.
THE PARCEL INDUSTRY: MUSIC TO OUR EARS By Amanda Armendariz
ur annual PARCEL Forum took place this year in Nashville, Tennessee; the location at the Gaylord Opryland lent itself to many musical slogans “hitting all the right notes” and “music to our ears,” just to name a few). But while I enjoyed the cleverness of these catchphrases, it’s important to emphasize that it wasn’t just talk — the explosive growth, innovation, and collaboration in the small-package industry is indeed gratifying to see. I was privileged to spend the three days in Nashville networking with many industry professionals, discussing the latest happenings in the parcel arena. I left feeling energized and excited to see where the industry would go next.
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With this growth, however, comes uncertainty. It can be hard to navigate these new waters, and with all the demands facing logistics professionals on a daily basis, it can be difficult to focus on the long-term, since there is so much in the present that demands our attention (especially as we are in the midst of peak season!). But as I always counsel, it’s important to be proactive rather than reactive. The industry is changing at a rapid pace (delivery expectations, international commerce, alternate delivery options) and it can feel overwhelming for even the most experienced professional. That’s why it’s crucial to explore educational avenues like the PARCEL Forum and PARCEL itself. Only by discussing your logistics issues with other industry professionals and researching the latest happenings can you take your small-shipment operation to the next level. This collaboration truly is music to our ears. I thank you for being on this journey with us, and I look forward to what 2018 will bring! As always, thanks for reading PARCEL.
Here are some of the most-read articles on our site in recent weeks. If you haven’t already checked them out, you might want to — there is some great information in there!
UPS 2018 General Rate Increase and Other Changes By Dave Sullivan
Six Things You (Probably) Didn’t Know About Parcel Lockers By Rob Jensen
2018 FedEx Accessorial Surcharges: Assessing the Impact By Glenn Gooding
NEED QUALIFIED ASSOCIATES? By Susan Rider
n certain areas of the country, finding qualified associates has become a dilemma. That’s why many are deciding to break the rules! Distribution managers are partnering with Human Resource departments to get creative and find better, more qualified associates that are dependable, hard-working, and responsible. Traditionally, workplaces have required the employee to wear uniforms or non-descript clothing. To what benefit? Granted, very loose clothing could be hazardous, and this would be a reasonable exception. But to get high school and college kids today to come to work and stay, it takes getting creative. Bending and breaking old traditional requirement rules, if they aren’t safety hazards, only makes sense. A company that is doing just that is Gap, Inc. Located in Tennessee and surrounded by many other distribution
companies and manufacturing companies, the area’s unemployment rate has plummeted, so companies are competing for workers by driving wages up and allowing fringe benefits to be more available to part-time and new people. The Gap staff needed to get creative and challenge some of the old rules by exploring the employment sector of high school students. Shift hours were the first challenge. They started a new shift to accommodate the seniors when they got out of school and ended by the mandatory time for employment of minors. One of the other major changes for Gap was earbuds. One of the managers stated that if you asked young people to work and take away their phones, “It was like asking them to cut their arm off.” They realized that most jobs could be completed while listening to music of choice, so they allowed the young people to listen to their earbuds while at work, which didn’t harm anyone and did not create any safety issues. They realized that this new workforce actually worked much faster, had tons of energy, and were not intimidated by new challenges. Young people were also more inclined to work as a team and to make sure that the whole team was successful. There was also an added benefit to recognizing possible new full-time associates that Gap wanted to keep for future leadership positions. Another group of untapped workers is the older workforce
— people that have taken early retirement such as retired school teachers, medics, law enforcement individuals, etc. The motive of this untapped workforce to work for your company is not money (although they would resent getting paid less than others doing the same job). The real motive and determining factor for these people is the culture. Creating an environment that would feel like a family of friends caring about each other is an environment in which they would enjoy and commit to. After all, these people don’t have to work. They would not prosper in an environment that was high stress. Of course, if you hire people from this segment of workforce, special considerations need to be taken to break more rules (such as extra training, larger font, earlier hours, etc.) Another untapped workforce consists of housewives and mothers that have opted to stay home with their children. Oftentimes, these people and would love to work between the hours of dropping the children off at school and picking them up. Of course, retaining your full-time associates is also something that you must focus on in today’s world. People are tired of “just working.” They want to feel part of a team. Once you create that culture, your workforce will succeed!
Susan Rider, President of Rider & Associates, Supply Chain Consultant, and Executive Life Coach can be reached at email@example.com.
NOVEMBER-DECEMBER 2017 PARCELindustry.com 7
BREAKING UP THE PARCEL DUOPOLY WITH BLOCKCHAIN By Paul D’Arrigo
nline shoppers receive their orders via UPS, FedEx, and the USPS every day. E-commerce is growing exponentially, and for UPS and FedEx, it is representing a larger percentage of deliveries. For over a decade, I have made a living running an e-commerce retailer surviving on razor-thin margins. There is an abundance of options for payment processors, web platforms, and warehouses to lease, but amazingly, only two (or three, if your packages are a good fit for the USPS) options for shipping parcels. Why Is There a Duopoly in Parcel Delivery? In 2016, the parcel delivery market was estimated at $300 billion globally, with the US alone estimated at almost
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$61 billion. That represents a massive market, so how could there only be two private nationwide parcel delivery players, UPS and FedEx? The barriers to entry for parcel delivery are high. Amazon is entering, but it will never build a network that delivers down every rural dirt road in America, and we’ll set drones aside for now. The fixed assets are a major hurdle, but can be accumulated over time. This accumulation is happening in regional carriers such as LaserShip and OnTrac, who continue to build their fleets. On the software side, the barrier is the gathering of all event data. Data at every step, from pickup to delivery, geographic locations, and timestamps all collected into one standardized database. Today, this full tracking visibility is only accomplished with a wholly owned network. It requires fully integrated scanning devices and trained employees to input the data. FedEx, UPS, and the USPS are the main entities large enough to build nationwide networks that have these data capabilities. How Could You Build an Entire Delivery Network? If you are not familiar with the term blockchain, the best way I can describe it is as a universally shared ledger to which anyone can read and write. The genius is the
cryptographic protocol to constantly validate updates, essentially getting many audits of the ledger from many sources. Blockchain thus eliminates the need for trusted intermediaries, such as a large nationwide parcel delivery network owner.
