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PARCEL

PARCEL FORUM ISSUE!

SEPTEMBER-OCTOBER 2014 www.PARCELindustry.com

SMASH

THROUGH THE OBSTACLES: Avoid these common mistakes, and you’ll take your operation to the top! Page 16

INTELLIGENT pack station design pays off.

Page 22

WHEN IT

comes to your transportation operations, visibility equals profitability. Page 28

PLANNING AHEAD CHECK OUT

these great product spotlights! Page 34

to protect your bottom line. Page 32


PARCEL

CONTENTS

SEPTEMBER-OCTOBER 2014 | volume 21 | issue 6

Features 08 Transportation ABCs

FedEx Residential Fees: Ground Residential versus Home Delivery By Brittany Beecroft

09 Omnichannel Steps to Success Omni-Channel Inventory Optimization – Strategy is Everything By Jim Barnes

10 Operational Efficiencies

DIM Education and Tweaking the Distribution Network By Susan Rider

16 Top 10 Mistakes Parcel Shippers Continue to Make in 2014 What it’s costing you & how to fix it!

11 Ship Right

2014 Holiday Report: Getting Ahead of the Last-Minute Shipping Surge By Christoph Stehmann

By Rob Martinez

12 Spend Perspectives

Intermodal Shipping – Friend or Foe During Peak Season 2014? By John Haber

13 Supply Chain Pivot The Final Frontier By Rob Shirley

22 Investment in Pack Station 28 Examining Your Automation Pays Off

It may seem daunting, but tackling this project could be the best thing you do. By Ed Romaine

Transportation Operations: Visibility Equals Profitability By Larry Lewis

Departments 06 Editor’s Note

Take Your Supply Chain by the Horns! By Amanda Armendariz

07 Going Global 32 It’s Time to Review Parcel

Price Increases — And Plan Ahead to Protect Your Bottom Line By Jim Berluti

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SEPTEMBER-OCTOBER 2014 | www.PARCELindustry.com

Exporting to Canada and Duty Management By Tom Stanton

14 Regional Alternatives Competition Is Key By Mark Magill

36 PARCEL Counsel

The Five Most Important Things to Know About the Laws Governing the Supply Chain: Part I By Brent Wm. Primus, JD

38 Wrap Up

Jack Be Nimble, Jack Be Quick! By Michael J. Ryan

Application Articles 15 Stamps.com

A Monumental Shift in Ground Shipping

26 Green Mountain Consulting Tactical Excellence + Strategic Insight


PARCEL president chad griepentrog publisher marll thiede editor amanda armendariz

[ amanda.c@rbpub.com ]

Audience Development Manager rachel chapman [ rachel@rbpub.com ]

marketing cierra bauer creative director kelli cooke advertising ken waddell

[608-442-5064 ] [ ken.w@rbpub.com ]

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

2901 International Lane Madison WI 53704-3128 p: 608-241-8777 f: 608-241-8666 www.PARCELindustry.com

PARCEL (ISSN 1081-4035) is published 6 times a year by RB Publishing Inc. All material in this magazine is copyrighted 2014 Š by RB Publishing Inc. All rights reserved. Nothing may be reproduced in whole or in part without written permission from the publisher. Any correspondence sent to PARCEL, RB Publishing Inc. or its staff becomes the property of RB Publishing, Inc. The articles in this magazine represent the views of the authors and not those of RB Publishing Inc. or PARCEL. RB Publishing Inc. and/or PARCEL expressly disclaim any liability for the products or services sold or otherwise endorsed by advertisers or authors included in this magazine. SUBSCRIPTIONS: Free to qualified recipients: $12 per year to all others in the United States. Subscription rate for Canada or Mexico is $35 for one year and for elsewhere outside of the United States is $55. Back-issue rate is $5. Send subscriptions or change of address to: PARCEL, P.O. Box 259098 Madison WI 53725-9098 Allow six weeks for new subscriptions or address changes. REPRINTS: For high-quality reprints, please contact our exclusive reprint provider, ReprintPros, 949.702.5390, www. ReprintPros.com. SEPTEMBER-OCTOBER 2014 | www.PARCELindustry.com

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EDITOR’S NOTE BY AMANDA ARMENDARIZ

Take Your Supply Chain by the Horns! he theme of this year’s PARCEL Forum (held, appropriately enough, in Dallas, Texas) is “Take Your Small Package Supply Chain by the Horns!” Now, the clever play on words aside, this theme epitomizes the attitude that all shippers need to take when it comes to their operations. I know, I know; easier said than done. Too often, professionals (in all industries) adopt a more laissez-faire approach to their organizations; after all, it’s easier to just go with the current flow rather than actively seeking out the areas in your operation that could benefit from change, right? But it’s those people who purposefully seek out solutions to as-yet-unrealized problems that are the leaders and innovators. Take the upcoming DIM weight change, for example. It would be simple to say, “I’ll worry about it when I see the first billing statement next year.” But for those of you who “take things by the horns” as we’re saying at the PARCEL Forum, this is a chance to really examine your processes and look for ways to stay one step ahead of the changes. Whether that means you use more efficient packaging, or diversify your carrier portfolio, now is the time to plan so you’re not taken by surprise in January. We’ll be discussing this topic, and many others, at this year’s show. Collaborating with your peers is one of the best ways to stay ahead of the ever-changing parcel game, so even if you weren’t able to attend this year’s show, we hope to see you next year. After all, things in the parcel industry never stay stagnant, so we look forward to seeing you “take things by the horns” in the future! As always, thanks for reading PARCEL.

Are you signed up for our e-newsletter? If not, what are you waiting for? As of press time, these were some of our most popular articles from recent e-newsletters: • The Last Mile: Cost Effective Measures for the Last Leg of the Supply Chain • Getting Ahead of the Holiday Shipping Surge • Supply Chain Mitigation Risks Lacking To get great articles like these emailed to you on a monthly basis, just scan the QR code above, or go to www.PARCELindustry.com and click on the “Newsletter” tab a the top of the page.

Thursday’s Tip

Have you signed up for our Thursday’s Tip feature yet? If not, you’re missing out on some great information emailed to you every week! Don’t worry, we know you’re busy, so these tips are brief and easy to read — but yet much-needed information for any transportation professional! All you need to do is sign up for our e-newsletter and you’ll get this information emailed to you every Thursday of the month.

CONNECT WITH US Like us PARCEL FOLLOW @ PARCELmedia Join PARCEL Magazine Group 6

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GOING GLOBAL BY TOM STANTON

Exporting to Canada and Duty Management or many US companies, manufacturing products in Asia is the most cost-effective method. Goods manufactured in China, Indonesia, Vietnam and elsewhere are imported in ocean containers. These goods are then moved to a distribution center, and are either shipped to individual retail outlets or sold online. Today, more and more shoppers are buying online in the US, Canada and Europe. As a result, more shipments are moving to consumers in smaller quantities both at home and abroad. Many items originally imported into the US with duty paid are then re-exported. In some cases, the duties paid on these imported items can be significant.

ditional duty of 18% plus 5% goods and services tax (GST) is also applied. Therefore, if the sales price online is $20 per shirt, the importer into Canada pays 18% of $20, or $3.60, in duty and a GST calculated at 5% of 20+3.60, or $1.18. (This example assumes the US and Canadian dollar are roughly equivalent. The conversion rate today is $1.09 Canadian dollars for each USD.) So what can shipper/seller do to minimize the duties spent on these items? There are five options:

duty free zone also avoids US duty. Unfortunately, this method does incur handling costs into and out of the zone.

1. NAFTA - If firms can manufacture their garments in the US or Mexico for $12.59 or less, duty free movement between the NAFTA nations allows firms to reduce international freight costs, and also save the Canadian customer 18% on the sales price.

5. DUTY DRAWBACK. The final option is to pay duty on all goods and then track the amount shipped to Canada and the rest of the world and develop a claim for a “same condition drawback.” There are a lot of details to make a drawback program work, but if none of the above options are viable, it is an approach to recover most of the duty paid in the US.

