SEPTEMBER-OCTOBER 2019 PARCELindustry.com
OUR ANNUAL SURVEY: How Do the Readers Rate the Carriers? PAGE 16
UPS AND FEDEX 2020: EXPECTATIONS AND OPPORTUNITIES. TURNING YOUR REVERSE LOGISTICS PROCESS INTO A REVENUE CENTER. ARE YOUR PACKAGING TESTS LEADING TO HIGHER SHIPPING COSTS?
SEE YOU IN DALLAS
CONTENTS /// Volume 26 | Issue 5
10 20 22 32 40 06 EDITOR’S NOTE The Shift in the Industry By Amanda Armendariz
08 SUPPLY CHAIN SUCCESS UPS and FedEx 2020 — Expectations and Opportunities By Mark Taylor
10 OPERATIONAL EFFICIENCIES The Anatomy of a Distribution Center By Susan Rider
12 SPEND PERSPECTIVES The Importance of Adding Shipping Costs to Business Forecast Models By John Haber
14 GUEST COLUMN 5 Common Pain Points for Shippers By D. Shawn Shaw
16 PARCEL’S 2019 CARRIER PERFORMANCE SURVEY By Amanda Armendariz
20 E-COMMERCE AND THE LAST MILE ITCH By Bart De Muynck
22 ARE YOUR PACKAGING PROCESSES OPTIMIZED TO AVOID DIM WEIGHT FEES? By Jeff Haushalter
24 REVERSE LOGISTICS: COST CENTER OR REVENUE CENTER? By Sandy Stephens
28 THE MOST COMMON MISTAKES SHIPPERS MAKE By Gordon Glazer
32 DO YOUR PACKAGING TESTS LEAD TO HIGHER SHIPPING COSTS? By Kevin Howard
34 OPTIMIZING ORDER FULFILLMENT IN THE AGE OF IMMEDIATE DEMAND By Shaun Rothwell
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40 WHY LOWERING SURCHARGES IS CRITICAL TO OVERALL TRANSPORTATION SPEND MANAGEMENT By Tim Sailor
44 PARCEL COUNSEL F.O.B. Origin or F.O.B. Destination: Which One Is the Best to Use? By Brent Wm. Primus, JD
46 WRAP UP Next-Day Service: A Merchant’s Nightmare? By Michael J. Ryan
SPONSORED CONTENT 38 WHAT TO SEE AT PARCEL FORUM 45 5 REASONS TO STUDY YOUR SUPPLY CHAIN NETWORK
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PARCEL (ISSN 1081-4035) is published 7 times a year by RB Publishing All material in this magazine is copyrighted 2019 © by RB Publishing. 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 or its staff becomes the property of RB Publishing, The articles in this magazine represent the views of the authors and not those of RB Publishing or PARCEL. RB Publishing 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.
SEPTEMBER-OCTOBER 2019 PARCELindustry.com 5
THE SHIFT IN THE INDUSTRY
By Amanda Armendariz
s I write this editor’s note, FedEx has just released their general rate increase for 2020. As has been the case for the past few years, the increase is an average of 4.9%, and as usual, that 4.9% isn’t necessarily what shippers will see on their invoices come January. Those who ship oversized packages or to remote areas could be especially hard hit by this increase. FedEx has also placed a greater emphasis on Extended Delivery Area Surcharges; ZIP Codes designated as an extended delivery area will incur a much larger increase than their non-extended DAS counterparts. It will be interesting to see what FedEx’s earnings numbers look like after these changes go into effect. Their most recent earnings report showed a slight decline in revenue and a 12% drop in operating income. In addition, the September 17 release noted that FedEx lowered their 2020 fiscal earnings forecast, citing “increased trade tensions
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and additional weakening of global economic conditions since the company’s initial fiscal 2020 forecast in June. The company’s revised outlook also reflects increased FedEx Ground costs and August’s loss of FedEx Ground business from a large customer,” which almost certainly refers to Amazon. FedEx reported in June that they would not renew the contract providing air cargo services for Amazon, and in August, FedEx announced they would cease providing Ground service to the e-commerce giant, as well. Industry experts theorize that FedEx dropping Amazon as a customer demonstrates the growing competition in the logistics industry, with Amazon poised to become a strong contender as they continue to develop their own distribution network. Indeed, in FedEx’s earnings call on September 17, Chairman Fred Smith referred to Amazon as one of four companies that he “wake[s] up every day trying to think about how we compete against.” This is certainly a change from past comments, in which FedEx downplayed Amazon’s relevance as a competitor. It will be interesting to see what 2020 brings to the small-package industry. One thing is certain; complacency serves none of us well, so stay in the know with industry partners like us. We’re glad to be on this journey with you. 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!
5 Ways to Prepare Your Warehouse for the 2019 Holiday Season By Kevin Ledversis
E=BI²: How to Utilize Business Intelligence to Optimize Your Supply Chain By Brad McBride
Got People Issues in Your Warehouse? Maybe It’s You By Susan Rider
UPS AND FEDEX 2020 – EXPECTATIONS AND OPPORTUNITIES By Mark Taylor
s the small package industry progresses further into the future, it continues to change. UPS and FedEx have adapted and responded to the ever-evolving environment of e-commerce. Long considered bellwether stocks, UPS and FedEx recognize and adapt
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to the conditions of the US and world economies. As the Great Recession occurred in 2007–2009, shippers sought cheaper options for delivery for online purchases. Postal last-mile services like SmartPost and SurePost grew at a quickened pace, making FedEx’s 2004 purchase of Parcel Direct, rebranded as SmartPost, ready to serve as an answer for less expensive shipping. Fast forward 10 years, and the economic conditions have changed. A change catalyst has entered the picture: Amazon. One word, three syllables, sounds like mover-shaker-disruptor. Amazon’s success, sustained year-over-year growth of 20-30%, and its effects on resetting customer values and expectations, will play out in changes to UPS and FedEx in 2020 and the years to come. Shippers are now asking, “What’s the price of committing to faster (one- to three-day) delivery?” Fulfillment speed is taking a pole position in the delivery strategy race. Based on the buzz-worthy announcements of both FedEx and UPS, we expect both carriers to be delivering seven days a week. Additionally, significant changes are expected in FedEx’s SmartPost service. By the end of 2020, FedEx will be delivering all Smart-
Post packages via Ground delivery drivers. FedEx also burned bridges with Amazon, first announcing the end its Express agreement with Amazon, then Ground. Just how these changes affect the landscape will play out in the next few months, as these major carriers announce their 2020 rates and changes any day now. Three areas are going to play particular roles in 2020: faster delivery expectations, the expansion of network and operations, and postal last-mile service changes. Transit Time Implications As shippers compete with large scale e-commerce like Amazon and Walmart, they must tighten their delivery commitments to compete with these two companies that are e-commerce standard-bearers. It all starts with Ground services. To minimize cost, it’s wise to ship as many packages as possible with a Ground Residential service, then supplement with one- to three-day Express services where necessary. The footprints of one- to three-day transit with Ground vary due to operational and network differences between UPS and FedEx. There are slight differences in the services offered to hit these commitments, including availability of overnight with
afternoon delivery (FedEx Standard Overnight or UPS Next Day Air Saver). Additionally, UPS 2nd Day Air includes Puerto Rico, whereas FedEx 2 Day does not (Puerto Rico is an international destination on FedEx). In June 2019, news sources erroneously reported that FedEx would “slash prices to fill planes” for air services since its breakup with Amazon. This was immediately refuted by FedEx in a quarterly briefing. FedEx has also reported a declining margin for Express services. What we can expect is that FedEx will strategically look to gain business, especially for smallto mid-size companies where their margin would be far better than those of Amazon.
Curious what these changes mean for your business? Visit PARCELindustry.com/ UPSandFedEx2020 for some practical applications that you can implement in your operation. Network Expansion and Seven-Day Operations Perhaps one of the biggest indicators of FedEx and UPS expectations for the future is their significant capital investments and operational changes to increase capacity. Both companies have made huge investments in their networks, with FedEx recently announcing the Memphis Express hub to get an additional $450M in improvements. Added to the previous March 2018 announcement figure of $1.1B, they will spend $1.5B in improvements through 2025. Previously, UPS laid out a plan to expand several facilities to “super hubs,” including Atlanta, Dallas/Ft. Worth, Phoenix, Salt
Lake City, and Indianapolis. Indianapolis officially began operating at full capacity in June of this year. In addition to the increased facility capacity, both FedEx and UPS are further increasing capacity by operating seven days a week. It has been common for decades to operate additional sorts during peak months, but UPS and FedEx now plan to make it official for year-round service starting in January of 2020. This will also have effects on total days for delivery and total transit times. Just how transit standards change has yet to be defined. Previously, a Ground two-day standard lane would not count the weekend days in the standard. It will certainly be interesting to see this play out, and to get more detail as this change is made. Postal Last Mile Services: SurePost and SmartPost With USPS price increases and the increased pressure on transit times, the Postal last-mile services of SurePost and SmartPost will be changing in 2020. What we’ve already seen in the pricing market is UPS removing or reducing SurePost DIM thresholds as a result of the USPS changing their DIM policy in June. Simultaneously, FedEx announced that all
SmartPost packages will be delivered by Ground delivery drivers by the end of 2020. This is where the carriers’ strategies vary significantly for 2020. As UPS announced its seven-day delivery, its Chief Marketing Officer was quoted as saying, “Building on an expanded relationship with the Postal Service to help deliver seven-day service to our customers makes good business sense.” That’s in sharp contrast to FedEx, with its announcement stating that it would integrate all of SmartPost deliveries into the Ground to improve delivery density. This integration will have a profound effect on the SmartPost reliability and transit time, as the USPS operations have always caused additional variability.