If you are not familiar with the term blockchain, the best way I can describe it is as a universally shared ledger to which anyone can read and write. How Would This Network Look? With a public blockchain registry of packages needing delivery for all to view, a small delivery company could pick up packages originating from their local area. Once the package reaches the edge of their territory, it is transferred to the next regional carrier at a public “exchange” point, with each move meticulously recorded
using blockchain for the recipient to track in real-time. This requires many pieces to fall in place, including getting buyin from enough carriers to form a substantial nationwide network and enough exchange points to facilitate transfers. Equipment that can scan the package and update the blockchain is needed as well, but substantially less capital expenditure by one party is required versus building an entire package tracking network yourself. How this national ledger of package movements could spawn and grow is unclear. Maybe the Postal Service will mandate its creation and provide the standardization, much like ZIP Codes were created in 1963. Perhaps an entity will facilitate a locker system and transfer points, such as what Singapore’s government has done. Can I Really Trust Handing Over My Package to Such a Network? One way to comfort shippers could be having the carriers who take possession of your package also transfer crypto-currency to you (like bitcoins), essentially a deposit, and then receive those coins back plus a fee
once the package is checked into the next stage of the journey. In essence, they would be buying the item and selling back to you with every hand-off. This would also eliminate the hassle to file a claim with a shipping carrier due to non-delivery. The shipper would control the path of their package using computational logic. You could denote that no carrier with poor ratings can handle your package, or you are willing to let anyone move the package for the lowest price. What’s Ahead? Companies are dedicating resources to blockchain and
are exploring ways to profit. For consumers, the value in blockchain is lowering the barriers of entry to a number of industries, such as parcel delivery. When the barriers are lowered, competition rises and prices to consumers are pushed lower. I’m excited for the emerging uses of blockchain, and shopping online will only get better thanks to it.
Paul D’Arrigo is Vice President of Information Technology at Spend Management Experts. Please visit spendmanagementexperts.com for more information.
NOVEMBER-DECEMBER 2017 PARCELindustry.com 9
FEDEX 2018 GRI AND THE CHANGES TO COME By Sam Simpson
n September 18, FedEx announced its 2018 general rate increase (GRI). FedEx’s 2018 GRI is keeping the US Domestic Express and Ground increase to 4.9% (as compared to 2017 GRI Express at 3.9%). The FedEx GRI will take effect on January 1, 2018, but FedEx also added another significant rating change that will occur 21 days later. On January 22, 2018, FedEx will start dimensional weighting for SmartPost and will start charging third-party billing fees for all service levels. THE RATES Since these GRIs are described by the carriers as an average net, the actual impact to certain service level rates can vary greatly.
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FedEx announced a 4.9% average increase for its Express and Ground services. While the average increase for FedEx is 4.9%, it is very important to consider how these averages are calculated and which services will take the greatest increase. Express Saver is an excellent example of this average and the variances that can take place. Express Saver Zones 6 through 8 took a 7.4% increase, while the lower zones took an average of 3.9% increase.
The FedEx increase is broken out by service level and weight breaks in Table 2 to give you a better idea where the largest increases will take place. On average, Ground and Priority Overnight will take slightly less than the announced increases at 4.5% and 4.7% respectively, while 2 Day AM and Express Saver are taking the greatest increases at 6.3% and 6.1% overall. ADDITIONAL CHARGES FedEx will be implementing changes to its accessorial surcharges, adding a third-party billing surcharge, and starting dimensional weighting for SmartPost. These changes
will mean a greater cost for shippers and a need for deeper analysis, depending on which services and surcharges a shipper uses the most. The majority of the surcharge increases will go into effect on January 1, whereas the third-party billing surcharge and the SmartPost dimensional weighting will start on January 22. The major surcharge changes for Ground and Express are listed in Table 3. Most of the increases are between 2.6% and 10.3%. The major callout here is the 160% increase for the Unauthorized/LPS Surcharge, which will be $300 in 2018. FedEx does not have an interest in shipping overly large packages, and the 160% is there to deter shippers of
large packages from exceeding the overmax threshold. The 2.5% third-party billing surcharge for all service levels will be an increase that will impact all shippers using third-party services. Since this 2.5% is applied to total charges, this will make the cost of the GRI much more than the average 4.9% as well as add to the surcharge increases. Total charges are defined as “transportation charges, surcharges, and additional fees but do not include duties, taxes, and ancillary clearance service fees” by FedEx. FedEx will be implementing dimensional weighting for SmartPost. The Service Guide
DIM factor will be 139. This will greatly increase the cost of using SmartPost for shippers when the DIM weight of the package is greater than the actual weight. If you have a 10” x 10” x 10” package that weighs five pounds, the dimensional weight will be greater. The volume will be 1,000 cubic inches divided by the 139 DIM factor, which will result in 7.2, rounded up to eight pounds. Therefore, a package that had a five-pound rate applied in 2017 will now be using the eight-pound rate when it has a 1,000 cubic inches in volume. SIMPLIFYING THE COMPLEX INCREASES While the FedEx 4.9% GRI was somewhat expected, the third-party billing surcharge and the SmartPost dimensional weighting add considerable costs and complexity to understanding the complete impact. Analyzing the impact of the FedEx GRI prior to the implementation of the changes is highly recommended, as the realized impact will almost certainly be greater than the announced increases. Moreover, renegotiating contracts just got more complex as the FedEx 2018 changes will have major consequences on the total spend of shippers. A thorough analysis is a must.
Sam Simpson is a Senior Transportation Analyst at enVista. Sam’s diverse background includes expertise in negotiation, analytics, contracts, and vendor management. Sam’s primary focus during his career has been generating savings through detailed analytics and process improvements.
NOVEMBER-DECEMBER 2017 PARCELindustry.com 11
BENCHMARKING MEANS MORE THAN YOU’VE BEEN TOLD
The marriage of technology and data science has made parcel benchmarking more precise than ever.
ow many parcel shippers truly read the story their parcel data tells? The reason I ask: To have a discussion about parcel benchmarking against other businesses, the data — be it from invoices, transit and tracking information, your carrier agreement, or carrier rate and accessorial details — is the story. But that’s too often forgotten or ignored because the term benchmarking has become a generic buzzword that has lost real meaning — another piece
BY TRAVIS RHOADES
of marketing jargon used by vendors as a “me-too.” So, let’s first separate the cliché from the reality. Real benchmarks are not derived from surveys of self-selected respondents in unrepresentative samples. Benchmarking is not a measure defined by personal anecdotes or previous experiences — no matter how recent. Benchmarks are not rough estimates. Instead, effective and meaningful benchmarking is a precise mathematical exercise driven foremost by data (lots of data).