So what can shipper/seller do to minimize the duties spent on these items? There are five options: Let’s take take the case of an importer of men’s man-made fiber shirts. The main portion of the harmonized number for these items is 6205.30. The US duty rate is 29.1 cents per kilogram and 25.9% on the value. (It is worth noting that this compound duty rate composition is more commonly seen in apparel.) If the imported shirts are purchased for $10 each then the duty imported into the US is $2.59 plus 29.1 cents or $2.88, assuming the shirt weighs one kilogram. If this same item is then repacked and sold to Canada, an ad-

2. SEPARATE CANADA SHIPMENTS- Creating a separate, less than container load shipment to a Canadian distribution point also eliminates US duty on goods destined for Canada. Despite the US duty savings of $2.88 per garment however, this method increases shipping cost from two to ten times, depending on how much is shipped direct to the Canadian distribution center.

4. MOVEMENT UNDER BOND- You can devan the container at the pier and mark the Canadian portion of the shipment for movement under bond to Canada, while paying duty on the portion destined for the US. You could also do this type of operation at an FTZ and withdraw for US destined goods for duty payment or export duty free to Canada under bond.

SUMMARY: Movement from Asia to the US and Canada can result in payment of double duties. Five different methods were reviewed to address these duty amounts. No matter which option you choose, there will be costs for handling. But when duty rates approach 20%, it can be worth installing a duty management program.

TOM STANTON, AFMS, LLC, International Analyst can be reached at 503.246.3521 or Tom.stanton@AFMS.com.

3. FOREIGN TRADE ZONE (FTZ). Identifying the Canadian portion of the shipments into the US and moving that quantity into a SEPTEMBER-OCTOBER 2014 | www.PARCELindustry.com

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TRANSPORTATION ABCS BY BRITTANY BEECROFT

FedEx Residential Fees: Ground Residential versus Home Delivery ow many of you just read that title and thought, “What do you mean ‘versus’? The fee isn’t the same?” Not only is it not the same, but also the Ground Residential fee carries a substantially higher cost differential over its Home Delivery counterpart and possible flat rate options. The Ground Residential fee at FedEx is not a hidden cost, but it can easily be a costly oversight during negotiation. For 2014, the listed Home Delivery Residential Fee is $2.90, and Ground Residential is $3.35. In 2013 the former was $2.80 (a 3.6% increase YOY), the latter $3.20 (a 4.7% increase YOY). The more eye opening number is the difference in cost between the Home Delivery fee and Ground Residential charge. At list rate for 2014, a shipper will pay over 15% more when charged the Ground Residential fee versus the Home Delivery Residential fee. We should ask two questions. First, what defines a Ground Residential package and second, is this fee negotiable? FedEx Home Delivery will only accept packages at 70lbs or less. Anything over 70lbs must move in the Ground Commercial network but is still considered a Residential package and subject to all Ground Residential fees — including Delivery Area Surcharge. The 2014 fee for Ground Residential DAS is 64% higher than Ground Commercial ($3.40 and $2.07 respectively) and 19% higher than the Home Delivery cost of $2.85. Residential versus Commercial Delivery locations play a role in the fee designation. FedEx offers a delivery classification ma8

trix to determine if a delivery is Residential or Commercial. A church is considered a Commercial location and, therefore, assesses Commercial fees. A nursing home is Residential, but any package over the 70lbs limit will now move as a Commercial shipment and assess the higher fees. Some classifications come down to business/residence location. A business with a residence at the same location, such as a veterinary office: 1. Will be classified as Commercial if the delivery is to a different building 2. Will be classified as Residential if the delivery is to the same building Can we negotiate this Ground Residential fee? Yes, we can (assuming we are using the networks correctly). Since the package is now moving in the Commercial network, it will not be delivered free of charge on Saturday, as it would have been with Home Delivery. If the shipment doesn’t arrive on Friday, your consignee will need to wait until Monday for the delivery unless other fee inclusive arrangements are made. Can we avoid this Ground Residential fee? If you ship anything Home Delivery over 70lbs, a good rule of thumb is no, you cannot avoid this fee. But you can monitor it. FedEx offers an address validation API called FedEx Address Checker. Part of FedEx Ship Manager, by entering the consignee’s address, city/state, or zip code, Address Checker can:

SEPTEMBER-OCTOBER 2014 | www.PARCELindustry.com

1. Receive monthly updates to its address matches 2. Provide street level address matches 3. Distinguish between business and residential addresses, if an exact match is found

Address Checker is a beneficial tool to better see how FedEx is classifying an address as Commercial or Residential and determine any possible billing errors with the classification. We can also look at Flat Rate shipping. FedEx One Rate offers a competitive rate matrix by Local (Zone 2), Regional (Zones 3-4), and National (5-8/Alaska/ Hawaii) Zones. This rate matrix includes applicable Residential, Delivery Area, and Fuel surcharges. One Rate requires use of the FedEx Express packaging—if you use your own packaging you won’t qualify for One Rate. If we look to shift from a Ground Residential profile to the 2 Day and/or Express Saver Air mode, with the FedEx box at 50lbs or less, we see the following cost comparisons: One Rate rates are effectively your base and net rates (keeping in mind the rates are subject to other charges such as signature fees, insurance, and address corrections). In the above example the two Ground rates are the base service guide rates of $7.30 (5lbs) and $15.55 (50lbs) plus the $3.35 Ground Residential fee. We can see potential savings when considering One Rate over Ground Commercial (the latter undiscounted and not including DAS, fuel, dims, or other charges). Consideration obviously should be given to time in transit versus rates—getting there quicker versus getting there cheaper.

BRITTANY BEECROFT is Director of Parcel Pricing for AFS. In her position, she oversees Parcel Cost Management and RFP processes for the purpose of negotiating and retaining best-in-class client-specific pricing. Brittany also provides training and guidance to sales and the support staff to manage parcel cost reduction and optimization services.


OMNI-CHANNEL STEPS TO SUCCESS BY JIM BARNES

Omni-Channel Inventory Optimization – Strategy is Everything ustomer satisfaction and service are likely key performance indicators for your omni-channel retail organization. As a transportation leader, that means you are helping to ensure the right product reaches the right consumer through the right channel, at the right time and cost — which is, of course, a lot easier said than done. When it comes to optimizing inventory across channels, success starts with the right approach. CONSIDER PERSONNEL FUNCTIONS & STAFFING LEVELS As a retailer, you must define and understand how to leverage inventory throughout your entire supply chain, from where you allocate it and under what predefined rules. For example, will you move more volume using ship from store or ship from your distribution center (DC)? As you build out a ship from store strategy, keep in mind that store operations associates cannot function in the same way as warehouse associates. Store personnel have established duties that extend beyond order fulfillment, not the least of which includes delivering exceptional service to customers who are physically in the store. Thus, store associates cannot be inundated with orders from other channels. Your order management system needs to be flexible enough that you can set (and change) parameters for the maximum number of orders per day dropped to a given store. This limit will vary de-

pending on staffing levels and store operational hours. For example, fewer online orders should be sent for fulfillment from a store during peak in-store traffic days, such as weekends and holidays. Also consider what type of products you are shipping and what days of the week you are willing to ship a certain category. You may strategically decide to refrain from shipping general apparel from the store during the weekends when there is high store volume, but determine that store associates should still pick and fulfill general merchandize or specialty items on clearance. You will need the right order routing and allocation engine to support your strategy. We are seeing most companies developing an 80/20 sourcing model, with 80% of orders being sourced from the DC and 20% from the store. However, this number changes dramatically during the holidays, with far fewer orders being sourced from the store. CONSIDER TYPES OF INVENTORY Inventory accuracy matters. For apparel retailers, in-store fulfillment levels are dramatically lower. Most stores only carry one unit of a given item/size/color. When you factor in average store level inventory accuracy at the UPC level, there is high probability the order fulfillment will fail at the store, known as “failed to fulfill, “even though inventory is allocated with the assumption of complete accuracy at the store. In this instance, first allocate to your DC, then to a single store, with the goal of fulfilling the inventory from one inventory source. This will reduce your transportation expense by preventing order splits. CONSIDER INVENTORY POSITIONING Review demand patterns to best position in-

ventory to meet the needs of your customer. Inventory should be examined by category, store and price. What merchandise is being featured through promotions and where and when is demand anticipated? TRANSPORTATION COST Transportation also factors into inventory allocation. In-store pick up does not increase a retailer’s transportation costs, whereas shipping from store or DC usually will. If merchandise is available at both the DC and the store, which facility is in closer proximity to the customer to reduce shipping costs? If shipping from store is more cost-effective, how do transportation savings weigh against the added labor costs associated with fulfillment from the store? Retailers should also determine guidelines for what happens when an entire order cannot be sourced from a single location. Sourcing from multiple locations means splitting freight, which drives up cost, causing retailers to subsidize added freight costs and lose margin on the sale (or even lose money overall). In these instances, a balanced approach between sourcing inventory from multiple locations across DCs and stores should be used. CONCLUSION Start by asking not only what you need to achieve with your working capital, but also what are the factors most important to your customer — product availability, price, free shipping, or same day delivery? The answer to these questions will inform your strategy and lead you toward the optimal omni-channel fulfillment path for your organization.