Mark Taylor is Transportation Consulting Manager, enVista. With 20 years of experience in transportation — most of which have been in the parcel industry — he works with clients to guide them through contract analysis and negotiation processes. Join him for his PARCEL Forum session, “FedEx & UPS: Convergence & Divergence of Carrier Pricing Schema,” at 10 AM on Tuesday, October 29 to hear him speak more on this topic.
SEPTEMBER-OCTOBER 2019 PARCELindustry.com 9
THE ANATOMY OF A DISTRIBUTION CENTER By Susan Rider
here are many elements that make up any distribution center. To keep all these elements in sync and operating at maximum efficiency is no small task, and it is one that requires concentration on key factors, tweaking them much like a musician would fine-tune delicate instruments. Whenever any element is out of sync, it can affect the final outcome. Unfortunately, some elements require more attention than others, but all require close scrutiny, especially right before peak season hits. There are two things happening this quarter that distribution managers should address: preparation for peak season and the development of next year’s budgets. What tools are needed to assist the facility in your efforts to ensure it runs more smoothly and efficiently?
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Technology With the evolution of technology, systems that optimize the flow of your distribution center have become more affordable, easy to maintain without a huge IT staff, flexible, and easy to learn. Review the technology you currently have. Is it time for an upgrade? Does an upgrade make since? Or is the technology you currently have sufficient? This is an important question to ask because getting an upgrade for lackluster, inefficient software is like putting lipstick on a pig. If the cost of an upgrade to an old system is as much as new systems cost today, it might be time to switch software. People There are several areas to evaluate in your most important asset: your people. Do you have the right supervisors? Are they motivating and engaging your associates in order to avoid turnover? Do your supervisors need training? Do you need to open their eyes to the current situation? By that comment, I am referring to the fact that supervisors often get promoted because they have the core ingredients to be a leader. Unfortunately, they may not know much about distribution itself, and the age-old problem of “I only know what I know” sets in. Do they need to see other facilities to open their eyes to new processes, new automation, and new concepts? If that’s the case, industry shows and conferences like PARCEL Forum are great. Three days of
entrenched education may be just the right medicine to get your team leads enthused and ready to go for the upcoming year. It’s a small investment in your people that pays off in big dividends. Once you have evaluated your team leads and managers, review the core associates. Do you need to get creative in finding a better-quality workforce? Look at developing shorter shifts, enabling you to hire older/ retired personnel, homemakers, and stay-at-home parents during school season, or students during school breaks. There are lots of opportunities. Material Handling/Automation Let’s face it; just like your automobile, your material handling equipment gets old and needs to be maintained. It may be as simple as the rollers on your carton flow rack are cracked and broken and the product doesn’t flow anymore, causing the order fillers to have to stop, reach back, and pull the boxes forward manually. Does this happen in your facility? If it does, each time this happens usually takes one to five minutes from your productivity. Multiply that number by the number of times per day, per week, per month, and per year that this occurs. You get the picture; a simple thing like that can quickly become very costly. If your conveyor is responsible for downtime? Then it’s definitely time to re-evaluate either the control system or enhancing the conveyor itself. Get a material
handling expert to give you a good quote for budgeting for the next year. What about automation? Do you have an abundance of workers’ compensation claims? There is likely automation out there that will help alleviate some of those claims. Design If your facility is like most, your orders have changed. The same design that fit back several years ago may not be serving you well now. How does it need to be tweaked? It may be time to get some ideas from some outside experts. If the consensus is to change things around, save yourself some grey hair and avoid doing so during peak season. Processes Much like design processes need to be tweaked and refined, it’s also important to review your processing by mapping the whole area from beginning to end. Seeing the whole picture helps in identifying repetitive touches and movement. There may be some modification that can be done without investments. It’s a good idea to
review the processes yearly. Remember, examining the processes and mapping the flow is not something that is one and done. It’s an ongoing review to make sure all the areas are efficient and then see how they flow together. For instance, if any area is having to wait on another area, there is a huge problem. Waiting is a very costly occurrence in distribution centers, so identify any wait time and rectify as soon as possible. A common culprit is replenishment in the order picking module. If the order pickers are having to wait for replenishers to get the product to pick, this needs some evaluation right away.
Opportunities are endless in achieving a more productive and efficient facility. You just have to be like Dr. House on the popular medical TV show and pick apart the anatomy of your facility. You may be surprised at what you find.
Susan Rider, President of Rider & Associates, Supply Chain Consultant, and Executive Life Coach can be reached at email@example.com. Join her at 10 AM on Tuesday, October 29, to hear her 2019 PARCEL Forum session, “50 Tips! Make Little Tweaks to Save Big.”
THE IMPORTANCE OF ADDING SHIPPING COSTS TO BUSINESS FORECAST MODELS By John Haber
ncertainty is an adjective that has been used consistently over the past year or so to describe the current economic and trade environment. Trade wars, manufacturing slow-downs, Brexit, and more are causing shifts in demand and supply chains as businesses look to keep costs down and profits up. Planning and budgeting for the new year often begins at least a year in advance, and forecasts constantly shift as uncertainty
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creeps into cost models, strategies, and budgets. To mitigate these uncertainties as best as possible, forecasting is necessary now more than perhaps ever before. Broadly speaking, there are three types of forecasting that companies do on a regular basis: 1. Demand – The frequency and type of goods purchased. 2. Supply – How much material and stock are available from producers and suppliers. 3. Pricing – Predicting supply and demand, including short-term and long-term prices.
But, pull back the curtain to look deeper into shipping costs and one sees a myriad of extra costs, or accessorials. We’ve tracked these costs for over 10 years and have observed a paradigm shift within just the past couple of years. No longer are shipping rate adjustments an annual event. Instead, accessorials are either adjusted or new ones are introduced throughout the year, making forecasting and budgeting even more difficult. To further complicate matters, FedEx and UPS have introduced temporary peak surcharges for particular accessorials such as additional handling, oversize, and large package.
However, what often gets overlooked in these forecasts are the shipping costs. Things such as last-mile delivery of online purchases, shipping from the supplier’s facility to retailer’s warehouse, or pricing appropriately to achieve profits are often missed or not considered — but these costs can add up.
Understanding Market Trends E-commerce has completely uprooted the small package market, and with this change has come competition, primarily in the form of Amazon. Amazon is redefining logistics and, as a result, has reset delivery time expectations to two days and (just recently) next day. For FedEx and UPS, this has caused a mad dash to update and automate existing sorting facilities as well as build new ones in an effort to speed up their last-mile delivery services. In the process, accessorials for residential delivery, large and oversize packages, additional handling, and more began to increase steadily. According to UPS, it expects to be compensated for the value it provides, whereas industry analysts question if the accessorials are really just a means to generate additional revenue.
Understanding Shipping Costs Back in the day, shipping costs were fairly simple to understand. Each year, like clockwork, the two largest small parcel carriers, FedEx and UPS, announce their annual average rate increases. The annual average rate increase has remained at 4.9% since 2013, with both carriers announcing 5.9% average annual rate increases in 2011 and 2012 and 4.9% average annual rate increases in 2010.
One hurdle for the analyst to consider, however, is which shipping costs to analyze? Besides the annual rate increase, there are well over 100 accessorial charges that could impact a shipment. Putting the Knowledge to Work If one follows the traditional steps in forecasting, a preliminary analysis is performed once information has been gathered. Typically, this is done by plotting the shipping costs and, combined with the understanding of the market, determining if there are any meaningful
trends. One hurdle for the analyst to consider, however, is which shipping costs to analyze? Besides the annual rate increase, there are well over 100 accessorial charges that could impact a shipment. A review and understanding of invoices and shipping contracts will be necessary. Once all data is finally identified, the likely trend one will notice is that the costs are climbing but at uneven rates, at different times throughout the year, and new accessorials or methodologies of indices used for some accessorials are being introduced as new delivery services are
implemented or a change in the market occurs. In other words, it’s difficult to forecast shipping costs — but the only way to stay competitive in this industry is to try.
John Haber is the Founder and CEO of Spend Management Experts and can be reached at firstname.lastname@example.org. John will be speaking at this year’s PARCEL Forum on, “How to Predict & Analyze the Impact of Carrier Accessorial Increases.” Join him at 9 AM on Wednesday, October 30.