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Effective benchmarking is supported by industry expertise — useful in defining what is to be benchmarked and what important performance measures should be compared to that of peers (which don’t have to be limited to competitors, neighbors, or companies of similar size). It identifies the best types of peers and calculates benchmarks from within peer groups. When done correctly, benchmarking is a valuable way for companies to gain perspective on the effectiveness of their own performance, to set performance expectations, and to identify and prioritize areas for improvement. Through benchmarking, companies understand where they’re at and where
they need to go, setting a foundation for strategic decision-making. But if benchmarks are derived from an inappropriate set of peers — from surveys, best guesses, or a consultant’s memory — you could miss the mark, strategically speaking. THE SPORTS ANALOGY Major League Baseball, for example, has figured this out. The revolution in baseball statistics — think sabermetrics, or the central theme of the book Moneyball and its film adaptation — has largely been driven by the realization that broad, non-specific measures are inadequate aids to decision-making. For instance, say you’re a baseball general manager looking to trade for a slugger. Does it make sense to look only at home run totals without considering the size (depth) of the stadiums, the elevation, or the climate in which your team plays? Of course it doesn’t. Ballparks vary substantially, just as the quality of pitchers faced can have a significant impact. Each player’s accomplishments are accumulated under unique circumstances and are affected by many variables. Considering all factors is essential to drawing meaningful insights. MLB statisticians now use sophisticated methods to account for the conditions impacting each player’s performance to make much better player comparisons. To benchmark performance means comparing that performance against
an appropriate standard, not just the number of home runs a player hits without regard to the circumstances, or the 4.9% average general rate increase (GRI) a carrier announces that combines all service types and accessorials — not the specific services and surcharges relevant to your business that make effective rate increases much higher. It is that word — “appropriate” — that has long been a challenge. At best, defining benchmark standards has been like painting a detailed picture with a very broad brush; at worst, it’s been entirely generic — a monochrome canvas painted in the best “average” color. THE PARCEL APPLICATION Like a power hitter, every parcel shipper also is unique. Should a B2C shipper, subject to residential and Delivery Area Surcharges, use cost-per-package benchmarks derived from B2B shippers? Probably not. Benchmarks should be drawn from shippers with similar priorities and constraints. Benchmarking is about finding the right standard — the best in class for the right class or peer group. And that’s where big data and data science are redefining what benchmarking is and what it means for parcel optimization as modern computational methods become ever more powerful. Third-party parcel intelligence providers, with legitimate and sophisticated data science operations that are more than a marketing "me-too," can
make it easier to establish who your peers are and what benchmarks matter specifically to your business. This marriage of technology and data science creates “high-precision benchmarking” that brings together parcel data insights, machine intelligence, and subject matter expertise. Today, with the right tools, techniques, and enough high-quality data, analytics can precisely identify the right peer group and, through analysis of this group, determine the right benchmarks. Parcel carriers know this and invest millions of dollars into operational initiatives that rely on data collection and analysis. UPS alone reports investing $1 billion each year into solutions like its ORION (On-Road Integrated Optimization and Navigation) program. And it is using your parcel shipping data to forecast and decide which rates to increase — and by how much. And the company is using your shipping data to negotiate your contract to its benefit. So, back to that question I posed in the first sentence: Are you reading the story your parcel data tells?
Travis Rhoades is the Director of Data Science at VeriShip, the leader in parcel intelligence. His team uses Big Data and Data Science to produce valuable, actionable intelligence that empowers companies to optimize their parcel shipping operations. He can be reached at firstname.lastname@example.org or 913.933.3541.
When done correctly, benchmarking is a valuable way for companies to gain perspective on the effectiveness of their own performance, to set performance expectations, and to identify and prioritize areas for improvement. NOVEMBER-DECEMBER 2017 PARCELindustry.com 13
EXPLORING WAREHOUSE OPTIONS
Meeting the needs of e-commerce and brick-and-mortar retailers takes a variety of warehouse configurations and equipment to be successful.
s the boom in e-commerce continues to transform today’s business environment, how should warehouses be structured to meet these demands for quick turnaround? Previously, one warehouse was built to handle store fulfillment, and another was built to handle strictly e-commerce orders. Retail stores were fulfilled via bulk shipments from the closest distribution center (DC), which could take anywhere from one to five days. E-commerce orders were filled from the e-commerce warehouse. Even if an online customer was located next to a retail-only DC, the order was shipped from the e-commerce warehouse, resulting in inefficiencies and greater costs. Filling e-commerce orders is a much different proposition than replenishing brick and mortar stores. Consumers are placing more frequent orders of smaller sizes to be delivered to their home or to another location for pick up. Many traditional warehouse operations are not set up to efficiently accommodate a
large range of orders with varying units. Instead, warehouses today need to be built to either process e-commerce orders or replenish store inventory, or be built to handle both. E-COMMERCE AND MULTI-CHANNEL WAREHOUSES Because of consumers’ Amazonian-mindset of instant gratification, the ability to quickly and accurately deliver an order to an online customer is an essential part of doing business in today’s fast-paced e-commerce world. Retailers that compete in this environment focus on their order picking processes to speed fulfillment and keep customers happy. Daily order volumes and order quantity can change frequently with seasonal and promotional peaks. Changing SKU velocity and SKU proliferation are challenges, too, especially if there is limited warehouse space. Regardless, the need for speed is essential to the success of the e-commerce warehouse operation. Multi-channel warehouses supply a mix of products to retail stores while
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also filling e-commerce customer orders. Fulfilling both store inventory and e-commerce orders from the same stock has its complexities, mainly because stores order in bulk, while e-commerce orders are smaller. However, having the ability to view the entire pool of inventory in real-time allows orders to be filled, regardless of the channel, eliminating the need to stockpile products in bulk storage. Retailers can quickly and accurately check inventory availability, giving consumers access to more products. Store replenishment and direct order picking can coexist peacefully. Stores can be used as fulfillment warehouses by shipping directly to consumers, often saving on transportation costs. Using stores for fulfillment also reduces the likelihood of out of stocks, increases sales, and eliminates the need to drastically mark down leftover merchandise at season’s end. To enable ship-from-store, retailers need to increase inventory visibility across all channels to ensure that each order is being fulfilled from the smartest location.
By Brian C. Neuwirth
PICKING PROCESSES IN THE WAREHOUSE With smaller and more frequent orders, e-commerce picking processes are labor-intensive, whether picking from cases, pallets, or shelves. Typically, order pickers retrieve goods from the warehouse, which, depending on the size of the warehouse, can mean they travel several miles a day. Reducing steps in the pick path, slotting products in the right location, and limiting the number of touches an item receives will improve picking speeds in the warehouse. Most warehouses use a variety of order picking solutions within their operation, including carton flow, static storage, and pallet flow. Choosing the best order picking solutions depends on any number of requirements such as cost, complexity, the number of customer orders, size and number of items, etc. Every business has its own unique requirements and a mixture of order picking solutions may be the best way to fulfill orders. For “each” picking or “split case” picking, products sold in individual
quantities instead of as a full case, items are picked from storage units, placed in the appropriate container, and then transported to the next stage of the picking process via a conveyor or mobile cart. Each picking operations are employed in distribution centers that are focused on delivering products directly to customers, whereas case picking operations are typically used to stock retail shelves. “Case picking” is when products are picked in full cases, placed on a pallet, cart, or conveyor, and then the picker travels the aisles selecting products, grouping, and sequencing orders for shipment. Dynamic storage units with shelves that slant towards the pick face allow easy access to items that are to be picked. Flow racks that use shelves made of steel tubes or wheel beds allow containers to easily slide in and out of storage. Carton flow racks have a high order picking rate of up to 150 picks an hour, but combined with a pick-to-light system that uses lights to show workers which items to pick as well as how many, pick rates can increase three-fold.