JIM BARNES is President & CEO, enVista.

SEPTEMBER-OCTOBER 2014 | www.PARCELindustry.com

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OPERATIONAL EFFICIENCIES BY SUSAN RIDER

DIM Education and Tweaking the Distribution Network he world is ever-changing, and many times, people are unaware of the change until they are smacked on the side of their head with it. For instance, look at the newspaper industry; many newspapers didn’t worry about the Internet. They continued to do what they have always done, and the result was catastrophic to many. Another example impacting the distribution networks of many was when the major retailers declared DSDC (Direct Store Distribution Center). Most all suppliers had to change their design dramatically, from a facility that was designed to ship full case/full pallet to piece picking. The smaller the unit of measure the more cost in labor to pick. Distribution cost started rising, the facilities were having trouble finding people, total chaos set in. Many rushed to find solutions in order picking, some choosing pick to light, voice, carousels and other picking methodologies. The need for WMS software became more evident and that small change was a boom to the material handling industry. Along those lines, what does DIM education have to do with you and why will you have to tweak your network? Will the new DIM rate requirements be the next big thing that sends shock waves through the distribution center world? Certainly it should be studied and considered now instead of waiting until the first quarter of 2015 when you receive a shocking transportation shipping dollar number on your balance sheet. By then, it’s a little late. Plus if what you need to do takes six months to select and implement, that’s many more dollars impacted. 10

This may be another great reason to go to PARCEL Forum this year. The buzz will definitely be about the new DIM weight cost structure change and how it will impact operations and what operations need to do to lower the impact as much as possible. I thought it ironic that this year’s theme (because it’s in Dallas) is “Take Your Package Supply Chain by the Horns.” That’s certainly what you will need to do in order to keep your transportation budget under control. All the carriers will be there along with the packaging, material handling, 3PLs, consultants and many other companies that are quickly and diligently developing solutions.

with pertinent and trending concerns. It’s one of the best kept secrets in the industry. To find out more about attending the conference go to www.PARCELforum.com. Another popular topic is same day delivery. Is this the new normal or is this a trendy thought that won’t ever take off? Much like Y2k! Hear what others in your industry are doing to accomplish this and their thoughts on the topic. With Google getting into the space and trying to go head to head with Amazon (who has had over a year advantage on Google) it should definitely get interesting. With the industry changing at a much faster pace than we have ever seen, it

It is more important than ever to stay abreast of new changes and how they will affect your operation. For those of you that have had your heads in the sand and have been focused on day to day operations, this show is one time that you need to get out and learn the impact of the upcoming change. How many times have you received a package in an oversized box? Those days are probably gone with the industry practice now developing the shipping price based on package volume. The price will be developed by the amount of space a package occupies in relation to its actual weight. If you have three box shipments, will it be better for you to ship one by each carrier? What will that do to your distribution design? How do you do that systematically? If you are shipping parcels, this show is something you must attend every year. The advisory council (end users like you) works tirelessly to develop a program

SEPTEMBER-OCTOBER 2014 | www.PARCELindustry.com

is important to stay abreast of the new changes and how they will affect your operation. Find an association or a conference that gives you the best information for your type of operation. If there are specific topics that you want to hear about or topics that would make your appearance a definite yes, tell the organizers. Every conference I’ve ever attended passed out evaluation forms and unfortunately a lot of people don’t use this as an avenue to get what they want at the next year’s conference. Organizers of these conferences are your personal concierge for information, and the PARCEL Forum is no different!

SUSAN RIDER, Supply Chain Consultant, Executive/ Life Coach can be reached at susanrider@msn.com.


SHIP RIGHT BY CHRISTOPH STEHMANN

2014 Holiday Report: Getting Ahead of the Last-Minute Shipping Surge he 2013 holiday shipping nightmares stemmed from the perfect storm of record-breaking weather, combined with retailer over-promises and carriers taking on more last-minute parcels than they could handle. With e-commerce still on the rise, everyone needs to prepare for the unexpected this year. Carriers have invested tens of millions of dollars to augment their capabilities, but even with expanded capacity, there are only so many packages that can be handled on the day before Christmas. Since they can’t control the weather, leading retailers are focusing on the things they can control — including three strategies that can help ensure a satisfying experience that builds loyalty and boosts revenue, while reducing shipping costs and vulnerabilities. LESS RELIANCE ON LAST-MINUTE SHIPPING By definition, the extent to which you replace parcel shipping with other forms of fulfillment — such as click and collect or ship-from-store — lessens your exposure to carrier delays and gets products to customers faster and more cost-effectively. Beyond these benefits, giving customers greater choice of when and where they receive purchases provides a personalized experience that builds loyalty. Retailers offering in-store pickup have found it to be very popular — consumers like it because it reduces their shipping expense and increases timing certainty,

in some cases providing same-day delivery that online lacks. And by driving customers into stores, these strategies better leverage physical store assets — they grow same store sales by increasing traffic and providing opportunities for add-on and upsell. However, successful execution of local fulfillment requires planning. Retailers need to have a seamless, omni-channel store pick up and ship-from-store capabilities. When each store becomes a mini-warehouse and fulfillment center, it’s critical to have robust inventory and shipping management systems that, ideally, integrate with ordering processing and routing optimization. At the store-level, local staff requires training so they can pick and ship products in a timely manner — and they need to be able to assume these tasks while still handling their direct customer-facing responsibilities. With strong execution, store-level fulfillment can be a win-win. Retailers gain competitive advantage by significantly improving the customer experience while simultaneously increasing sales. In a season that accounts for as much as 40% of annual sales, it’s an opportunity that even mid-size and smaller retailers should not overlook. LASER-LIKE FOCUS ON A FLAWLESS CUSTOMER DELIVERY EXPERIENCE Shipping has become a major part of the shopping experience across all channels. To deliver on the promise of omni-channel retail, you must deliver on backend fulfillment. Regardless of how a customer chooses to buy and ship, the entire experience needs to consistent and seamless. Customer satisfaction is based on meeting or exceeding expectations. When it

comes to shipping, every consumer makes a personal decision that balances cost with receipt timing. Store pickup is popular among consumers because it’s free and very immediate. On the other hand, when a consumer uses a parcel carrier, the cost is always certain, but the timing is often a range. This is why tracking is so important. Giving customers visibility to where their purchase is in the shipment cycle builds confidence and alleviates uncertainty about when it will arrive. Real-time, detailed tracking on each parcel also provides customer service with the information needed to answer shipping-related questions and resolve problems — whether it is in a store, via a call center, online chat, email or text. Your service personnel also benefit by having this information when they’re dealing directly with the carrier on behalf of the customer. You’ll need to integrate tracking information into your channels, inventory, and order management systems, plus you’ll want this data when evaluating carrier performance and negotiating contracts. According to a recent survey that we conducted, 80% of people who purchased a product consider shipping to be an important factor in their overall shopping experience. The profile of shipping performance rises during the holiday season.

CHRISTOPH STEHMANN is President, Ecommerce & Shipping Solutions, Pitney Bowes

Scan here to read the third strategy to stay ahead of the shipping surge!