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5 COMMON PAIN POINTS FOR SHIPPERS By D. Shawn Shaw
hipping is a critical part of your business, but it’s becoming more complex and expensive than ever. Rate increases, damaged goods, billing mistakes, and late shipments all affect your bottom line. Let’s take a look at some common pain points and their potential solutions. 1. Rate Increases Parcel carriers announce rate increases and accessorial changes each year, and 99.99% of the time, these increases result in higher net costs for sending any shipment through the carrier networks. The Solution: Whether in-house or with a third-party partner, developing a multi-carrier solution that fits your needs will help lessen the impact of these annual increases.
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2. Improper Tendering of Shipments Not selecting the proper service for the address type results in avoidable overspend. This can account for as much as 80% in additional shipping costs for the transactions. The Solution: Shipment execution software that can be used to determine best-inclass rating and routing will avoid this overspend, as will changing habits with your customer base and knowing how carriers can help support your new delivery initiatives. 3. Misleading Carrier Incentives In the past, discounts given to shippers were primarily based on weight, zone, or even level of service. Carriers soon realized giving shippers large discounts, at low spend levels, didn’t favor the carrier. So how does the carrier respond? Revenue-based incentives were introduced to compel shippers to increase their shipping spend with a carrier, thereby putting more money into the carrier’s pocket. The Solution: Make sure you know the intimate details of your carrier incentives, whether you task someone in your organization with this responsibility or engage a third-party solutions provider. The bottom line is, you need to know the details. Also, that shipment execution software mentioned earlier is a great tool to help eliminate or reduce these charges as much as possible 4. More Dimensional Weight Dimensional weight (DIM)
hasn’t always been a regular charge included in shipping rates. In the past, packages were only billed by weight, regardless of the size of the package. As most shippers can tell you, that is certainly not the case anymore! The Solution: Package density and studies are one of the main areas skipped in today’s logistics process, and the tactic of just asking the carrier for discounts isn’t enough anymore. If you haven’t already, take a good look at your packaging process and materials used, as this can have a significant impact on DIM weight fees. 5. Incorrect Accessorials Accessorials account for a larger part of transportation spend than ever before. Most carriers can have literally hundreds of accessorial fees that will impact your bottom line, which is one reason we say shipping is more complicated (and expensive) than ever! The Solution: Again, it all comes down to the data. Knowing what you are charged — compared to what you should be charged — is the first step in combatting these fees and negotiating steps to reduce their impact.
D. Shawn Shaw is President/CEO, GTMS (Utah Global Transportation Management Solutions Inc.) He will be speaking more on this topic at the 2019 PARCEL Forum; join him on Wednesday, October 30 at 12:40 PM.
PARCEL’S 2019 CARRIER PERFORMANCE
The latest look at how our readers rate the carriers on customer service, delivery times, and more. By Amanda Armendariz
Once again, it’s time for one of my favorite articles of the year: our annual carrier performance survey. I (and many of our readers) find information like this so helpful because it’s a quick, concise look at a snippet of our industry. It offers an easy way for our readers to see where their satisfaction with their carrier mix lies in relation to other operations. Notably, the percentage of our readers who used FedEx and UPS went up compared to last year. Of course, on the flip side, the number of our respondents who reported that they used the United States Postal Service went down by eight percentage points. This isn’t a good sign for the USPS, who, in the face of declining mail volumes, depends on revenue from the package side more and more. Perhaps this decrease in usage is related to the fact that once again, our survey
FedEx Did you use FedEx in the last 12 months for domestic parcel shipping? No Yes
respondents rate the USPS the lowest when it comes to the fairness of pricing and ease of negotiations. On the bright side, while only 25% of our respondents rated regional carriers as being “very important” or “important” to their carrier mixes, the number of shippers using regional carriers for more than 50% of their shipments doubled compared to 2017. Carrier mix diversification helps keep shipping costs down and competition robust, so regional carrier usage is always a good benchmark to analyze. As always, a huge “thank you” to anyone who took the time out of their day to complete the survey. I look forward to discussing these results (and other industry happenings) with you later this month at the 2019 PARCEL Forum in Dallas. Be sure to stop by our booth to say hello!
Did you use UPS in the last 12 months for domestic parcel shipping? Yes
87.50% 16 PARCELindustry.com SEPTEMBER-OCTOBER 2019
Did you use USPS in the last 12 months for domestic parcel shipping? No Yes
Rating the Carriers
On a scale of 1-10, with 10 being the highest rating.
FedEx | 7.58
FedEx | 6.38
UPS | 7.4
UPS | 5.94
USPS | 5.58
USPS | 4.96
On-time Service Performance
FedEx | 5.76
UPS | 7.72
UPS | 5.58
USPS | 6.84
USPS | 5.04
FedEx | 6.76
UPS | 7.4
UPS | 6.28
USPS | 6.88
USPS | 5.88
willingness/fairness of negotiations)
FedEx | 7.72
Pricing (published rates for service levels,
(driver courtesy, package handling)
Refunds for Late Delivery
FedEx | 7.74
Other Insights into Our Industry Do you think that there is enough competition in the parcel delivery market to keep pricing reasonable and service good? Yes
How important are regional carriers to your shipping mix? Not important at all Slightly important Somewhat important Important
As always, the lack of competition in this sphere is something on shippers' minds. It is interesting to note, however, that despite the call for more competition, a lot of our respondents still ship overwhelmingly with the Big Two. Perhaps as the need for more competition becomes greater and greater over the next few years, we'll see more people utilizing the USPS and regional carriers in an effort to force UPS and FedEx to be more competitive.
12.24% 28.57% 12.24%
SEPTEMBER-OCTOBER 2019 ď€´ PARCELindustry.com 17
If you use regional carriers, what is the primary reason for doing so?
What percentage of your parcels are shipped with regional carriers?
More than 50%
Not surprisingly, cost is the number-one reason that shippers who answered our survey choose to partner with regional carriers.
The number of shippers utilizing regional carriers for more than 50% of their packages went up compared to last year, and it doubled compared to 2017’s survey results.
A Look at Our Respondents’ Operations Carriers and levels of service used so far in 2019: FedEx Next Day | 75%
What is your biggest complaint about your primary domestic parcel carrier?
FedEx 2-Day | 68.75% Accessorial Charges | 25%
FedEx Ground | 79.17% UPS Next Day | 62.50%
Claims Processing | 4.17% Customer Service Response | 12.50%
UPS 2-Day | 68.75% UPS Ground | 81.25%
Driver Behavior | 2.08%
USPS Next Day | 29.17%
Fuel Surcharges | 4.17%
USPS 2-Day | 41.67%
Fuel Surcharge Reversals | 0%
USPS Ground | 52.08%
Invoices | 6.25%
LTL | 62.50%
Negotiating Contracts | 4.17%
Parcel Regional Next Day | 20.83%
On-time Performance | 6.25%
Parcel Regional 2-Day | 22.92%
Pricing | 18.75%
Parcel Regional Ground | 25%
Refunds for Non-performance | 6.25%
Local Next Day | 14.58%
Relationships with Carrier Reps | 2.08%
Local 2-Day | 8.33%
Residential Deliveries | 2.08%
Local Ground | 22.92%
Service Failures | 6.25%
Consolidator Next Day | 6.25%
Tracking | 0%
Consolidator 2-Day | 10.42%
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By Bart De Muynck
E-COMMERCE AND THE LAST MILE ITCH
The digital customer experience is different, so changes to delivery processes and the supply chain are necessary if customer loyalty is to remain high.
-commerce is booming, and so are parcel deliveries. According to the 2018 Pitney Bowes Parcel Shipping Index, which covers 13 world industry nations, more than 74 billion parcels were shipped in 2017. This volume represents around $279 billion in revenue, of which 38% is generated in the US. The index estimates that the volume will continue to grow in double-digit rates and surpass 100 million parcels in 2020 — most of them sent by retailers to their customers. The increase in volume coincides with an increase in delivery speed. In 2015, the click to door speed for an average retailer was around a week — in 2018, it was 4.5 days. With many customers now expecting same-day delivery for some goods, retailers and their shipping partners are under pressure to become even faster.