WAREHOUSES OF TODAY AND TOMORROW Today’s fulfillment warehouses are designed for flexibility and are able to ramp up quickly as demand grows. Each day, the warehouse must be ready to deliver a myriad of customer orders quickly and accurately, regardless of the channel. By increasing warehouse numbers and decreasing their size, retailers can build them closer to the customer to speed shipping and cut transport costs. The ability to find an item online, research prices, select a vendor, pay for the item, and schedule delivery from a single device has changed the warehousing world. This trend will continue to grow as mobile devices are deployed in the warehouse.
Brian C. Neuwirth is Vice President, Sales and Marketing, UNEX Manufacturing. UNEX Manufacturing is the trusted industry leader in order picking solutions that maximize space usage, increase pick rates and improve ergonomics. Visit www.unex.com for more information.
NOVEMBER-DECEMBER 2017 PARCELindustry.com 15
By Raphael Madarang
JUST SAY “KNOW:” EIGHT IMPORTANT COMPLIANCE CONTACTS EVERY INTERNATIONAL E-TAILER SHOULD HAVE
nock, knock. In case you didn’t recognize it, that’s the sound of one of your most promising sales opportunities — international e-commerce. But unfortunately for your workload, opportunity isn’t the only thing that’s knocking. So are many legal, regulatory, and financial requirements that your company is obligated to comply with each time it ships to a global customer. Allow me to introduce you to eight key players your company should get to know — or get to know better — as you grow your global business.
NEED TO KNOW Bureau of Industry and Security (BIS): This US government organization oversees export control licenses for goods that are sold to end users overseas. Although chances are good that your products won’t require these licenses, it’s important to study this organization’s Export Administration Regulations (EAR) before making that determination. In particular, you’ll want to look at whether or not any of your products have an Export Control Classification Number, also known as an ECCN (which could indicate the need for a license) rather than an EAR99 classification (which
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usually means no license is required). Customs: The fluidity of your products’ border crossings will ultimately come down to how well your company makes the grade with the many “local” versions of this organization throughout the world. Each country’s Customs Department has its own distinctive set of rules and restrictions, and many of their nuances can be difficult to decipher. There can also be notable customs-related differences from port to port (or from airport to airport), particularly in terms of how various rules are interpreted and enforced. Make sure your company cultivates cordial, professional, and
nized Commodity Description and Coding System (HS), the universally recognized means of classifying every raw material or finished goods for duty payment and statistical recording purposes. There are thousands of HS classifications, and many products could potentially fall under several different ones, so don’t hesitate to ask for outside help or hire one of the experts mentioned in the next section if you’re in doubt. Misclassification could result in fines or missed duty reduction opportunities.
arm’s length business relationships with customs officials in your global markets and at every international port or airport you’ll frequently be shipping through. Equally important, don’t automatically believe everything you read on any of these organizations’ websites because their contents (particularly for translated sites) may not be complete or up-to-date. Restricted Parties/Denied Parties: There are some individuals, countries, or businesses that you shouldn’t know, but must know about because it is against the law to deal with or sell to them. Numerous countries and global organizations maintain lists of these individuals, countries, or businesses, and it’s important for your company to frequently scrutinize the most up-to-date versions to make sure none of your overseas buyers are on them. Even one shipment to a restricted or denied party could put your company at risk for everything from six-figure fines to criminal penalties. World Customs Organization (WCO): This independent global organization is responsible for maintaining the Harmo-
GOOD TO KNOW Consultants: The expertise of these big-picture experts is often invaluable. Most are very well-connected to the partners, providers, and vendors your company will need to work with in order to establish efficient and compliant international delivery flows. And many can help arrange the introductions to customs and other officials that you’ll require. Consultants can also help your company create, refine, or validate strategic plans for international expansion — including advising your company about viable and legal options for duty reduction or deferment, and whether setting up entities overseas would be an advantage from a tax and customs duty perspective. Freight Forwarders: While there’s an undeniable ease associated with direct shipping international orders from the United States, your global customers’ high delivery expectations may require you to fulfill orders from within their countries. That’s where the services of these experienced go-betweens come into play. Freight forwarders take responsibility for arranging and overseeing the particulars of bulk overseas transits (including insurance and documentation). Some also conduct Denied Party/Restricted Party screening, so that your company won’t have to develop these areas of expertise itself. Bonded or FTZ-Based Warehouses: Once goods arrive from overseas, these international distribution centers will enable your company to store products duty-free until they’re ordered and paid for by customers, giving you a huge potential financial advantage. There are numerous reputable bonded or foreign
trade zone (FTZ)-domiciled warehouses throughout the world, including many that are operated by large global 3PLs. However, it’s important to note that you’ll need to factor the fees of these or any other outside providers’ services into the final sales price of your product before making your final duty calculation. You’ll also have to familiarize yourself with the types of operations allowed in any FTZ in any country you’re considering as well as any conditions that might be attached. Customs Brokers: These entities specialize in helping companies like yours jump through the necessary hoops that are associated with fully customs-compliant international shipments, including assigning proper HS codes, completing myriad pieces of international documentation, and assisting with long-term recordkeeping requirements. Using their services is legally required in some countries and recommended in others. While it is possible for your company to perform these functions itself in the countries that allow it, it can be difficult to do unless you’re using licensed professionals who have full access to the necessary technologies, connections, and resources. For this reason, most companies usually elect to work with external customs brokerage companies or with carriers, freight forwarders, or 3PLs who have reputable customs brokerage divisions. JUST SO YOU KNOW These are by no means the only important players in the global arena. To learn about others, consider accessing the U.S. Customs and Border Protection’s Informed Compliance series. Reach out to professional organizations such as the International Compliance Professionals’ Association or the Professional Association of Exporters and Importers. Consult with local chambers of commerce in the areas where you plan to expand. Or schedule a meeting with your trade compliance organization or professional of choice.
Raphael Madarang is Director of Global Trade Compliance and Management for APL Logistics.