SEPTEMBER-OCTOBER 2014 | www.PARCELindustry.com

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SPEND PERSPECTIVES BY JOHN HABER

Intermodal Shipping – Friend or Foe During Peak Season 2014? arcel volumes are on the rise as noted in recent earnings reports from the two largest U.S. based parcel carriers, FedEx and UPS. Ecommerce is driving much of this growth and both parcel carriers, along with the USPS, regional parcel carriers and others couriers are looking for the most efficient and cost-advantageous means to transport these growing volumes. Intermodal shipping is one option that parcel carriers are utilizing, helping drive an 8.2% increase in Q2 2014 North American intermodal volume over the same time period in 2013. At the CACH Hub in Chicago, UPS’ largest U.S. Ground Hub, nearly half of the incoming and outgoing volume is moved by rail, with the other half transported by trucks (these percentages can fluctuate depending on service levels, capacity, etc.). UPS relies on the major U.S. Class I railroads — BNSF Railway Co., CN, CSX Transportation, Norfolk Southern Railway and Union Pacific Railroad as critical spokes in its distribution network. In many cases UPS will try to use rail if a shipment is traveling 400 or more miles. FedEx also utilizes the major railroads. Back in 2011, the company expanded the use of rail through its revamped FedEx Freight offerings noting Norfolk Southern as its preferred eastern rail carrier. At that time, the company noted intermodal represented about 10.0%-12.0% of FedEx Freight’s total line-haul mileage. FedEx Trade Networks is also a heavy user of the rails and has recently publicly commented that they are monitoring the US West Cost 12

longshore labor negotiations very closely to protect their customers. Clearly, the use of intermodal has greatly increased for many shippers. According to the Association of American Railroads, 2013 U.S. rail intermodal volume totaled a record 12.8 million containers and trailers, up 4.6% or 564,276 units over 2012. Much of this increase was due to the railroads catching up on cargo backlogged during a rough winter, an acceleration of imports through the U.S. West Coast and steady domestic intermodal growth. In fact, this “catch-up” and increase in demand is now having a negative effect on railroad operations. A shortage of trains, tracks and rail workers are producing sporadic supply chain disruptions for a number of industries. UPS commented on its Q2 2014 earnings call that “very poor” railroad performance resulted in it utilizing a secondary operating plan which in turn, increased its purchased transportation expense. This deterioration of service has many shippers concerned that the major railroads won’t be able to handle the peak shipping season in advance of the winter holidays. On average, the major railroads plan to re-invest 18% to 20% of 2014 revenues on new terminals, tracks, sidings and equipment to help boost capacity and efficiency. However, shippers maintain that spending has not been sufficient to meet demand, especially in inclement weather. Also, many investment projects are multi-year improvements that cannot quickly fix capacity issues. This situation may be further exacerbated as distribution centers and manufacturing plants are increasingly being built around U.S. intermodal terminals. According to CenterPoint and The Boyd

SEPTEMBER-OCTOBER 2014 | www.PARCELindustry.com

Company, estimates now forecast as many as one third of all new U.S. distribution centers are located near an intermodal rail terminal. Both companies also note the pressure on retailers to provide next-day or even same-day delivery to end customers is driving them to seek industrial space near intermodal terminals. The railroads are also struggling to keep pace with growing demand for intermodal services as well as transporting higher volumes of industry goods for agricultural, oil, and gas. Shippers that rely on rail intermodal need to be prepared for potential disruptions as rail capacity is expected to tighten through the last half of 2014. This combined with the uncertainty of the West Coast ports labor situation has created a very challenging intermodal environment for 2014 peak season. For retail shippers, drop shipping may be an option worth exploring. This fulfillment solution is one in which goods are shipped directly from a wholesaler or supplier to the customer. Other options include using a pure trucking network or even upgrading to air shipments for critical items — however these options are generally more expensive. One thing is certain — shippers should be closely monitoring the service levels of their carriers across all modes on a daily basis as we move into peak season 2014. Careful contingency planning and pro-active measurement of carrier service levels are critical for a successful peak.

JOHN HABER is an expert in shipping, freight and transportation spend management. In his current role he provides the vision, and the execution know-how, that helps companies save 10% to 20% or more in logistics spend. Contact him at jhaber@spendmanagementexperts.com.


SUPPLY CHAIN PIVOT BY ROB SHIRLEY

The Final Frontier ast summer, PARCEL published an article I penned called Space. Expansion of what could easily become the world’s biggest industry with brand new boundaries, apparently plenty of capital, vision that is outer space and creativity in abundance is accelerating. Virgin Galactic continues to expand its SpacePort in New Mexico and is manufacturing passenger space craft in Southern California. You can actually book a flight on their website (www.VirginGalactic.com) as they report 530 other people have already done. Richard Branson is their CEO and is no virgin at being a successful entrepreneur with a multitude of Virgin brands. SpaceX just committed to build in Brownsville, TX. Elon Musk is also a serial entrepreneur with Paypal and Tesla as mega brands to back him up. FedEx has opened FedEx Space Solutions to design, customize and sell commercial applications of moving product into space. I will presume they will also move product from space back to earth and of course product from one space location to another. How far away could one planet to another be? Richard Garriott lives not too far from me in Austin. His father was an astronaut, but he didn’t qualify because of his vision. To compensate, he became a very successful video game developer. He then reportedly paid Russia $35 million to be a cosmonaut on their Soyuz TMA flight to the international space station. There truly is more than one way to reach an objective. He also has a planetarium on his roof.

To put this into plain American: The race is on, it is going to last for a very long time, fortunes will be made and you are part of it. As you absorb this, consider the five modes of transportation: air, water, land, rail and pipeline. Isn’t space a completely new mode since there is no air out there? I humbly suggest we call this mode Space. According to science, primarily based on Albert Einstein’s Theory of Relativity, it will take light years to get to other solar systems. Someone needs to get busy inventing just how we are going to move some freight at the speed of light. This will definitely mean we will have yet another mode of transportation to feed the ever speed-hungry supply chain. Perhaps we should call it Light. I can’t wait to see the rate tables. UPS’ adobe download is currently 146 pages with some very fine print. I don’t think they offer much water, rail or pipeline or any space or light pricing. P.S. I want you to know it was hard not to include my name in these new modes, but I held back because I am just reporting this to you, not discov-

ering or actually inventing anything. I did change my byline below to say galactical. It is also kind of interesting to note that Microsoft word did not initially accept spaceport or galactical until I ordered it to do so. It is always nice to be a little bit ahead of Bill Gates; I am sure you will agree.

ROB SHIRLEY is CEO of ExpresShip, a strategic consultancy in the galactical supply chain. Contact him: rsxpship@gmail.com or visit www.xpship.com

SEPTEMBER-OCTOBER 2014 | www.PARCELindustry.com

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REGIONAL ALTERNATIVES BY MARK MAGILL

Competition Is Key f you’re not convinced there are dangers posed by the lack of competition in the US small parcel market, please read the transcript from FedEx’s earnings call on March 19, 2014. Near the end of the call FedEx stated that the 2013 peak season debacle was caused more by its customers’ behavior than by the severe winter storms and lack of preparation by the national carriers. And despite the repeated pummeling UPS received in the media, it stated right after peak season that it would not be increasing its capacity for 2014. UPS actually bragged how it decided not to have its drivers work on Christmas. (UPS wisely changed its tune and in July declared 2014 “the year of investing for the customer.”) FedEx and UPS are both world class companies offering first class service, yet only in an atmosphere lacking in competition could they make public statements like the ones above. I could not imagine a regional parcel carrier criticizing its own customers or crowing how they favored their employees at the expense of the companies that pay their bills. This column is called Regional Alternatives for a reason: because you do need alternatives to the national carrier duopoly. The two examples above are merely words so allow me to give you some concrete examples regarding how limited competition can hurt the consumer (you). In just the last six weeks I was told of three companies where a national carrier threatened to immediately raise their shipping charges to full tariff rates if they diverted any shipments to a compet14

itor. The companies in question are not small volume shippers. Rather, they are very high volume shippers whose names you would recognize. That is certainly a strong arm tactic and it would not be occurring if DHL/Airborne still served the US domestic marketplace. The good news for two of those three large shippers is that they prepared ahead of time to defend themselves against the threats. The first large shipper simply converted most of their shipments to the other large national carrier. Tip: If you are a large shipper, do employ the services of a third party shipping software provider so a carrier change like the one just mentioned can be accomplished quickly and easily. If you only have the technology provided by the one national carrier you use, you are left at a distinct disadvantage. When the second large shipper was threatened, they told the national carrier that if they followed through on their threat, they would immediately stop using them. The national carrier responded that the other member of the duopoly would never have the capacity to pick up their high volume of packages on such a short notice. But because he had thoroughly prepared in advance, the second shipper countered that he had multiple regional parcel carriers in place to move a large portion of his shipments. He also informed them that he contracted the services of a third party line haul company so he could inject his shipments directly into the hubs of the other national carrier. Result: The threatening carrier ended up losing half their volume when the contract was re-negotiated. Best of all, the shipper reduced his shipping costs and improved his customer experience by providing them with faster Ground delivery than the national carrier was providing.