Unfortunately, this high speed of delivery comes at a great cost — especially in the last mile, which makes up more than half of the overall delivery costs. Who is going to pay for this? Research has shown that customers do almost anything to avoid shipping costs — including not buying at all — so most retailers have decided to absorb the additional cost with the hope to outlast their competitors. This is not a sustainable business model, so other options must be explored. Multispeed Delivery As already mentioned, customers want to avoid shipping costs. In most cases, they do not always need their purchase on the same day. This situation has led to some retailers offering a so-called “multispeed” model for deliveries. Customers can choose at checkout when and where they
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want their purchase to be shipped. If they choose to have it delivered a few days later or pick it up at a physical store nearby, they don’t have to pay shipping costs, and they might even get a discount. Prominent examples of this model are Walmart’s Pickup Discount and Kohl’s Store Pickup. In addition to saving money, customers can also be educated that being flexible with deliveries is good for the environment as multiple shipments can be grouped together and delivered by one vehicle. An increasing number of consumers are concerned about sustainability, which also impacts their decisions when shopping online. The possibility of waiting a few days for a delivery in order to reduce the overall carbon footprint of the parcel can be a deciding factor for a lot of consumers. When customers can wait a few days for delivery or are willing to go the last mile themselves, retailers and their
shipping partners suddenly have a lot more room to optimize costs. Customer deliveries to physical stores can, for example, be bundled with regular inventory deliveries. Plannable delivery dates and times allow for technology to optimize routes and safe fuel and labor. Multispeed delivery is a win-win situation. The customer can choose from a wide range of fulfillment speeds, still has a convenient delivery window, might even get a discount, and supports the retailerâ€™s sustainability efforts. The retailer can improve his routing and save on delivery costs through customers that pick up their order at a physical store (where they could make additional purchases). Smart Ideas for the Last Mile Sometimes you canâ€™t avoid the costly last mile. Fortunately, increased adoption of technology by retailers and shippers alike has produced innovative and cost-saving solutions. One promising example is the progress in delivery technology, especially autonomous driving. A use case that has
already been approved in some US states is truck platooning. Multiple trucks drive in a convoy, but only the truck at the head has a driver. The other trucks are self-driving and use connected vehicle technology to follow the leading truck. Studies have shown that this model can reduce fuel costs and CO2 emissions significantly. Another benefit of autonomous trucks is the reduced transit time. Pilots have shown that on certain routes between cities, transit time can be reduced by half or more by using self-driving trucks that can drive for long hours and only need to stop for fuel. For B2C shipping, logistic leaders work with vehicle manufacturers to develop autonomous delivery vehicles. Those usually contain several sealed compartments that customers can open via an app to access their goods. Several leading logistics providers have announced pilots with urban delivery robots that deliver packages right to your door. E-commerce is here to stay, which means a lot of opportunities for retail
and parcel shipping organizations alike. However, customer expectations are high and need to be managed to avoid a cost explosion. Retailers must work with their shipping partners to develop a delivery model that makes both the customer happy and is as cost-effective as possible. On one hand, this can be achieved by rewarding the customer for waiting longer for a delivery or picking it up at a physical store. On the other hand, technology and innovation in the automotive and trucking sector will provide further opportunities to optimize routes and improve the cost efficiency of parcel shipping.
Bart De Muynck is Vice President Analyst, Gartner. In this role, he conducts research in the supply chain area focused on the delivery processes: transportation management, ďŹ‚eet management, and yard management. He will be speaking on this topic at the 2019 PARCEL Forum; join him on Tuesday, October 29 at 11 AM.
ARE YOUR PACKAGING PROCESSES OPTIMIZED TO AVOID DIM WEIGHT FEES? If your shipments are costing you more than you’d like, dimensional weight surcharges could be to blame. Here are some strategies to reduce those charges.
n a recent business trip, I watched as many passengers struggled to cram their luggage into the baggage sizer and, later, the overhead bins. Some aced this challenge with flying colors, while others sadly checked their bags and incurred additional fees. Airline luggage policies aside, there are parallels between this and the tactics shippers can deploy to reduce dimensional surcharges. Shippers need to focus on three key areas: developing dimensional competence, increasing shipment density, and reducing charged cubic volume.
BY JEFF HAUSHALTER Develop Dimensional Competence With the new dimensional surcharges implemented by the parcel carriers, space is priced based on volume and weight. This penalizes high bulk, oddshaped, and fragile shipments. Shippers need to develop their dimensional competence in an effort to combat these fees. They do so by learning the applicable rules, knowing the products they sell, and understanding the dollar impact of these dimensional charges. Dimensional rules are simple to comprehend but do have nuances between parcel carriers. Shippers should formally request from their carriers the type (dimensional, oversize, longest length,
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etc.) of surcharge, how it is officially calculated, the threshold at which it applies, and the corresponding penalty. Next, shippers need to dimensionally profile every product they sell. First, capture the length, width, and height of each item as it would be sold. For odd-shaped packages, measure the longest extreme of each dimension. This step can be made less cumbersome by incorporating supplier data or renting a dimensional sizer to automate this step. After you have gathered this item-level data, perform some basic spreadsheet analytics. Begin by calculating an item’s dimensional density by dividing its cubic volume in inches by its scale weight in pounds. Carriers apply a similar approach when establishing your rates. Next, summarize this data into easy to read charts that represent the intrin-
sic dimensional environment that you operate in. Some common reports might look at item volume, longest length, and dimensional density. The chart to the right shows an example of a dimensional density histogram. Despite having a great dim factor (the red line) of 200, over 47% of the items sold exceed this factor. This type of analysis provides real data points around the root causes of dimensional woes. Other value-added analysis you can perform is to screen every item against each of the carrier’s dimensional rules and assess its dollar impact. These insights and resulting discussions with product development, sales, and manufacturing can help rationalize the items you sell and redefine the associated pricing needed to make these items profitable. Increase Shipment Density Now that you understand how an item’s dimensional profile impacts the price paid for every parcel shipped, it’s time to increase the density of those shipments. Remember, in the density formula, your two key levers are reducing shipment volume and adding weight. First, shippers should develop a regime of boxes that handle a wide variety of order sizes and patterns. These boxes can be picked by modeling historical orders and determining how many of those orders would fit into a given sized box. Select the combination of boxes that reduces the total (packaging, dunnage, and transportation) cost to the organization. Next, use the smallest box, envelope, flat, or tube possible to protect your items in transit. Before choosing a specific container, try turning, rotating, or nesting the contents to see if you can create a tighter packing arrangement. Density can also be increased by correcting your most offensive items with your manufacturers. Some quick wins to discuss are eliminating excess headspace, disassembling bulky components into smaller subcomponents, nesting compatible items, and stripping out wasteful packaging. If that isn’t an option,
considering asking your suppliers to beef up their packaging to make items able to be shipped without any overboxing. This eliminates the problems associated with finding a container that holds, say, a garden rake and a basketball. Designing items as ship-alone also works particularly well for fragile items like glass that would ordinarily require multiple layers of bubble wrap and dunnage to protect the item. Lastly, you can add weight to the shipment. While this may strike some shippers as counterintuitive, adding denser items helps offset the bulk created by your worst dimensional offenders. Done properly, these “heavier” items essentially ride for free. Reduce Charged Cubic Volume Mid-to large-sized shippers can consider using on-demand boxes to reduce total shipment cube. These custom-made boxes are produced on the fly based on the order dimensions you provide. Items packaged this way fit like a glove with minimal air and little need for additional void fill. Another opportunity is to exploit differences or loopholes created by different shipper policies. When carriers’ surcharges are compared side by side, there are sweet spots where one carrier differs from the pack. Here are some quick wins we have found: One leading carrier does not apply dimensional charges for shipments under one cubic foot.
When measuring a shipment’s dimensions, many carriers round fractional sizes to the nearest whole inch. For example, 1.00” to 1.49” will be considered 1.00”, and 1.50” to 1.99” will be considered 2.00”. Changing a square box from 11.55” to 12.45” adds nearly 25% more physical volume with no change to charged volume. Lastly, several carriers offer flat-rate box options that ignore scale weight. These work great for both small heavy items as well as bulkier dimensional items. These boxes also help eliminate the ambiguity over freight charges and, as a plus, are often provided for free by the carrier. Putting It All Together To survive in today’s tough competitive environment, companies need to minimize the costs and surprises associated with dimensional weight. With up-front planning and the techniques discussed here, you can avoid (or at least minimize) their impact.
Jeff Haushalter is a Partner at Chicago Consulting, where he focuses on decreasing costs and improving service via warehouse operations, parcel spend management, and optimal packaging techniques, among others.
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By Sandy Stephens
REVERSE LOGISTICS: COST CENTER OR REVENUE CENTER?
Returns have always been seen as a necessary evil. Now, however, some best practices can make the returns process a revenue center for shippers.