NOVEMBER-DECEMBER 2017 PARCELindustry.com 17
BUILDING A BETTER BRAND STRATEGY For better or for worse, your shipping strategy delivers more than product. Here’s how to harness logistics to drive brand strategy.
By Matt Weickert
18 PARCELindustry.com NOVEMBER-DECEMBER 2017
hat exactly is brand strategy? Essentially, this is a strategy to distinguish a company or products from its competitors. The aim is to create a lasting (positive) impression in the minds of customers. We don’t have to venture far from the original meaning of “brand” related to marking permanently with a hot iron to understand this concept of distinguishing a product from the herd. The concept of branding transcends any one department. When it comes to e-commerce, the logistics portion of an operation can have the largest direct influence on the customer purchase experience and, therefore, brand strategy. Doubters of this claim can simply be
asked to list one thing about what it means to be an Amazon Prime subscriber. Invariably, “two-day shipping” will tumble from their lips before they can catch themselves. This is as much a brand as it is a logistics strategy, and a well-executed one can create a powerful impression. LOGISTICS’ ROLE IN BUILDING BRANDS The focus of customer-centric shippers is the intersection of brand and logistics strategy. In Green Mountain Technology’s 2017 Benchmark Report, 2/3 of shippers state their brand position was premium quality or superior service with differentiated customer experience. When polled about the biggest competitive challenge being faced by shippers, the majority of respondents cited fast order fulfillment. As seen in the figure on the next page, closely following this top challenge was differentiation of brand and product. This is no coincidence as shippers face an environment of formidable competition amid eroding brand potency and rising consumer expectations.
So how can logistics operations be built into brand strategy? The easy answer is to simply expedite as many shipments to the fastest transit that is financially bearable. Indeed, many retailers are quick to hastily deploy one- to two-day shipping services with a hair-on-fire sense of urgency. The 2017 GMT Benchmark Report indicated a sizable shift in expected service mix volume away from deferred (four to seven days) delivery and toward express (one to two days) and same-day delivery. Specifically, 50% of respondents reported they expect to increase their use of same-day delivery (up 10% YOY). While this trend is unquestionably growing, it is costly to implement and doesn’t yet show substantial ROI in terms of customer delight. Deloitte’s 2016 Holiday Survey revealed that not only are customers’ definitions of “fast” shipping limited to two days or less, but that willingness to pay decreases rapidly with each additional service day. Of the mere 68% who are willing to pay anything for same-day service, the
expect to use more Same-Day Delivery.
On average, nearly of parcel volumes are Express (1-2 days) or Economy (3-4 days) Delivery.
Through 2018, of shippers expect to use less Deferred Delivery.
of shippers offer free shipping Findings from "The Impact of Brand Strategy on Parcel Transportation: GMT 2017 Benchmark Report."
NOVEMBER-DECEMBER 2017 PARCELindustry.com 19
amount averages to less than $5. This figure makes its way down to $0.50 by the time we get to three-day shipping, with 90% of customers willing to pay nothing at all for the service. It doesn’t take much logistics expertise to know that even the most efficient operations cannot be profitable at that price point. While playing to the speed expectations of customers is essential, this is a brutally difficult game to operate. FREE SHIPPING > FAST SHIPPING Free shipping has become a universal expectation, and the good news is that this factor is more important than speed of service. Customers are much more likely to choose a free, economy (five to seven days) delivery option over a paid, expedited one. One of the key takeaways from GMT’s Benchmark Report was that 90% of retailers offered free shipping through either a minimum order threshold, promotion, or membership. Studies like the GMT Benchmark or Deloitte Holiday Survey show that free shipping is no longer considered a delighter. This refers to the Kano Model, in which a delighter is a quality that is not necessarily expected and therefore provides satisfaction when fulfilled but does not cause dissatisfaction when absent, such as drone delivery. Instead, free shipping has transitioned toward
a baseline quality, similar to goods arriving undamaged. A customer does not explicitly state this desire because it is taken for granted, but its absence would result in an unsatisfactory experience (no matter how quickly it arrived). The concept of fast shipping can be seen as more of a linear satisfier. Trying to make a play solely on faster shipping can be a painful process, as it has a high cost for incremental gain of brand positioning. Greater gains may be found by simply supplying a free option and investing in other brand-enhancing logistics features like package tracking, returns, and ship to store. THE COMPETITIVE ADVANTAGE OF OMNICHANNEL STRATEGIES Another huge aspect of a brand strategy lies in omnichannel capabilities. Characteristics like ship and return-to-store are growing in customer importance and therefore brand influence. This year’s UPS Pulse of the Online Shopper reports that 50% of customers have shipped to store for pickup and that of those, 44% made additional purchases while in the store. Additionally, omnichannel capabilities will enhance shipping speed by having a more distributed and flexible network that can get packages to customers more efficiently. According to GMT’s Benchmark Report, 54% of brick-and-mortar
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retailers are able to at least partially ship e-commerce orders from store. On average, 41% of retailers’ stores have the capability. Another 30% plan to accommodate this in the future. All in all, properly aligning a few key logistics features with consumer expectations will drive your brand strategy all the way to your customer’s front door. The first step is awareness of what is going on in the competitive environment. Identifying the value of shipment time versus cost and understanding the dynamic nature of customer satisfaction are key to delivering the experience your brand has promised. Just as the lines have been blurred between channels of commerce (in-store, online, mobile, etc.) so too have the lines between logistics and marketing responsibilities in an organization. By catering to shopper preferences via competitive shipping options and pricing, a firm’s brand can shine.
Matt Weickert is a Strategic Solutions Engineer at Green Mountain Technology, a Parcel Spend Management provider for shippers with over 10 million parcels per year. In this role, Matt partners with customers to provide our strategic Parcel Spend Management solutions – Network Optimization, Spend Analytics, and Contract Management.