SEPTEMBER-OCTOBER 2014 | www.PARCELindustry.com

And the third large shipper? Well, for now they are handcuffed into that exclusive contract. Had they instead signed a contract allowing for multiple carriers, they could probably be getting better rates and they could definitely be getting faster Ground time in transit. Tip Number Two: Don’t sign exclusive contracts! You can see more evidence of a lack of competition every time you look at your shipping bill and notice the new accessorial charges added each year. You’ll probably be negatively affected by a lot more of this evidence in January when the new dimensional weight policy goes into effect. Not to mention that the national carriers severely discourage their customers from being educated by the services of third party spend management consultants. So I highly recommend you take proactive measures to protect yourself from a market with limited competition. Don’t sign exclusive contracts and do actively explore what third party shipping software companies have to offer. There are many to choose from at various price points. And as peak season rapidly approaches, reach out to regional parcel carriers. There are only 18 shipping days this peak season and having a well thought out carrier strategy will mitigate the risk to your business and win the loyalty of your customers. And rather than criticize your shipping methods, I trust the regional parcel carriers will welcome the chance to serve you.

MARK MAGILL, Vice President of Business Development, OnTrac, can be reached at mmagill@ontrac.com or 818.482.0844.


APPLICATION ARTICLE

A Monumental Shift in Ground Shipping There’s big news coming from UPS, FedEx and USPS. It’s news that may make you re-evaluate your shipping strategy. As you know, every year the “Big Three” raise their rates. But in the next six months, things will get even more interesting. In early September, the USPS underwent a major rate restructuring especially in the heavier weight package category. In January, FedEx and UPS will not only announce rate changes but also switch to dimensional weight (DIM) pricing on all ground packages. These are monumental shifts in shipping, and may mean that choosing the lowest price carrier could become a lot more difficult.

How will DIM affect pricing? The new DIM pricing for FedEx and UPS will affect many common box sizes used today. For example, let’s look at a 12x12x8 box (1,152 cubic inches.) This common box size will now be billed at a minimum of 7 pounds for UPS Ground with DIM. Using 2014 prices for a package being shipped to Zone 8, that is an increase of $3.54 for a 1-pound package. (UPS rates include a 15% volume discount off UPS Standard List Rates for packages weighing 1-10 lbs. and 20% volume discount for packages weighing 11-20 lbs. A $2.90 residential surcharge and 7.00% fuel surcharge are also included.) A 15-pound package sent to Zone 4 in a 24x12x12 box (3,456 cubic inches) has a current published rate of $12.54 for UPS Ground. With DIM, the cost for shipping that box will be $14.06 since it would be rated as a 21-pound package starting in January. UPS and FedEx Ground will still have lower prices than USPS for packages traveling to Zones 5 to 8 for packages weighing 6 pounds or more.

USPS becomes more competitive at higher weights The U.S. Postal Service has undergone a major rate restructuring that took effect September 7, 2014. This restructuring actually lowered prices on heavier weight items (4 lbs. to 33 lbs. for Zones 1 to 5) for USPS Commercial Plus rates. The new September USPS Priority Mail rates focus on heavyweight items, an area where shippers have not traditionally used Priority Mail. For example, under the proposed rates, a 15-pound package to Zone 4 will now be $7.79, a reduction of over 56% for shippers using Commercial Plus pricing. Overall, Commercial Plus Priority Mail shippers will see rates decrease up to 57% in weights between 4 and 33 pounds and Zones 1-5. Shippers utilizing Regional Rate Box “C” will also see

decreases up to 54% through Zones 1-5. For the critical Q4 shipping period, this will be a great opportunity to save money prior to the peak shipping season, reducing shipping rates on Priority Mail for both Commercial Plus and Commercial Base shippers.

Stamps.com has the technology to help you make the best shipping decisions every time Many lightweight shippers have discovered USPS Priority Mail as their best shipping option. But with all the proposed changes, Priority Mail will now play a larger role in both regional and heavyweight shipments. Stamps.com is ready to help you make the best shipping decisions going forward. Stamps.com has small package experts ready to assist with your distribution analysis to determine which packages make the most sense with each carrier. In addition, Stamps.com’s award-winning Best Rate feature automatically selects the best shipping service based on your specifications including price, delivery speed, zone and package size. You’ll have confidence that every Priority Mail shipment sent is utilizing the best Priority Mail rate available. The Best Rate feature compares zone/weight, Flat Rate, Regional Rate and Cubic rate options. It does all the thinking for you. As you can tell, there’s a big shift happening in the world of shipping. We’re looking forward to seeing how all these new changes will affect the shipping landscape. For you, there’s never been a better time to re-evaluate your shipping strategy. Good luck. We wish you the best peak/holiday shipping season yet! Rodney Small is National Sales Manager at Stamps.com, a leading provider of online postage, shipping software, shipping services and developer solutions for Postal Service customers. He can be reached at 310.429.4069 or solutions@stamps.com.


S R E P P I H S L E 4 C 1 R 0 A 2 P N S I E E K K A A T MIS NUE TO Mow to Fix It! I &H T u N o Y O g C I t ’s C o s t i n What

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hippers, here’s part one of a Top Ten list that’s not at all funny! (Look for part two in the November/December issue). Having met with thousands of parcel shippers over the past 25 years, I’ve compiled a list of recurring mistakes shippers continue to make. And it’s costing shippers big time — into the hundreds of millions annually! The good news is that most fixes are relatively easy, do not require significant capital outlay, are not overly time consuming, and can produce significant operational improvements and cost savings. Sound good? Let’s go! Here are five of the Top Ten mistakes, in order.

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By Rob Martinez

OVER RELYING ON A SINGLE CARRIER Are you still using a single carrier for the majority of your shipping? Many shippers sole source for convenience or to maximize revenue based incentives with carriers like FedEx and UPS. However, you could realize service improvements and cost reduction by adding additional service providers to your carrier mix. The United States Postal Service (USPS), postal consolidators (FedEx SmartPost, UPS SurePost, UPS Mail Innovations, DHL Global Mail, OSM Worldwide, Newgistics, etc.), as well as regional carriers (OnTrac, Eastern Connection, Spee Dee Delivery Service, LaserShip, PITT OHIO, and LSO to name a few) offer multiple shipping solutions and

SEPTEMBER-OCTOBER 2014 | www.PARCELindustry.com

benefits to compliment parcel giants UPS and FedEx. A 2012 Shipware survey on shippers’ usage of regional carriers reveals that less than 30% of volume shippers are using regional parcel carriers. And the vast majority of those companies that do use regionals do so for less than 15% of their overall shipments. The top eight regional parcel carriers cover more than 85% of the U.S. population and specialize in short-haul delivery (typically up to 500 miles). Regional carriers maintain a low cost of operation through their regional focus, direct loading and transportation primarily via truck. With significantly lower operating costs than the “Big Two”, regional carriers are often 10% to 40% less expensive than UPS and FedEx.


Many regional carriers offer discounted pricing through simple contracts that often carry no volume commitments, include better pricing, improved dimensional divisors and far fewer surcharges than FedEx and UPS. Consider the fact that 3 of the top 6 regional carriers don’t tack on surcharges for residential deliveries! Since regionals concentrate operations in a well-defined geographic market, service to that market is often better than what the national carriers provide. As an example, if you have high volumes of packages going to the West Coast, you could truck those shipments to OnTrac’s hub in Reno, NV and achieve 1-2 delivery to major ZIP codes within eight states from the Canadian to Mexican borders. Not only can these companies offer new products, service enhancement and potential cost savings, but also help you gain leverage with the Big Two. Another mistake is to rely solely on the carrier rep to negotiate pricing agreements. If you’re solely relying on your rep

to act as your “advocate” within the carrier pricing departments, you are likely overspending. Shippers need to realize that their need to reduce costs and a rep’s desire to earn higher commissions are conflicting motivations. Carrier reps are compensated, evaluated and promoted in part on their ability to sell your business at the highest margins possible. One of the worst negotiating mistakes a shipper can make is to exclude the non-incumbent carrier from contract discussions. The single best way to reduce costs is to leverage competition. With no threat of losing your business, what is a carrier’s motivation to lower costs? Remember — if your goal is to reduce costs — your best friend during carrier negotiations is often the other carrier. UPS and FedEx are fierce rivals. Use the other carrier as leverage.