ike much of supply chain operations, returns (or reverse logistics) have historically been viewed as a necessary evil and a cost center. Sellers have always been required to accept and process returns. But in the last decade, the demands and objectives of reverse logistics have evolved. In the past, customer expectations for returns consisted of credit for the item returned (within a week to 10 days, of course) or replacement of the item (a different size, color, etc.) within two weeks. Today’s customer expectations have changed to include immediate credit or replacement from whatever location the customer chooses — home, store, hotel, wherever — with complete visibility of each step of the process and notification upon completion of each step. Recently, the seller’s perspective has changed in the wake of differing customer expectations and the emergence of supply chain visibility systems and technology. Sellers have responded with investment in improved systems and focus on enhanced processes. The goal of the seller is to satisfy the customer, return the product to a salable condition (whether that means repackaging, restocking, or refurbishing), and
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resell the item to another customer as soon as possible. While these stated goals have not changed for sellers, the reality of the expectations and the commitment to achieving these goals by sellers has evolved. Sellers now see reverse logistics as a revenue driver instead of a cost center. Expeditious processing of returns leads to increased sales, improved sell through, and increased inventory efficiency. Let’s Start at the Beginning Effective management of returns begins before the initial customer order shipment. The first question is, “to return or to not return?” A recent purchase of replacement parts for a gas grill resulted in the shipment of the wrong part. When I requested a Return Authorization form, the seller told me I could keep the incorrect part and immediately shipped the correct part to me. Apparently, the cost of returning the part exceeded the cost of the part itself. This is the first key decision a seller must make about returns. Another question is, “to return or reposition?” A leading-edge fashion retailer uses reverse logistics as a way to enhance revenue by choosing to reposition inventory to online-only instead of
taking mark-downs in each store. By repositioning inventory to the fulfillment center, the retailer can provide customers with fresher in-store merchandise and provide online shoppers with a full size and color assortment of the style in the final stages of the product lifecycle, thereby improving sell through while increasing full price sales in the stores. Bulk mail containers filled with returned merchandise awaiting disposition are less likely to pile into the returns area in a best of breed distribution center today. Quick customer credit and disposition of product is essential to satisfying the demands of customers and improving inventory management. Sellers have adapted to today’s customer expectations by utilizing third-party logistics providers for returns processing when internal systems, space, or processes cannot satisfy the expectation of today’s customers. Whether internal or external processing, a few core best practices can convert the cost center to a revenue center for sellers. Best Practices for Retailers Best practices can be separated into two distinct but related categories — systems and process. Systems should include integration to the order management system (OMS), warehouse management system (WMS), and core business system of the seller. The integration of systems can facilitate other best prac-
tices such as automated notifications to customers, enhanced graphical or photographical user interface for returns processors to expedite processing, an online portal for customers to follow returns progress, and intelligent package labeling. Process includes the organization of workflow and actual steps required during processing of returns. Process best practices begin with planning and execution of the initial order shipment to the customer. In advance of initial shipment, sellers should plan to include reusable/returnable packaging and smart labels with the initial shipment for potential return of some, or all, product. Reusable packaging will allow the customer to quickly package the return for shipping while providing the seller or returns processor with standardized packages for handling and quick recognition of label location and related information. Customer demand for immediate visibility can be most effectively satisfied when a smart return label is included with the shipment. The label will provide accurate and detailed information to sellers immediately upon carrier acceptance of the return package. That confirmation — and confirmation of completion of each subsequent step — is automatically communicated to customers. Sellers and processors receive live tracking information for each package, allowing for preparation prior to receipt of the package. Staffing can be adjusted for expected packages each day by the processor. Upon receipt,
processors will have immediate access to all return data, including customer history, photographic item recognition, and perhaps suggested disposition for returned items. Upon receipt of returned merchandise, best practices include sorting and segmenting product by category. This preparation enables specialization of processors and specialized workstation design by product type. Categories may include apparel, home goods, shoes, electronics, oversized packages, etc. Each category requires a unique knowledge set and specific inspection steps to expedite disposition and processing. Specialization enables processors to be much more productive and effective, thereby achieving timely completion of returns. A Real-Life Example Reverse logistics quickly becomes a revenue center with the addition of refurbishment (the restoring, testing, and verification of a returned or used product to prepare for redistribution and resale). Due to advances in technology, electronics are often refurbished (restored to factory defaults and repaired as needed) for resale. GameStop is a leading retailer of refurbished electronics, including gaming equipment and mobile communications devices. At the heart of GameStop’s successful buy-sell-trade business model is the Refurbishment Operations Center, or The ROC, as it is more affectionately called. The ROC is a 182,000-square-foot facility dedicated to refurbishment of gaming consoles, media, mobile phones, iPads, other tablets, and accessories. GameStop emphasizes quality in the products refurbished at The ROC. Of the 1,100 employees, 85 are dedicated to quality assurance. In an interview with GameSpot, a gaming news media web site, GameStop’s senior vice president of supply chain and refurbishment Bruce Kulp reiterated this fact again and again, saying GameStop “can’t lessen quality” with its refurbishment process. To this end, a quality inspection is conducted at every stage of the refurbishment process. The ROC employs many advanced best practices, including smart labels, immediate sort and segment, cell-based manufacturing, multiple steps of quality inspection, automated testing, and intensive productivity measurement and reporting. In this process, GameStop has engineered the work content of each product refurbishment to divide work into fast flowing cells. Cell manufacturing principles have enabled GameStop to receive, refurbish, and distribute over $2 billion of product per year — a true revenue center of reverse logistics. Is it time for your operation to take the necessary steps to turn returns from a cost center to a revenue center?
Sandy Stephens is Managing Principal, Johnson Stephens Consulting, Inc. He has 30+ years of supply chain operations consulting and operations management experience with a focus on retail, e-commerce, order fulﬁllment, and third-party logistics. He, along with GameStop executive Bruce Kulp, will be speaking more on making the reverse logistics process a revenue center at the PARCEL Forum on Tuesday, October 29, at 10 AM.
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By Gordon Glazer
THE MOST COMMON MISTAKES SHIPPERS MAKE If you’re not examining your distribution patterns in order to identify, quantify, and optimize your strategy, you could be paying more than you need to.
he process of analyzing high-volume shipper distribution patterns, identifying opportunities to save money and, in many cases, reduce transit times is often called mode (or modal) optimization (MO). Part of the MO process includes identifying routing errors and opportunities. Once identified, the next step is to quantify the opportunity. How much money can be saved? Is there any downside to transit times? Is your enabling technology capable of making the change via “least cost routing” logic
or by instituting business rules? Do you need to involve the sales or marketing departments in order to make the change? Armed with this data, you can now put your plan into action and optimize your carrier mix — which should include the USPS and may include regional carriers or parcel consolidators, as well. A Look at Some Common Mistakes The most common and costly mistake is shipping Ground at the onepound rate where ounce-based options exist. Savings per package are measured
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in dollars, not pennies. It is important to understand that one-pound shipments in these situations are either under or over a pound. If the shipment is over that weight by even .0002 pounds (which, for reference, truly is lighter than a feather), it will rate at two pounds. If you are shipping via the USPS, you may want to consider First-Class Package Services (FCPS), which is ounce-based. Shippers often fail to consider dimensions in best way routing. For example, it’s common for shippers to use USPS Priority Mail (PM) Flat
Rate or PM Regional Flat Rate even when PM Cubic is less expensive, or the opposite when PM weight and zone is less. Shippers often also fail to take into account the variance in their carrier contracts’ DIM factors, along with rate concessions and minimum charge impacts. All of these items need to be considered in the routing logic. For example, are you using an Express service when USPS PM or UPS/FedEx Ground, a regional carrier, or expedited consolidator can get it there in time? A simple service level usage report broken down by zone can clearly show the opportunity to save. One of the biggest obstacles in putting ideas and opportunities into play is not having enabling technology that supports multiple carriers, best way routing, and business rules. Your technology needs to be robust enough to include carrier ancillary charges like
Delivery Area (DAS), Residential (RSC), Additional Handling Surcharges (AHS), fuel surcharges, and DIM relief. Failure to leverage competition is another big mistake shippers often make, and as we all know, complacency (comfort in the status quo) is an expensive mistake. What to do instead? We recommend a regular cadence of opportunities for the non-incumbent carrier, along with shifting a portion of the spend to alternative carriers and consolidators, be offered every few years, or sooner if market dynamics demand. Change carriers when it is in your best interest to do so. While it will be painful, the rewards will pay off since the carriers will understand you mean business and are legitimately offering them an opportunity, not just using them to get better pricing from the incumbent.
Include parcel consolidators. This will potentially pressure FedEx SmartPost and UPS SurePost to lower rates, and some consolidators also provide faster transit times. Expedited extreme consolidator options can match USPS PM two- to three-day delivery and outperform FCPS in many lanes for less money and faster delivery. These MO opportunities can save 20% to 40% with equal or faster transits. Failure to learn from others is one mistake that’s not so easily quantified, but it’s a big one. Long ago, I coined the phrase “learning from your mailbox.” Over the course of my career, I have learned so much from others, and I’ve come to realize that the good, the bad, and the ugly all tell a story. I saw an example of this first-hand recently. I noticed that my Dollar Shave Club
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monthly subscription changed their packaging from a padded envelope to a small box and now have switched to a USPS Flat Envelope rate. Granted, I’m sure it took some extreme knowledge of the USPS rules to design a package insert that allows for uniform thickness and two-way flexibility, but the savings here likely exceed 50%. There are hundreds of examples like this; why not reach out to an industry expert to see if a magic solution might help your company save? Paying too much for the service you currently use is one error that is sure to make shippers cringe. Examples here include: Not optimizing your current carrier contract by using third-party expert help. Not auditing your carrier for their guaranteed service (failures).
Paying over list prices. For example, we have seen dozens of clients paying a dollar or more for USPS PM Cubic, and nearly all of them didn’t know that the package routed Cubic. Not seeking contractual relief from the USPS when your volume is high enough. Staging shipments by processing outer zones first. This is a pretty specialized opportunity for subscription based on other repetitive business models. It can include using some expedited services to nominalize delivery receipt across the country, so all clients get their products on the same day. Failing to leverage USPS for US territories (e.g. Guam and Puerto Rico), Alaska, and Hawaii. These will rate like a domestic Zone 8 fee and the savings are dramatic when compared to UPS or FedEx.
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If you are like most shippers, you’re likely making at least one of these mistakes. As we wrap up 2019, be sure to take the time to identify, quantify, and optimize your data, which will help your shipping operation succeed in 2020 and beyond.