REDUCING PARCEL COSTS: OPERATIONAL IMPROVEMENTS VS. CARRIER RATE IMPROVEMENTS By Trevor Outman
22 PARCELindustry.com ď&#x20AC;ł NOVEMBER-DECEMBER 2017
often find myself explaining the importance of separating various cost reduction strategies. It is common for shippers to reference one or two cost reduction strategies and insinuate or assume that such initiatives will remove all excess costs from their total shipping budget. This is simply not the case, as there are multiple approaches to effectively reducing the shipping expense as a line item within an organizationâ&#x20AC;&#x2122;s budget. If the mission is to reduce shipping costs, then shippers should separate the various approaches in two distinguished strategies: operational improvements and rate improvements, also referred to as carrier contract negotiations. I believe the misunderstanding in the marketplace is due to representatives from the carriers proposing operational improvements while trying to side step
contractual rate improvements during a contract negotiation. The two strategies are not mutually exclusive; both are relevant, both have merit, and both should be pursued. Understanding the differences will empower shippers to keep their carrier(s) focused on bottom-line results generated from contract or pricing improvements while also dedicating separate discussions to operational strategies. Various strategies for cost reduction are separated by category and explored in greater detail below. TOP OPERATIONAL IMPROVEMENTS Operational improvements that can deliver a positive impact on your shipping budget include: Package Optimization: This entails eliminating as much dead space from packaging as possible. This is becoming increasingly important as the carriers
continue to alter their dimensional billing policies. At the beginning of 2017, the national parcel carriers lowered the standard DIM Factor from 166 to 139 (the method by which the carriers bill for package dimensions), meaning higher billed weight, which translates to an increased net charge per shipment. If a shipper can reduce overall package dimensions by eliminating dead space, then they will have a greater chance of avoiding an upcharge due to dimensional billing policies. In summary, shipping air can be costly. Zone Skipping: This consists of consolidating or loading hundreds of parcel packages into an LTL or TL freight shipment and line-hauling to a sorting hub that exists much closer to the end destination for all packages. The objective with this method is to remove the higher cost of outer-zone (Zones 7 and 8, which is 1,401+ miles) shipments by replacing them with less expensive inner-zone (less than 600 miles, which is Zone 4; or less than 300 miles, which is Zone 3) shipments. So while a shipper will be effectively reducing their net charge per shipment, they are also incurring a freight (LTL or TL) charge; therefore, this strategy requires some intelligent analysis to ensure a positive net impact. Adding another fulfillment location: This strategy employs the same
concept as above; however, instead of incurring a freight charge, the shipper is incurring the cost to either: 1) build/lease a building space, hire/train employees, etc.; or 2) utilize a 3PL for warehousing and/or pick, pack, and ship. Again, to ensure the net impact is positive, this would require modeling analytics to properly evaluate. Omnichannel fulfillment: This strategy is most often explored or implemented by shippers that have a significant brick and mortar footprint. Many retail locations can act as smaller fulfillment locations, consequently reducing the costly outer-zone shipments because the shipper can fulfill orders to the customer from the closest retail location. The most significant challenge with this strategy is the proper management of inventory across dozens, if not hundreds, of locations. Order and inventory management need to be highly integrated for this to be an effective cost reduction strategy. Least-Cost Routing Rules: This is a technology based cost reduction strategy that will automatically choose the least expensive service category to deliver a shipment based upon time in transit (days to deliver) requirements. This technology is most commonly employed when there are multiple carriers involved. For example, the current list rates for UPS 3-day service is, on average, 17% cheaper than FedEx equivalent service. Therefore, a superior FedEx discount on 3-day service doesnâ&#x20AC;&#x2122;t
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NOVEMBER-DECEMBER 2017 ď&#x20AC;´ PARCELindustry.com 23
mean that it will be the least expensive method when compared against UPS. Proper Service Selection: With the right transportation intelligence reporting, it is relatively easy to spot opportunities to optimize service selection based upon transit time. For example, express shipments being delivered to Zones 2 or 3 (less than 300 miles) could be routed to ground delivery at a fraction of the cost with similar transit time. When a shipper pays for an express shipment designated to be delivered to Zones 2 (within 150 miles) the shipper is paying for the package to be delivered via air; however, this package will never see the inside of an airplane. This package will be delivered via the ground network on a truck. Therefore, it is possible to reduce shipping costs by utilizing the less expensive ground service over the express service for all inner zone shipments. This is just one of many routing optimizations that can have a major impact towards reducing shipping costs. THE PARAMETERS OF A CARRIER CONTRACT Understanding proper parameters of how a carrier contract can be improved to reduce shipping costs is an essential first step. Assuming these parameters are understood, the strategies below will help shippers effectively navigate the contract negotiation process. State of mind: Surprisingly, many large shippers will walk on egg shells around their parcel carrier almost as if the parcel carrier was their customer. As a high-volume shipper, remember you are the customer and realize the business can easily find a home with the incumbent’s competitor. Competition: Involve them in the bid process. Sustaining competitive pricing is difficult when the incumbent carrier doesn’t feel threatened by its competitors. Make a strong effort to switch carriers every three to six years. Remaining with the same carrier for years on end can lull the carrier to complacency that results in less than competitive pricing. After all, why would they be motivated to reduce their own pricing if retention risk is perceived as a hollow threat?
Invoice Data: Analyze it. Unique shipping characteristics can be uncovered in weekly invoice data. These specific shipping characteristics will affect the carrier’s margins and in turn impact how the carriers propose their margin-based pricing. These critical components include service usage mix, weight distribution, zones frequently used, pick up and delivery density, package weight and dimensions, and more. Therefore, every shipper has different criteria and a unique set of priorities when pursuing contract pricing improvements. Minimum Charge: Don’t just focus on a better discount per each category. Know which service categories are material to your shipping profile. This will surface from proper analysis of invoice data. While pursuing an improved discount, it’s important to understand what relief is needed on the minimum charge to take full advantage of the negotiated discount. Otherwise, the discount will be reduced significantly from what is listed in the carrier contract. Accessorials: Apply the 80/20 rule. Don’t assume the two most common accessorials (residential surcharge and delivery area surcharge) are automatically the most significant area of focus. It’s common that at least 80% of all financial surcharge impact is derived from less than 20% of all the incurred accessorial categories. Refer to a comprehensive analysis to identify the most serious offenders. Pursue discounts and relief in each of these categories with the incumbent carrier as well as with the incumbent’s competitor. Dimensional Billing: Many shippers are seeing an increase in the net parcel charge because of the dimensional calculation formula. Dimensional billing can have a significant impact on shippers and can be mitigated with operational improvements (see above) as well as contract improvements. The dimensional billing policy takes total cubic inches (length x width x height) divided by a DIM factor (recently changed to a more punitive number of 139); if this calculation results in a higher number than the entered weight, then the shipper is billed at a higher weight and incurs the associated increase.
24 PARCELindustry.com NOVEMBER-DECEMBER 2017
A higher DIM factor results in a lower calculated number, which means the shipper is less likely to incur a charge increase. A thorough analysis of package dimensions and the actual weight of packages will offer insight to the ideal DIM factor. Business Case: Answer the WHY. Draft a message detailing why the carriers should respond to your pricing requests. There are specific and particular messages that will compel the carrier’s revenue management team to respond appropriately to pricing requests. Draft a business case so revenue management understands why, and is therefore motivated to respond with competitive pricing. Finally, make sure the few dozen pricing requests being issued are competitively appropriate. If a concession request is too high, the request will be ignored or declined by the carrier; and if too low, then money was left on the table. CONCLUSION Hopefully the delineation between operational improvements and carrier contract improvements will help focus initiatives to reduce shipping costs. It is also important for shippers to understand the relationship between operational improvement and pricing improvements. It is worth noting operational improvements will change the characteristics of an organizations shipping profile. A positive change in shipping profile will warrant positive change in carrier pricing. Both strategies can be pursued simultaneously. However, both processes should be aware of the other's impact. There is a synergistic impact when pursuing both strategies together, where the combined results are greater than the sum of each separate process.