NOT MAKING TIME FOR YOUR CARRIER REP Notwithstanding the lessons

learned with Mistake #10 above, of course some shippers make the opposite mistake in not giving their carrier rep the time of day. I’ve heard many carrier reps complain that some customers do not make time for account reviews, which allow the rep to demonstrate additional value, new services and cost savings opportunities. Many shippers only contact the rep when there’s a problem, to resolve a billing issue or address the occasional late or lost shipment. However, shippers can derive tremendous value in scheduling routine meetings with carrier reps. Carrier reps work with many other companies and can help you better manage your spend through best practices, leveraging value-added services and technologies, and integrating additional product offerings like LTL, mail, ocean, warehousing and other carrier services. Reps have access to powerful management and service performance reports. Routine evaluation of these reports can help reduce address correction and other often preventable fees, identify trends,

SEPTEMBER-OCTOBER 2014 | www.PARCELindustry.com

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routing compliance, modal optimization and other opportunities. Moreover, carriers like FedEx and UPS base their pricing on a sophisticated “cost to serve” model that most shippers don’t understand. Want better pricing? Collaborate with your carrier rep, and ask for ideas to lower the cost profile of your business. Areas for exploration include increasing the use of automated tender, pickup consolidation, hub bypass options, package tender and materials improvements to lower claims, minimizing high-cost call centers by through online self-tracking, changes to pick up schedules and delivery routes, packaging optimization to improve truck and aircraft utilization, and dozens of other options. As a best practice, I encourage shippers to meet frequently with the carrier reps —both the incumbent (at least quarterly) as well as non-incumbent (at least annually). Challenge your carriers with ongoing rate improvement initiatives and zone skipping opportunities, and addend your pricing agreement as needed.

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FAILURE TO ROUTE PACKAGES BY LEAST COST/BEST WAY Since carriers provide free shipping systems, why then would anyone consider a third party shipping solution that costs money? While carrier provided automation might be adequate for some shippers, third party automation options should be evaluated periodically to ensure maximum productivity and efficiency. Here are several reasons to explore third party solutions: Integration: Many carrier provided solutions are made up of a collection of PC’s and servers. As shipment volumes and supply chain complexities increase, companies that integrate mission-critical enterprise data and business processes into a centralized platform realize significant performance and efficiency benefits. Integrate carrier networks, brokerage, freight, TMS and 3PL services. Savings: Reduce Transportation Charges as much as 10% through: Least cost routing across multiple carriers and service classes;

SEPTEMBER-OCTOBER 2014 | www.PARCELindustry.com

Upfront address validation to avoid address correction fees; Validation of accessorial charges; Accurate capture of dimension and weight; Upfront capture of total costs for accurate charge backs, and more. Leverage: The carriers provide free automation solutions not only so customers can efficiently use their services, but also as a means to lock them into exclusively using its services. The more integrated the carrier is in company operations, the stronger the lock becomes. The ability to ship with any carrier on a minute’s notice offers significant leverage in negotiations, promotes multi-carrier solutions, and provides a backup plan. Control: Maintain control of your shipping strategy across a global enterprise, and improve customer service with endto-end visibility and shipment notification. Ask yourself the question, what is my “free” system costing me? Then explore alternatives. Most shippers realize rapid return on investment when deploying third party solutions. Leading software providers include ABOL, ADSI, Agile


Network, Cloud 9, CMS GlobalSoft, Descartes, Digital Shipper, Enroute Systems Corp, Harvey Software, Kewill, Logicor, Malvern, MEI Distribution, Oz Development, Pitney Bowes, Precision Software, ProShip, ProcessWeaver, RateLink, ShipJunction, ShipStation, ShipWorks, StarShip, and Varsity Logistics.

FAILURE TO AUDIT WEEKLY PARCEL INVOICES Each year, more than $3 billion in guaranteed service claims are not refunded because claims are never filed. Shippers that take the time to audit invoices can tap into this often overlooked source of cost savings. In addition to late shipments entitled to money-back guarantees, shippers should audit for missing discounts, incorrect fuel surcharges, overcharges, shipments manifested but never shipped, and other erroneous charges common with parcel invoices. Companies unable to audit internally might consider outsourcing to audit firms that specialize in parcel spend manage-

ment. A qualified freight audit firm can produce weekly savings between 1% and 15% of the total weekly parcel invoice.

LACK OF BENCHMARKING Have you been told by your carrier representative that you have the best pricing in the area? That you negotiated discounts and concessions that no one else gets? Is the sales rep telling the truth, or is it just a negotiation line? Of course, not everyone can have the best rates. How can you be certain your rates are truly best-in-class? By benchmarking your program against other shippers. Imagine how your carrier contract negotiations would change if you knew you were getting the worst incentives in the area; or that three quarters of peer companies had negotiated a discount on a surcharge, the same surcharge the carrier rep told you is never discounted. Through rate benchmarking, you gain an understanding what’s truly possible

and how your rate programs compare with others. Most importantly, this information will increase the likelihood of negotiating significant improvements to your carrier agreements. If you can’t benchmark internally, third-party consulting companies can conduct benchmark studies by industry and carrier, as well as by package volume. Stay tuned for numbers five through one in our upcoming issue!

ROB MARTINEZ, DLP is President & CEO of Shipware LLC, an innovative parcel audit and consulting firm that helps volume parcel shippers reduce shipping costs 10%-30%. Rob offers 25 years’ experience negotiating parcel contracts – on both sides of the negotiating table – for some of the most recognizable brands in the world, and is a sought after speaker and industry thought leader. He welcomes questions and comments, and can be reached at 858.879.2020 Ext 114 or rob@shipware.com.

SEPTEMBER-OCTOBER 2014 | www.PARCELindustry.com

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Investment

in Pack Station Automation Pays Off By Ed Romaine Packing is a critical operation in any order fulfillment operation, but, often, it is overlooked as a function that can contribute to the overall success of the enterprise. No matter how efficient the order picking process, inefficient packing can make the money spent on advanced inventory storage and retrieval systems a wasted investment. What can go wrong with packing operations? } Mis-pack — wrong item shipped to customer } Mis-label — item shipped to wrong customer } Damaged item shipped } Wrong sized box or container resulting in shipping damage } Incorrect or missing documentation All of these conditions have a negative influence not only on customer satisfaction, but also on the overall efficiency of the order fulfillment operation. What does it take to improve these systems and make them compatible with order picking and fulfillment systems? How can you optimize the packing process to improve efficiency? An approach to addressing these conditions is through automation. Packing process operations that lend themselves to automation are weighing, labeling, package or carton building, document insertion, and sealing. Automating the packing process can reduce labor costs, reclaim floor space for value-added operations, reduce mis-sorts and incorrect 22

labeling, and improve efficiency and throughput to allow extended order cutoff times. Automating the packing operation also allows distribution centers to reduce seasonal workforce fluctuations while maintaining shipment timetables.

CHOOSING THE RIGHT TIME TO AUTOMATE When is the right time to consider pack station automation? There are formulas based on the number of packages processed per day or per shift, and these are

Outdated packing equipment, inefficient package handling processes and inexperienced or poorly trained staff can significantly reduce order fulfillment efficiency. This situation becomes clear when orders consistently miss carriers’ pick up times. At that point, management has to decide whether to add specific automated equipment or systems, modify processes, improve training, or add personnel. In general, a distribution center should have more order pickers than packers. If the

Automating the weighing and labeling operations can reduce the time and labor requirements for packing, checking, replenishment and rush picking while reducing shipping costs. useful in broadly determining the need for improved pack station efficiency. However, determining the need for automated systems is usually an individual company choice that should be determined when one or more of the following conditions exist: } Outdated equipment and/or processes that create a noticeable packing and shipping bottleneck. } More order packers than order pickers. } Jack-of-All-Trades packers.

SEPTEMBER-OCTOBER 2014 | www.PARCELindustry.com

reverse is the case, the system is back end loaded and is not operating at peak efficiency. Automated systems can reduce manpower requirements and improve efficiency. Jack-of-All-Trades packers, as the name implies, do everything. They unfold boxes, build boxes, transfer inventory, perform quality control checks, handle fragile packages, weigh packages, insert packing slips, documentation and literature, prepare and apply labels, and often hand seal packages. This approach isn’t efficient, even in a small, low volume


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PACKING IS NOT AN END OF LINE OPERATION

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Figure 1 Automation allows for increased efficiencies, which provides a profit.

operation. Automation can make packers more efficient by letting them concentrate on fewer processes, and it can reduce labor requirements at the same time, allowing some packers to be transferred to more value added operations. Simple automation of packing operations can contribute significantly to an improved bottom line. (Figure 1). Generally speaking, in manual facilities, as sales increase the cost per unit increases while profit remains the same. In automated facilities, as sales increase the cost per unit drops, increasing profitability.