Gordon Glazer, CMDSM, CMDSS, MDP, MDC is a Senior Consultant, USPS Specialist at Shipware LLC, an innovative parcel audit and consulting ﬁrm that helps volume parcel shippers reduce shipping costs 10%-30%. Gordon is a postal industry veteran with 32 years of experience and is a sought-after speaker and industry thought leader. He welcomes your questions and comments and can be reached at 858.724.0457 or email@example.com. Join him at 8 AM on Wednesday, October 30 at the 2019 PARCEL Forum, where he’ll be presenting his session, “Top 10 Mistakes You’re Making Today: Install USPS to Save 30%.”
See us in Booth 131 at PARCEL Forum 19
DO YOUR PACKAGING TESTS LEAD TO HIGHER SHIPPING COSTS? It may seem counterintuitive, but the shortcomings that are present in today’s packaging tests can actually increase your costs and lower your profits.
By Kevin Howard
he most obvious cost related to packaging is direct material, but the largest cost associated with packaging size is transportation. This is especially true for products shipped in large volumes and subjected to dimensional weight calculations. There are many contributing factors to package size, such as product size/fragility, marketing demands, and supply chain hazards. Perhaps
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the number one reason for inappropriately large package size is the type of laboratory drop tests employed. Overly harsh laboratory tests (ones that don’t accurately reflect the true hazards found within your supply chain) can cause excessive packaging, thus increasing packaging and logistics costs. If your company uses any of the well known distribution simulation tests from the International Safe Transit Association (ISTA), American Society of Testing and Materials (ASTM), FedEx, and others, then you may well be contending with excessive damage, packaging, and logistics costs, or, sadly, a combination of all these conditions simultaneously. If tests are overly harsh in some regards, yet completely miss certain damaging inputs commonly found in distribution, then one ends up with both high damage rates and excessive packaging. To top it all off, none of these standards help limit excess packaging. Many companies employ tests like ISTA 3A (Packaged Products for Parcel
Delivery, 150 pounds or less), ISTA 3B (Packaged Products for LTL Shipments), ASTM D4169 (Performance Testing of Shipping Containers), ASTM D7386 (Performance Testing of Packages for Single Parcel Delivery), FedEx’s “Testing Packaged Products up to 150 pounds,” and most recently added, ISTA’s Project 6 Amazon.com tests. It’s interesting to note that although these tests seemingly deal with many of the same shipping environments, the tests are different from each other. Why would that be? What would a shipper do if their products pass one test but not another? Perhaps more importantly, though, is this: What are the shared shortcomings of all of these tests, and how do these shortcomings translate into extra costs for many, if not most, companies? Testing Doesn’t Always Lead to Lower Costs The series of tests listed in all of the standards are based on lots of research. Modern research of handling inputs is based on recordings taken with high tech data acquisition recorders that measure shock, vibration, temperature, humidity, and even GPS coordinates. Though the technology is impressive, there’s a basic flaw in most studies that attempt to capture drop height data. Unlike vibration, temperature, and humidity, which can be measured continuously, free fall drops happen infrequently. Also, the vast majority of studies use dummy packages, meaning the test package is a box of a certain weight and size, but there’s nothing to break on the inside, unlike products being shipped. In other words, the measurements may be highly accurate, but there is no correlation to actual known, consistent field failures. What happens if the recorder captures a 100” drop? These drops certainly do happen in distribution, but without damage correlation, one would never
know if the recorded drop is a truly significant issue. Conversely, just how many measurements of a supply chain would one need to confidently say you now know the parameters of drops? It would take hundreds of such dummy product measurements, yet no study has been this extensive. In contrast, some companies have come to rely on careful collection of damage data, coupled with direct field observations. Using literally millions of their own products as data acquisition recorders, these companies then replicate the known consistent field damages in the lab, essentially measuring the environment by reproducing the effects of the environment in the lab, and then setting these inputs as baselines for all products to meet as they are shipped through similar supply chains. Other than the lack of damage correlation in the studies that formed the standards, what other shortcomings are there? Consider: No two standards are the same. Is one better than another? None test all 26 orientations of a box, and yet the distribution system clearly does. Do these organizations know only their 6 or 10 or 11 or 17 test orientations are the ones that will be dropped upon? Some standards demand all 6 or 10 drops from the maximum height, yet no research has ever found 6 or 10 max height drops in distribution for a single package. In fact, there’s only a small chance of a single max drop in distribution. Every standard has only one sequence of drops. In other words, whether you test a single unit or a thousand units, the sequence order of drops is to be exactly the same each and every time. Those of us who’ve spent considerable time in test labs know the sequence of drops may be the difference between pass and fail. The fact is this: The sequence of drops found in distribution is random, and this randomness leads to failures. Why are there no drop tests that employ multiple drop sequences? Perhaps most importantly, in terms of costs, is the fact that no standard
provides a pathway to design-margin testing, where one could define the amount of excess packaging being used. In other words, all of these tests are pass/fail. Many companies want only to pass the tests and then declare they’re ready for production, but wouldn’t it be worthwhile to know if a drop of an additional inch causes damages? Wouldn’t it be good to know the most likely thing to fail in distribution if inputs surpass the lab test levels? Conversely, wouldn’t it be important to know if the package that passed a 30” drop test also passes a 50” drop test, clearly indicating excessive packaging? None of the standards suggest appropriate levels of robustness for products. One reason for excessive packaging can be certainly be poor packaging design, but overly large packages can also be reflective of products that aren’t designed with logistics costs in mind. When product designers partner with packaging engineers who can suggest modifications in both geometry and fragility, the minimum landed costs can be achieved for packaged products. Besides the above questions, one should also wonder if these standards are good enough for worldwide distribution. For instance, if you ship products in India and Asia, would you expect the standard tests to suffice for parcel shipments on the other side of the planet? On the other hand, if you ship products to India and have absolutely no damage, and you use the same packaging for the entire world, then would that be a clear indication of excessive packaging for the US, Europe, and Japan? In other words, it’s not only if your packages pass or fail their tests; it’s time to really consider what these results mean for your packaging strategy.
Kevin Howard is a consultant with and owner of Packnomics LLC. His focus is on distribution packaging design and testing. He will speak at this year’s PARCEL Forum on Tuesday, October 29 at 12 PM. Contact him at kevin.howard@ packnomics.com. SEPTEMBER-OCTOBER 2019 PARCELindustry.com 33
OPTIMIZING ORDER FULFILLMENT IN THE AGE OF IMMEDIATE DEMAND
our order shall be dispatched from our warehouse in one to two business days, pending credit card verification.” Grim words on a Friday afternoon. A Tuesday ship date and another week in Zone 8 Ground transit time means an 11-day fulfillment cycle from purchase
BY SHAUN ROTHWELL to a knock at the door. Seem slow? It’ll seem slower tomorrow. As e-commerce peels away an increasingly significant percentage of consumer spending, executing a successful internet strategy requires delicately balancing customer experience with costs and capabilities. As consumers have become accustomed to ever-faster deliveries
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of millions of products through major retailers like Amazon and Walmart, long fulfillment times can devalue products sold by smaller outfits who don’t have regionalized warehousing or significant buying power with the carriers. The good news? There are a multitude of methods by which to increase fulfillment velocity and meet the demands of a ravenous customer base. Pre-Order Ever order an item and receive a
backorder notification later in the day or week? Demand planning is crucial on the front end of the supply chain. Poor demand planning can result in an underperformance throughout the supply chain, eventually trickling down to the customer in the form of leisurely fulfillment speed. Inventory Management Accurate inventory management is critically important to achieving the shortest possible time between checkout and carrier pickup. Utilizing a warehouse management system with real-time inventory across all fulfillment locations is an imperative. A warehouse management system with these capabilities is particularly important when fulfilling through multiple distribution points or if a retailer is pursuing an omnichannel format. It is far easier to manage customer experience when you know
exactly where your stock keeping units (SKUs) are parked — and how many of each are in existence. After all, agility in the fulfillment space requires accurate information at your fingertips. One way to provide this information is by utilizing a proper WMS, since this accounts for an enormous portion of the customer experience despite being neither seen nor heard. A bonus of implementing a WMS with the aforementioned features is enhanced ability to fulfill out of individual retail locations for a comprehensive omnichannel experience. Nordstrom is an example of a retailer successfully executing this strategy, with multiple benefits. Depending on the location of the SKU, the location of the customer, and the chosen fulfillment method (among other factors), Nordstrom can manage and often exceed customer expectations while efficiently positioning inventory.
Order Management While efficient fulfillment is a game of hours and minutes, it is also a song and dance with the customer. Let’s say an order comes in at 6:00 PM, with carrier pickups daily at 4:00 PM. A high-touch approach would send an order confirmation, followed by a “preparing for shipment” notification the following morning, and finally, a shipment notification when the package is picked up. A mediocre approach would be to send an order confirmation, and a second email with a shipment confirmation when the label is created. Why is this considered a mediocre approach? Well, depending on when the label is printed, the customer may hear nothing but crickets for most of the day. This has the potential to create anxiety among customers, who have grown accustomed to complete order-to-delivery tracking offered by the likes of Amazon.