Trevor Outman, MBA, is Co-Founder & President of Shipware, an innovative audit and consulting firm focused on helping companies reduce their parcel and LTL costs 10-30%. Trevor’s expertise has positioned him as a coveted consultant in the parcel industry. He welcomes questions and comments, and he can be reached at: 858.879.2020 x117 or firstname.lastname@example.org.
2017 PARCEL FORUM WRAP UP By Amanda Armendariz
A huge congratulations to our Game Changer of the Year award winners, Gap Inc.! It was an honor to have Kevin Releford, Senior Director of Logistics at Gap, at our conference to accept the award, especially after we had visited their campus the day before and saw first-hand how they were optimizing their logistics processes. Look for a full profile on this company and their success in the January/February issue of PARCEL!
Game Changer Award winner Kevin Releford (right) poses with Joel Dunkel, President, EventEvolution Management.
he 2017 PARCEL Forum in Nashville, Tennessee, was indeed “music to shippers’ ears,” as our theme suggests. The education, networking, and professional growth that occurred over these three days was gratifying to see. Logistics professionals from all different sectors converged upon the Gaylord Opryland to discuss the pressing problems they were facing in their respective operations, whether it was how to more successfully negotiate carrier contracts or understand how packaging optimization can affect multi-
ple levels of their supply chains. One of the most common discussions overheard as I wandered the exhibit hall floors and the hallways of the conference area was the recent announcement of the FedEx 2018 general rate increase (GRI), which was released to the public late in the evening of the first day. By the time most people were up Tuesday morning, PARCEL had released a breaking news alert to our readers, and the potential impacts of these rate increases were being discussed for the rest of the day. (I often felt as if I was experiencing déjà vu, as this same scenario happened
26 PARCELindustry.com NOVEMBER-DECEMBER 2017
last year!) Many speculated UPS was going to follow suit, although of course UPS’s GRI was not released until much after the Forum. Still, it was interesting to hear the conjectures about what the UPS GRI would look like and how closely it would mirror FedEx’s. Now, many of our attendees are transportation professionals, so it’s no surprise that the GRI, carrier contracts, and the like were pervasive topics of discussion. However, I would be remiss if I gave the impression that those were the only types of discussions happening at the Forum. I was privileged to sit in
TOP 20 TAKEAWAYS FROM THE FORUM
One of my favorite sessions the past couple of years has been at the end of the show, when we go over the top 20 tips submitted by attendees and speakers on our app. It’s a great way to catch up on what other professionals found the most helpful over the past three days. This year, Susan Rider, President of Rider & Associates, and Berkley Stafford, Vice President of Sales at Transportation Impact, conducted the session, with Susan focusing on the operations side and Berkley covering the transportation issues. Enjoy!
1. Sixty percent of all middle-class consumers will reside in Asia in the next five years — e-commerce will double. It’s crucial to get ready now. 2. Eighty percent of all effects come from 20% of all causes. When profiling your SKUs, look at your fast movers. Twenty percent of your product is usually responsible for 80% of your movement. If you get that 20% right, you’re golden. 3. Social media is the future of e-commerce; it’s where customers share if they are satisfied or dissatisfied with your products’ shipping speed, packaging, etc. 4. Always train a person as if they were your replacement; this really prepares and enables your team.
Music City Pavilion on Exhibit Floor
on several different sessions, and there was truly something for everyone in the supply chain sector. One of the most interesting sessions I attended was one on motivating your workforce. While this is technically a topic that could apply to any industry, I thought it was interesting how well the speaker tailored it to the distribution center. As we all know, distribution centers often have trouble retaining workers in this sector, as the work can often be repetitive. The tips and tricks he gave for motivating your workforce (such as finding currency other than money, giving more responsi-
5. Reverse logistics will be huge as cross-border services expand; it’s time to prepare now. 6. Clearly define KPIs and influencers. a. If you don’t make your instructions clear, they don’t know what you really want. 7. UPS started “Payoneer” service to protect consumers against fraudulent transactions. a. Consumer buys product overseas; to eliminate fraud, money goes into escrow. b. When you receive that good, the money is released from escrow. 8. Dynamic inventory repositioning is important. a. Figure out where to best locate, to balance inventory, or adjust for seasonality based on location of the DC. • Think of all products as perishable; after all, even shoes go out of season or out of style. b. Process returns and resell quickly as it impacts your customer relationship. 9. Smartphones are the norm; one day, drones will be the norm as well. a. Twenty years ago, not many people, if any, had smartphones. b. Not many people today have drones. c. In 10 years, your drone will have the ability to automatically pick up your packages based on the information it received. 10. Ensure agility and flexibility in your MHE and WMS partners. a. If your equipment can’t take you into the future, it’ll be obsolete before it pays off. NOVEMBER-DECEMBER 2017 PARCELindustry.com 27
11. Always consider the "all-in price.” a. Data analytics now will tell you which clients are not profitable, even if you think they are. b. The gold is in the data; you might not know how to mine the gold, though. • For example, marketing could be sending out a ton of packages without the supply chain knowing about it, but that cost still has to be paid. 12. Get orders to the warehouse as fast as possible so that staff can make good decisions. a. Feed orders in real time rather than batch. b. Speed up same-day shipping. c. Increase font on paper pick sheets for staff. 13. Regional parcel carriers cover 90% of the US population and can perhaps provide a more customizable solution not offered by the two major carriers. a. The more competition, the better the prices and the service are going to be. 14. Figure out your workforce’s currency; what motivates them? It’s not always more money. 15. The futuristic last mile looks like this: drones, autonomous cars, courier/crowdsourcing, robots. The realistic last mile looks like this: collection points and lockers, trunk delivery, smart-home technology. 16. When ounces matter, look at cubic and ounce weight for savings; a lot of facilities overlook this. 17. Forrester projects 11% of total US retail sales will be shipped via in-store fulfillment by 2018. a. Get inventory and product closer to market; it changes the whole dynamic. 18. Besides analyzing past performance (in/out order profile, etc.), look to analyze current processes (process maps, value stream mapping, and process improvement). a. If you want to be more efficient and effective, you need to map your processes. 19. Most companies are not prepared to use predictive analytics because they lack the necessary tools, so investment in these tools is critical. 20. Build dashboards for visibility. a. There are software systems out there unrelated to supply chain that will give you business intelligence dashboards. • These are inexpensive, and you can get your data on a dashboard. b. Then, it’s crucial you incentivize the tasks that are less desirable.