Systems are available that can handle a package every second or second and a half, or 20-30 boxes per minute. Automating the weighing and labeling operations can reduce the time and labor requirements for packing, checking, replenishment and rush picking while reducing shipping costs. The Return on Investment (ROI) is very fast, in some cases less than a year.

Even though the packing and shipping operations physically occur at the end of the order picking and fulfillment processes, intelligent pack station design requires that packing and shipping be approached holistically and considered as a fully integrated order picking and fulfillment operation. Start by looking at order flow. How are orders reaching the packing operation, uniformly, or in balanced or unbalanced zones? In most medium to high volume distribution centers, orders generally reach packing in unbalanced zones. If that’s the case, the orders must be buffered or consolidated prior to being released to the packing operation. The faster the order picking speed, the more buffer is required. There are several ways to buffer or consolidate orders. Conveyor systems are by far the most common. Conveyor systems are designed to handle high and medium volumes and offer high velocity. For very high volumes and high veloci-

LOW LYING FRUIT While every operation in the packing process can be automated, the one thing every distribution center should do, if they do nothing else to automate the process, is install in-motion weighing and automated on-demand labeling. Not all orders can be verified by weight, but when more than 50% can be, these systems should be installed. Fully automated, standalone systems are inexpensive and easy to install in virtually any packing line. In operation, orders are validated and verified for accuracy very rapidly. If the order is within the set tolerance, it automatically goes to labeling and shipping. If the weight is outside of the tolerance limit, the order can be visually inspected. SEPTEMBER-OCTOBER 2014 | www.PARCELindustry.com

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ty operation, cross belt and tilt tray systems may be the most appropriate. For low- to medium-volume applications or anyone who has the need to have up to hundreds of orders open at any one time, horizontal carousels or reverse pick to light flow racks may be the answer to buffering and consolidation. Horizontal carousels provide reduced labor, flexible size, modularity, minimum floor space requirements and low acquisition cost, but limited velocity. Flow racks offer high velocity and low installation cost, but require a floor space commitment and more labor. Sortation is another process to consider. Every order is NOT the same. Practically speaking, orders that contain fragile items, large orders, very small orders, one line orders, or heavy items should be handled in the packing operation differently from standard weight and size orders and differently from each other. A sortation system, usually a conveyor, identifies, separates and conveys boxes or totes from the main conveyor line to

a specific station set up to handle a specific type of order. Simple rules set up in the WMS software can intelligently route orders to the proper pack station using a sortation system. This approach to pack station design can result in higher shipping volumes, extended cutoff times and less labor overall.

HANDLING PAPERWORK Automation of document printing and insertion offers another means of improving packing throughput and labor efficiency. The manual placement of order documentation is a labor-intensive operation and one that is subject to error. It’s much better practice to have packers focus on order accuracy than document insertion. An automated printer and inserter can print customized company documents including manifests, invoices, operating instructions, and return information and labels. After printing, documentation for that order can be folded and inserted into the container. Every order is double scanned and verified to ensure that

the correct documents are printed and placed correctly. Automated document insertion can reduce costs and also provide a foundation for profitable third party promotional insertions. Many national brands are looking for ways to reach prospects and packaging inserts are a way to do that. It can become a profit center for your operations.

FITTING BOX TO PRODUCT Right size packaging is an important consideration in streamlining packing operations. Too many carton sizes take up valuable floor space. Some distribution centers use a set number of box sizes, often three to seven sizes. This is a workable approach with a stable inventory and a WMS program that selects the right size for the specific order. Another approach is the use of on-demand packaging systems. On-demand packaging creates right size boxes and cartons as they are needed, reducing corrugated consumption, box and carton storage costs. Shipping costs are also reduced due to the reduced


cubic volume. Product dimensions can be input manually, with a scanner, or through a WMS program. Individual boxes or cartons can be created in just seconds. On-demand packaging also offsets customers’ “too big a box� complaints.

folds carton flaps before tape is applied. A semi-automated machine requires that an operator fold the flaps prior to sealing. As with any of the technology associated with automating the packing operation, the choice of equipment depends entirely upon the goals of the distribution center business plan. Remember that one of the objectives in automating the packing operation is to pay off the investment in automated order picking technology. Intelligent pack station design helps justify the investment in automated storage and retrieval systems. Use intelligent routing, through WMS software, to optimize pack station operation. Design some pack stations for 80% of packing needs, and build other stations for unique needs such as weigh check, fragile items, one line orders, and credit checks. When considering automated pack sta-

A separate sealing operation can also help improve packing throughput and overall system efficiency. A separate sealing operation can also help improve packing throughput and overall system efficiency. Sealing machines are available in uniform or random carton sealing configurations and in fully automatic and semi-automatics models. Uniform machines are purpose designed to seal cartons of one size. Random sealing machines handle cartons of varying sizes. A fully automatic machine

tion equipment, use the following guidelines: } Document and discuss specific automation requirements } Involve operators and technicians in the discussion } Determine labor, space, throughput and other critical requirements, such as sustainability } Conduct risk assessments } Consider flexibility for business growth Using the right pack station automation can result in a very fast ROI based on reductions in labor, space, shipping, re-shipping and material costs.

ED ROMAINE is the CMO-VP Marketing for Integrated Systems Design - ISD, which provides consulting and integration of cost effective automated order picking, packing and shipping systems for warehouses, distribution centers and manufacturers. He can be reached at edromaine@isddd.com, or 215.431.4524. Visit their website at: www.ISDDD.com or https://plus. google.com/+EdRomaine


BO PARC OT EL FO H RUM 22 3

COMPANY PROFILE

Tactical Excellence + Strategic Insight Tactical excellence in our best in class parcel audit and invoice payment services provide the foundation for delivering ongoing strategic insight for our clients through advanced analytics, network optimization, visibility solutions, and strategic project and contract management support. GMC’s business model is to strategically partner with the mega volume parcel shipper (greater than 4 million parcel shipments annually) by becoming an extension of their existing resources, learning their business, and working weekly to deliver value within a sustainable parcel spend management solution. We bring our clients a view of the market, proprietary analytical tools, expertise, and a bandwidth they would not or could not reasonably possess on their own. We charge a fee per shipment for our services and our clients keep 100% of the savings we help them realize. Contact us today by going to our website at www.GreenMountainConsulting. com and clicking on Contact Us. PRODUCTS / SERVICES: Contract Management Support • Reduce Costs / Improve Service • RFP Process Management • Pricing Rationalization / Strength of Contract • Unparalleled Analytics give the complete picture to make the right decision Network Optimization and Analytics • Mode Selection • Contract Analysis • Network Efficiency / Modeling • Waste Identification • Billing Issues • Best Practices • Advanced spend analytics Freight Audit / Payment • Proprietary billing systems re-bill each shipment for an exact audit; storing the correct invoice amount as a foundation for accurate analytics • Automate the freight payables & GL coding processes • Independently measure carrier service • “Closed loop” audit process presents corrected invoice prior to payment CLIENTS INCLUDE: • AT&T • Barnes & Noble • General Motors • Costco • Kohls • Boston Scientific • Toyota • Grainger • Abercrombie & Fitch • Toys R Us • QVC • Bon-Ton • Fanatics • Johnson & Johnson (GMC services 8 of the top 10 pharmaceutical companies)

INDUSTRIES SERVED: Any vertical in which companies have significant parcel spend (greater than $20 Million) TESTIMONIALS: “We originally signed up with GMC back in 2005 because we were having serious reconciliation issues with UPS and FedEx from our provider at the time. We have been very happy with their performance. Our ROI is much higher than we expected and they are extremely knowledgeable company. They do not just process your bill. They will provide insight on how you can reduce spend. They are a great partner with Barnes & Noble as well as our small parcel providers. We highly recommend them.” > VP Logistics - Barnes & Noble “While they are a higher cost provider than their competitor(s), it has been my experience over the 6 years I have been involved in this relationship, that GMC provides the highest quality service to the account, the most accurate and detailed reports, both “canned” and ad hoc, as well as decreasing pricing over time as volume of transactions increase. In addition to the auditing specialty of GMC, I have used their consulting services over a period of time that resulted in $10M+ in savings in a relatively short period of time (< 2 years).” > Sr. Director Logistics - AT&T CONTACTS: Jim Jacobs, Executive Vice President, Chief Marketing Officer – Phone 901.507.9344 Kevin Marshall, Vice President of Business Development, Western Region – Phone: 214.673.5465 Brad Harrison, Vice President of Business Development, Eastern Region – Phone: 901.507.9350


By Larry Lewis

Examining Your Transportation Operations:

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upply chain visibility is a hot trend in many organizations today. The ever-increasing need for visibility is due to the increase in supply chain complexity. There are many issues organizations face including the movement of goods across borders, supply chain security, and several other aspects all worth noting. Forward thinking organizations are capitalizing on technology innovations and deploying visibility and analytical tools in their supply chain to provide more visibility and gain a strategic advantage in the marketplace.