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Interestingly enough, despite there being plenty of opacity in Amazon’s tracking detail, it doesn’t actually matter. However, the well-engineered illusion of a warehouse employee methodically packing your items until the package is out for delivery is precisely the goal that resonates with customers. The second mediocre aspect of this scenario is the shipment notification upon generation of tracking number. Why? The customers who are most sensitive to fulfillment speeds will likely click on the tracking information prior to it being available in the carrier system. Subjected to a seemingly ominous “not in system” message, the most anxious and sensitive customers will become increasingly so. All Packed Rapid order fulfillment isn’t just about the warehouse process. Dexterous usage of carriers and services is critically
important to executing a consistent customer experience. In this scenario, let us assume you are an apparel retailer with a single distribution point in New Jersey. You offer free UPS Ground shipping on most orders, which is selected by about 50% of customers. A California and a Massachusetts customer both place an order at 6:00 PM EST on a Monday. The shipments go out on Tuesday afternoon, with wildly disparate delivery durations. The package staying on the East Coast arrives on Thursday afternoon, less than 72 hours after the order was placed. Meanwhile, the package going to California will not arrive until the following Tuesday — a full eight days after placing the order. In this situation, a solid route to explore could be utilization of USPS Priority Mail for smaller packages to far zones. The retailer could keep most of
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the Ground and all the Express volume with UPS, while continuing to offer free, reasonably quick shipping to the West Coast with USPS Priority. If this strategy replaced our earlier scenario, both customers would be in fresh clothing before the weekend commenced. As e-commerce becomes increasingly competitive, rapid order fulfillment is imperative to long-term, sustainable success. Minding your planning, inventory, order communications, and shipping service levels can position you to thrive in a climate where speed and accuracy aren’t just desirable, but absolutely necessary.
Shaun Rothwell is founder and CEO, iDrive Logistics. He has extensive experience working with small-parcel shippers in all industry verticals and geographies to help them optimize their supply chains.
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Express Delivery. Customized Solutions.
Reduce parcel costs and save money with the most advanced and comprehensive parcel audit software in the industry. CTrak handles dimensional audits both domestically and internationally. We deliver maximized savings, BI and KPI data for impactful analytics. Reduce your shipping, administrative, and accounting costs. No-cost Proof of Concept!
PARCEL Are you shipping profit out the door?
Perfect for Any Processing Environment
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NPIâ€™s Xstream makes parcel and flat automation faster and more efficient. With a throughput up to 30,000 parcels and flats per hour, the Xstream only takes up a small footprint in your operation. It has OCR and BCR capability, and can offer you weigh on the fly. Processes incoming and outgoing mail and sorts just about everything including most non-machinable pieces. NPI 214.634.2288 www.npisorters.com
Ship Anywhere, From Anywhere
Transtream is the one enterprise shipping system you need to ship from stores, suppliers, fulfillment centers, offices, mail centers, and international locations. Visit us at Booth 416 and learn how Transtream helps shippers save money and optimize delivery with global omnichannel shipping management. Pierbridge 508.630.1220 firstname.lastname@example.org www.pierbridge.com
Take the Lead with Customized Automation.
Tension Packaging & Automation provides modular and scalable automated packaging, weighing, manifesting and sorting solutions for B2B and direct-to-consumer order fulfillment distribution centers and mail order pharmacies. To see how your company can do MORE with less, call or email us today to set up a meeting with one of our automation consultants. Tension Packaging & Automation 855.763.7275 ext. 4103 email@example.com tensionautomation.com
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The Chameleon Parcel-Processing Solution is a modular and workflow-flexible platform designed to adapt to any parcel-processing environment. Making sortation automation cost-effective for rapidly growing parcel-processing operations, the Chameleon Solution is fully adaptable, providing customizable features such as barcode reading, OCR, weighing, dimensioning, and label application to fit your process and budget. Engineering Innovation 800.350.6450, firstname.lastname@example.org, www.eii-online.com
Powerful data. Smarter decisions.
Increase your Productivity and Lower your Order Fulfillment Costs
To make smart decisions about your supply chain, you need powerful data in a format that’s easy to understand. U.S. Bank Freight Payment delivers actionable intelligence so you can streamline processes and find efficiencies from point of origin to the last mile.
Enterprise Shipping Software
Enterprise Shipper™ is Window Book’s easy to use and economic package shipping system. It provides local storage of your shipping data, a responsive and intuitive user interface, fast label generation and cloud-based delivery tracking and notification. Get great savings on domestic and international shipments with multiple carriers. Window Book, Inc. 800.524.0380 Info@windowbook.com Windowbook.com
We look forward to seeing you at
U.S. Bank Freight Payment 866.274.5898 email@example.com freight.usbank.com/smallparcel
Need to register? There’s still time! www.parcelforum.com
By Tim Sailor
WHY LOWERING SURCHARGES
IS CRITICAL TO OVERALL TRANSPORTATION SPEND MANAGEMENT Surcharges continue to make up a bigger and bigger portion of shippers’ expenditures. Luckily, there are ways to reduce their impact on your business.
y now, most shippers are keenly aware of how surcharges are impacting their transportation spend. Accessorial costs keep climbing and can now contribute to, on average, almost 40% of your total carrier expenditures. Over the last few years, the carriers have been using surcharges as their primary way to increase revenue. Unlike their general rate increases (GRI), which go into effect every January, surcharges are not included in their overall fixed
tariff increase caps and estimates. Typically, the carriers increase their tariff rates by about 4.9% on average, with some variation based on service and weights. However, when it comes to surcharges, the carriers have abandoned any pretense of year-over-year caps and have increased surcharges by significantly higher percentages than their tariff rates. Furthermore, the carriers have begun to implement surcharge increases mid-year and have not waited until the January tariff increases. To make
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matters worse, the carriers have also changed the rules and thresholds to make more and more shipments susceptible to these added charges. In the past, shippers could count on accessorial charges to cost about 25% of their overall transportation spend, a far cry from today’s 40%. There is now no shipment that does not get some sort of add-on charge from the carriers. Many years ago, it started with the fuel surcharge. Now, there are residential surcharges, delivery area surcharges, dimensional charges, additional handling fees, oversize fees, and peak season fees — just to name a few. It has come to a point where these add-on charges are now more expensive than the up-front freight cost (see Figure 1). What Led to This Increase? In the past, both FedEx and UPS’s networks were designed for commercial deliveries. However, with the explosive growth of e-commerce, more and more shipments have become residential deliveries. In the last five years, the residential surcharge has increased from $3.10 to $3.80, an increase of almost 23% for Ground and 26% for Express. Furthermore, not only have the surcharges increased, but the carriers have also
they have done so through increased oversize and unauthorized package surcharges as well as decreased dimensional factors. Oversize charges have increased 56.5% in the past five years, while unauthorized charges have increased 1074% (and no, that is not a typo). The unauthorized package surcharge is now $675 with an additional $150 per package during the FedEx peak season. Both of these surcharges additionally qualify these packages to be subject to a 90-lb. minimum billable weight. This change to the billed package weight could easily increase your shipment cost by four times more. Additionally, DIM factors have steadily
increased their residential ground tariffs by more than the commercial tariffs. Another example is the Delivery Area Surcharge (DAS), which has now escalated up to $4.65 per shipment. Not only are the carriers charging this fee, but they have added new categories like Extended DAS. Today, DAS charges are applied to about 57% of all ZIP Codes, with the higher extended charge making up about 46%. Next to the fuel and the residential surcharges, DAS is typically the third highest surcharge for most shippers. In recent years, carriers have also focused their increases on shippers with large, oversized shipments. Primarily,
declined from 194 to 166 (in 2015) to 139 today. These tariff reductions mean that shippers are being charged a higher weight for each shipment. See Figure 2 for an example. Another pain point for shippers is the Additional Handling Surcharge (AHS), which has gone up 58% in the last five years. Not only has the rate gone up, but in 2017, the carriers changed the threshold from 60 inches to 48 inches. This means that more of your packages are getting hit with this surcharge. We had one client whose impacted shipments went from 28% to 49% of all shipments based on this rule change. Furthermore, in 2018, the carriers broke out the AHS for weight to be a more expensive surcharge. Any package that weighs more than 70 pounds will be charged $23 for additional handling instead of $14.25, increasing this surcharge 61.4% (UPS). What can shippers do to fight against this tide of rising accessorial costs? The first step is to quantify what your total accessorial costs are and compare this
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percentage against your overall transportation spend. By knowing this, you can assess if your total accessorial costs are appropriate for your overall expenditures. If you have any historical shipping data from previous years, compare what your accessorial costs were then and now. I guarantee you would be surprised at the overall impact on your current year costs. The next step is to break out your accessorial costs by surcharge categories. Quantify your top 10 surcharges so you can identify which carrier surcharges are really hurting your bottom line. Knowing this information will help you in your next
round of carrier negotiations and should be a major emphasis when you are looking at new agreements and terms. Accessorial concessions can be more important to driving down total costs than additional shipment incentives. Finally, it is important to keep up with industry changes and announcements. In recent years, the carriers have not waited until the January GRI to implement new accessorial charges or tariff changes. Look for PARCEL alerts and other industry sources to keep you informed. In a perfect world, your primary source would be your carrier represen-
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tative. Good reps will alert you to any accessorial changes and let you know the cost to your business. And, if your account manager is an advocate for your relationship and business, they should be open to offsetting any tariff increases with additional discounts. As you can see, managing and controlling surcharges is going to become more and more important as the carriers continue to use add-on charges as their primary way to increase revenue and profitability. It will be a challenge for shippers, but one you can overcome with the right data and insight. Good luck!