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bility and autonomy, etc.) could have a huge impact on supervisors’ strategies. Considering the costs that are involved with hiring and training new employees, the strategies presented within this session could save companies thousands. It's this inter-connectedness that I love most about the PARCEL Forum. Our learning pods are specifically designed to help you easily find the sessions that are most applicable to your job description, so if an attendee wants to attend only transportation-focused sessions (or sessions focusing on the warehouse, technology, etc.), it’s so simple to plan your visit by simply attending all the sessions in one pod. Yet, it’s also easy to jump from pod to pod if you want a complete overview of the issues facing the small-package industry (which, as editor, is how I approach the Forum; after all, PARCEL is dedicated to bringing you the latest industry information and updates from all supply chain viewpoints). Whichever way you decide to approach the Forum, you’ll come back to the office with actionable, concrete steps you can take to save your company money and improve your operations. And, really, isn’t that what trade shows such as these are all about? I hope to see you next year at PARCEL Forum '18 Chicago, taking place September 24-26 at the Renaissance Schaumburg.
THE LEGAL CHARACTERISTICS OF UPS AND FEDEX By Brent Wm. Primus, J.D.
n this installment of PARCEL Counsel, we will take a look at the legal characteristics of UPS and FedEx. Both companies are, in fact, comprised of many separate corporate entities and affiliates. For parcel shippers involved in operations with a primary focus on getting their parcels from here to there at the lowest possible price, these legal distinctions may not affect them on a day-to-day basis. However, for parcel shippers involved in matters such as contracting and loss and damage claims, it is critically important to be aware of these differences. By way of background, United Parcel Service began life as a motor carrier in 1907 delivering packages in the Seattle, Washington area. FedEx began operations in 1971 as an air carrier based in Memphis, Tennessee. However, both of these companies have grown to be worldwide
enterprises and now operate, amongst other things, as a: Motor Common Carrier Motor Contract Carrier Property Broker, i.e., truck broker Domestic Air Carrier International Air Carrier Ocean Freight Forwarder Non-Vessel Operating Common Carrier (NVOCC) Customs Broker The significance of this is that these various modes of transportation and types of services are each subject to a separate legal regime. For instance, when operating as motor carriers or truck brokers, they are subject to Title 49 of the United States statutes, which includes the Carmack Amendment pertaining to loss and damage claims. However, when operating as an Ocean Freight Forwarder or Non-Vessel Operating Common Carrier (NVOCC), they are subject to, in addition to other laws and regulations, an international treaty known as COGSA (Carriage of Goods by Sea Act), which governs claims for loss and damage and other matters as well. When acting as an International Air Carrier, they are subject to, in addition to other laws and regulations, a treaty known as the Warsaw Convention, which governs loss and damage claims. On the other hand, the rates, routes, and services of domestic air carriers are not regulated. Such carriers may establish their own terms and conditions as they choose.
In the absence of an individually negotiated contract, the customers of UPS and FedEx will be subject to those entities’ standard terms and conditions. These can be quite voluminous. The following is a list of some of the UPS terms and conditions of service as found on their website: Air Freight Terms and Conditions of Contract UPS Tariff/Terms and Conditions of Service LTL Rules Tariff (U.S., Canada, and Mexico) Non-Vessel Operating Common Carrier (NVOCC) Terms and Conditions Ocean Freight Forwarding Terms and Conditions Warehousing, Distribution, and Logistics Terms and Conditions of Service Customs Brokerage and Freight Forwarding Terms and Conditions FedEx has a similar set of controlling rules. To sum up, when dealing in legal matters, and especially when problems arise, it is necessary to separate out the individual companies so as to know which terms and conditions would apply and which ones would not. And the best practice is to know these distinctions BEFORE problems arise and while entering into a relationship with one or more of the business units of UPS and FedEX.
Brent Wm. Primus, is the CEO of Primus Law Office, P.A. and the Senior Editor of transportlawtexts, inc. Your questions are welcome at email@example.com.
NOVEMBER-DECEMBER 2017 PARCELindustry.com 29
FAST & CHEAP Michael J. Ryan
than Amazon. We know that is not true, but the real battle lies in the Zone 2 cost and delivery. In most cases, a Zone 2 delivery will get delivered in one to two days and will be at the lowest cost structure. Let’s take a look at the many options in the market for a Zone 2, twopound, residential shipment (these figures are based on the expected 2018 rate increases and are total cost with all accessorial fees and are for illustration purposes only): Fed Ex or UPS Ground Service: $11.93 USPS Priority Mail (Commercial Base): $7.10 Parcel Select (Package Consolidators): $5.83 Amazon Logistics: $3.00
ast and cheap — these two words were never meant to go together. However, in today’s ever-changing world (thanks to Amazon), consumers are expecting to receive their orders in two days for free. This has truly changed the e-commerce world. There is a fierce battle going on in the omni-channel world to win Zone 2 (aka final mile). As Amazon has built its fulfillment center network, it has achieved the mission of getting closer to the consumer. However, many of the traditional retailers have struggled with their strategies to meet or beat the new standards established by Amazon. A clear example of this is that Target made an announcement in mid-October to utilize 1,400 stores as fulfillment centers for the 2017 holiday season — one would argue they are 10 times closer to the consumer
30 PARCELindustry.com NOVEMBER-DECEMBER 2017
As you can see, Amazon Logistics is driving towards a $3.00 delivery. It is trying to optimize deliveries by combining orders into a single delivery, which could mean optimizing two delivery dates into one. Amazon is doing this with its own delivery network, which is a group of independent contractors. Its technology is driving this delivery efficiency. The major retailers have been deploying technology and dedicated space in their stores to do direct fulfillment, which is getting them in a Zone 2 delivery, allowing them to directly compete with Amazon. However, the Amazon direct delivery model could be the next game changer in the industry. Amazon is only doing
this on a limited basis right now, which could be defined as a large pilot program.
There is a fierce battle going on in the omnichannel world to win Zone 2 (aka final mile). This Zone 2 battle is being defined by savvy consumers who want their favorite brands at the lowest cost. Merchants are trying to win consumers on their own websites with their powerful brands but are struggling to meet the need for fast and cheap. The 2017 peak season will be a great barometer as to how the traditional brick and mortar retailers have adjusted to their new strategies of getting closer to the consumer. There are thousands of private local delivery firms in the US, which may be the next option to get to the $3.00 delivery… a future path to “fast and cheap?”
Michael J. Ryan is the Executive Vice President at Preferred Parcel Solutions and has over 25 years of experience in the parcel industry. He can be reached at 708.224.1498 or firstname.lastname@example.org.
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