Tim Sailor is the founder of Navigo Consulting Group, which specializes in contract optimization, distribution analytics, and strategic sourcing. Since 1995, Navigo has reduced its clients shipping costs by more than 30%. As a regular speaker at PARCEL Forum, Tim will be presenting “Take Control of Your Accessorial Charges” on Tuesday, October 29 at 11 AM. You can reach Tim at 562.621.0830 or Tim@NavigoInc.com.
F.O.B. ORIGIN OR F.O.B. DESTINATION: WHICH ONE IS THE BEST TO USE? By Brent Wm. Primus, J.D.
n the last installment of PARCEL Counsel, we looked at the meaning of the phrases F.O.B. Origin and F.O.B. Destination, which begs the question, “Which one is the best for my company to use?” The answer, in classic lawyer fashion, is, “It depends.” This is because there are many factors in play — or not in play — for any particular company. With this in mind, the following questions can be used as a starting point to develop criteria for your own company. 1. Do you want to be able to route the freight yourself to reduce congestion by having control over delivery and pick-up schedules? 2. Would your company be able to negotiate better rates on your outbound or inbound traffic if you had additional volume? 3. Do you want to bear the risk of loss and damage? 4. Are you or your vendor/customer in a better position to
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adjust claims for loss and damage to cargo? 5. Is your company willing to pay carriers directly, and thus sooner (e.g. 30 days), than your company now has to pay vendors for product and add-on freight charges (e.g. 60-90 days?) Put another way, are the dollar savings in freight charges that might result from a direct negotiation with a carrier more or less than the time value of the money paid to vendors for add-on freight charges? 6. What effect, if any, would the term of sale have on your company’s liability for state sales taxes? 7. What effect, if any, would the term of sale have on your company’s liability for state use taxes? 8. What effect, if any, would the term of sale have on your company’s liability for state property taxes? 9. Are there freight allowances available for commodities being purchased F.O.B. Origin that aren’t available for those purchased F.O.B. Destination? 10. What is the total cost effect of controlling your inbound freight? 11.Does your company have personnel who are willing and able to audit the freight bills or to monitor inbound compliance to the routing guides? 12.How would the term of sale affect the dollar value of your inventory levels on any particular day? 13.How important is it to your
company to have the certainty of a “delivered price” with a F.O.B. Destination term of sale as opposed to the possibility of paying a lower (or higher) total cost based on the cost of the goods plus the actual cost of the transportation? It should be kept in mind that many businesses are both consignors and consignees. For instance, a manufacturer receives raw materials or component parts and ships manufactured items. If such a company wanted to have total control over its transportation, it would specify an F.O.B. Origin term in contracts with its vendors. However, it would specify an F.O.B. Destination term in contracts with its customers. Finally, it should be noted that a new issue has arisen since the above list was developed a few years ago: consignee chargebacks and consignor chargebacks. Accordingly, when considering whether to use an F.O.B. Origin or an F.O.B. Destination term of sale with a particular vendor or a particular customer, consideration should also be given to whether the choice of the term of sale could eliminate, or at least mitigate, the financial impact of such charges. All for now!
Brent Wm. Primus, J.D., is the CEO of Primus Law Office, P.A. and the Senior Editor of transportlawtexts, inc. Your questions are welcome at firstname.lastname@example.org.
5 Reasons to Study Your Supply Chain Network Supply chain planning, management, and optimization made its way into the spotlight of the logistics industry along with the evolution of personal computers in the early 1980s. Advances in computing technology laid the foundation for supply chain optimization as we know it. Today’s most profitable and recognizable companies have made supply chain efficiency and responsiveness a competitive advantage. However, with the introduction of omni-channel fulfillment, global competition, economic uncertainty, transaction visibility, and other complicating factors, the difficulty of maintaining an optimized supply chain structure has increased. Whether a company has established supply chain optimization as a competitive advantage or is just starting to explore the possible benefits, there are five main reasons why a company should do a study of its distribution network. 1. Capture and Understand Current State For companies new to network analysis, the first step is to establish a baseline of the current state. The company will study the structure of its supply chain network, pinpoint the geographical location of its demand and supply centers, determine the product delivery routes, and quantify the flow through each route. Through this analysis a company can develop a clear understanding of the material flow through the network and identify opportunities for improvement. This baseline serves as a benchmark for comparing and evaluating the performance of future alternatives that may be considered. 2. Reduce Supply Chain Related Costs If you are in the business of making money, reducing costs to increase profit is a key component of achieving that goal. Transportation, warehousing, and inventory holding costs are the three main sources of cost in supply chain. Rising fuel costs combined with a competitive labor market have made the impact even more evident to decision makers, increasing motivation to re-evaluate supply chain structures and strategies to improve the bottom line.
3. Improve Customer Service Levels The customer is still king, and the king wants to purchase goods through any channel at any time and have them delivered as soon as possible with the lowest cost. This demand for improved product fulfillment speed and better service quality is not letting up. Companies feel pressured to evolve, which often implies changes to the supply chain structure and strategy, so they can meet customer demands. 4. Expand Capacity and/or to Different Regions As companies grow, whether it be organically or through mergers/ acquisitions, it is important to understand the implications from a supply chain perspective. Growth is typically associated with increased demand and market share, which often presents a challenge when the demand has outgrown available supply chain capacity. The most common response to this challenge is to add more capacity by adding new or expanding current fulfillment centers. Determining the right choice is a complex decision influenced by the geographical locations of demand sources, operating costs, transportation cost, and the capital cost of adding capacity among other factors. 5. Balance the Supply Chain Network In the business world, there is one thing you can count on — change. It could be driven by disruptive technologies that modify the way we do business or customer behaviors that drive the introduction of new products and services. Regardless of the reason, companies must adapt to the ever-changing business landscape or risk losing business. Benefits of optimizing supply chain can be substantial and impactful at every tier of the network. Whether you are a Fortune 500 company or just starting out of the garage, maintaining a commitment of end-to-end supply chain efficiency will only positively support the operational and financial success of the company. If you’re curious about conducting a supply chain network study but aren’t sure where to start, contact us. Our experienced consultants are happy to help.
888.725.3046 email@example.com www.BastianSolutions.com
NEXT-DAY SERVICE: A MERCHANT’S NIGHTMARE? Michael J. Ryan
mazon is raising the bar yet again, this times in the form of “free” next-day delivery. Yikes! Delivery is often referred to as the final mile, but in reality, delivery affects or is encompassed by every mile. This next-day delivery offering is another market grab strategy by Amazon. There are few merchants that can achieve this in a one- or two-distribution center model. Let’s take a look at how many merchants can compete with this (or how they can implement a strategy to potentially curtail the loss of business).
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1. Store to Consumer: Most large retail stores have the network to achieve a nextday delivery via the USPS or ground service (UPS/FedEx/ regional carriers). There may be opportunities for retailers to carry other e-tailers’ products to give them the ability to achieve this, but it raises the question of how much it will cost to provide satisfactory service. 2. Large 3PLs: There are many 3PLs that can hit 90% of the population with next-day service via ground service. The challenge with this model is that there will be a higher carrying cost for the inventory. This would require an in-depth supply chain analysis to ascertain the cost to service ratio. 3. Next-Day Air Service: This is a quick way to be competitive but very expensive. Most e-commerce shipments’ value and margin will not support this model. If this is the direction you plan to go, you will need to re-negotiate your shipping contract or partner with a 3PL’s rates. 4. FBA: This is exactly what Amazon wants you to do. There are a lot of benefits of using FBA, but do your due diligence to ascertain if it is the best fit for your distribution. Amazon is creating the need for faster service, and it is brilliant (if not just a bit overwhelming). They are running a hub and spoke system in the US now and will open their new Super Hub in Cincinnati
in 2021. In a recent Avionos Report (June 2019), consumers are defining a positive experience with faster delivery, so it’s important that shippers make the necessary changes to satisfy their customers.
Most large retail stores have the network to achieve a nextday delivery via the USPS or ground service (UPS/FedEx/ regional carriers). The next-day service offer has been popular in the peak season but it will continue into 2020. Are you ready for this? These changing delivery times and customer expectations will be a game changer to e-commerce in the years to come.
Michael J. Ryan is the Executive Vice President at Preferred Shipping (www.preferredship.com) and has over 25 years of experience in the parcel industry. He can be reached at 708.224.1498 or michael.ryan@ preferredship.com. Join Mike for his 2019 PARCEL Forum session, “Know How Carriers & Shippers Partner for the Long Term,” on Tuesday, October 29, at 12 PM.
PARCEL September/October 2019