TRANSPORTATION COSTS AND OPERATIONS Spiraling fuel prices, labor shortages, increased competition and reduced inventories have increased transportation costs and reduced profits. As a result, shippers are looking for ways to get better visibility into their overall operations. Organizations need to take a holistic approach and implement the right tools to manage their transportation costs to achieve long-term savings. Shippers need to rethink operations and spend management in order to achieve a complete view of the supply chain. One approach has been to combine system level data into a central repository and apply analytics. Through platform consolidation and the reduction of disparate systems, they are able to improve their data model, metrics, and gain visibility into their spend, which provides the opportunity to better manage their 28

Visibility Equals Profitability transportation operations. In order for this holistic approach to be truly effective, it has to include both operation data along with carrier cost consolidation and invoice aggregation. The logistics industry has evolved dramatically in recent years, and even the industry terms have begun to change. What used to be called a “warehouse” is now known as a “delivery center or node” and is often referred to as a “fulfillment center,” aligning with the emerging trend of omni-channel fulfillment. In the past, it was sufficient just to have visibility into the pallet or case level, but shippers are now faced with the issue of “eaches” or “Single line Orders.” With more controlled or regulated and high-value items such as pharmaceuticals, dual use, and electronics being shipped around the world, shippers are now more accountable than ever and need to know the exact location of each item — down to the individual device. They are expected to provide continuous notifications and alerts to the consumer about where each item is in the delivery lifecycle. In addition to needing visibility into the location of inventory, shippers also need to determine the best mode or method of shipping that inventory, which may now come from a store directly to the consumer, direct from the manufacturer or from a fulfillment center to the purchaser. Omni-channel fulfillment and direct shipping options have created even more factors that need to be

SEPTEMBER-OCTOBER 2014 | www.PARCELindustry.com

taken into consideration and without visibility into all of the data about the various shipping options; it is difficult to make the right decision for the business.

A TRADITIONAL APPROACH TO REDUCE TRANSPORTATION COSTS Traditionally, organizations have taken three different approaches to improve their transportation spend. First, in a single carrier environment they would look to shift modality. The shift in modality (from Next Day to Ground) typically reduced the cost of shipping by increasing the delivery time frames. The second approach was to choose an alternative carrier within their network. Companies began looking for alternate carriers to move goods at a reduced price compared to their incumbent carrier. This multi-carrier approach has proven effective as companies were able to compare costs across different carriers and then make their selection based on time in transit and/or total cost. Lastly, companies would look at the distribution of shipments to determine if they were being shipped from the optimal location, i.e. fulfilment center, store, etc. in attempt to get closer to the customer. This approach was the beginning of the omni-channel fulfillment model and has resulted in the need to better manage the Operation and the total cost of the goods being shipped. Many organizations today are looking closely at their transportation networks


and seeking alternate carriers that can offer the same services at reduced costs. One trend that is continuing to gain momentum is that companies are choosing regional carriers as an alternative to the traditional tier one carriers to provide next day ground services at a significant savings compared to next day air. By adding additional carriers to their existing networks, they are able to look at shifts in modality and select different carriers and services for a lower price and in some cases shorter delivery cycles. Companies are now entertaining a fourth option: direct dispatch or drop ship, where goods are being shipped directly from the manufacturer to the consumer with merge in transit components to complete the fulfillment process. Since not all of the orders or line items are sourced from one supplier, several suppliers or LSPs may be involved to complete a single order.

VISIBILITY EQUALS PROFITABILITY Advancements in technology have created new opportunities for organizations

to make more informed decisions about their shipping operations, in order to improve their bottom line. Visibility into transportation spend provides the information organizations need to choose the right carriers and shipping options. Some organizations believe they have sufficient visibility into their operations. They may look on a weekly basis at an exception management process around cost allocation in order to determine where their resources are going. But, these weekly snapshots only provide a fraction of the information that a real-time visibility solution can. Carrier costs are a major area where organizations often inadvertently overspend. For example, many organizations only look into carrier costs when there is a variance, and they might not be aware of the daily choices that impact their bottom line. A visibility tool can provide data visualizations and even automatic alerts, dashboards and KPIs. This enables the organization to be much more proactive in terms of examining spend, and to therefore be more strategic in carrier se-

lection. Visibility can also provide a competitive advantage when renegotiating rates and terms with carriers. A real-time snapshot of transportation spending can go a long way in helping the organization to adjust its operations. This financial view of the network can then prompt an analysis of spend from an operational level, leading the organization to make adjustments to streamline and save money. Another area in which organizations tend to over-spend is on non-discounted services such as same day couriers and next day early morning shipments. Often, the customer is not available to sign for the item and may actually need to call for pickup. By stepping back and taking a look at their shipping needs, organizations may find that the customer would be just as happy with two-day shipping, which would provide a significant cost savings.

VISIBILITY IN THE REAL WORLD One company decided to turn to a visibility solution to get a better understanding of its transportation operations, which

SEPTEMBER-OCTOBER 2014 | www.PARCELindustry.com

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led to significant savings. It examined trends by ZIP Code to see what regions it was shipping to, and found that many items were being shipped to the same ZIP Code in which the organization was headquartered. By digging into the data a little more, the organization found that it was actually shipping items out of the building and then back in, rather than using the internal mail system. It was able to make a large cost reduction in its overall transportation budget just by eliminating these in-building shipments. By implementing a visibility solution, another global organization found that it was spending $50K a year in address correction fees. Many organizations focus on reducing freight costs (i.e. envelopes and packages), but they do not think to look at miscellaneous or accessorial fees, such as address correction or residential fees. These fees can actually cost 100% more than the total freight charge. An address correction fee, for example, can cost $10 where the total freight charge may be as little as $8-10. A retailer with a bridal registry noticed

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the same issue. Many of its customers moved after getting married and did not update their addresses in the system, leading to recurring fees. The organization worked with its bridal registry department to get more information from customers to address this issue. Visibility into where they were spending unnecessary money armed these organizations with the power to take action. Instead of paying recurring fees, they were able to devote resources into updating incorrect addresses. This behavioral awareness is a substantial benefit to the organization that visibility tools can provide.

VISIBILITY IS GAINING VELOCITY The need for visibility and supply chain analytics is here to stay. In the past, there was a misconception that transportation operations could be managed through ERP, internal cost allocation or by allowing category managers to look for opportunities for optimization within their individual budgets. According to a newly released “2014 MHI Annual Industry

SEPTEMBER-OCTOBER 2014 | www.PARCELindustry.com

Report — Innovations that drive supply chains” study from Deloitte and MHI, the supply chain executives they surveyed recognize the importance of analytics and view it as the top strategic priority for supply chains, with nearly 80% rating it as “very important” or “moderately important.” Most also plan to increase their investments in this area. Organizations both large and small are now taking a more holistic approach to managing their transportation networks and implementing multimodal solutions and visibility tools to tie disparate systems together and provide a single view into all aspects of their supply chain. Visibility extends across the entire organization. By taking a systemic and proactive approach to managing transportation spend, and by making the necessary adjustments within the organization, real cost savings can be achieved.

LARRY LEWIS is Director, Global Transportation and Shipping Product Marketing, Kewill.


By Jim Berluti

T

his is the time of year when the temperature starts to fall and parcel prices are ready to rise, based on the annual hikes announced by UPS and FedEx. Shippers can’t control the new rates set by the industry giants (with an average increase of 4.9%, depending on the type of service), but they can control their logistics budgets — and significantly lower their costs, by as much as 35% — if they start planning cost-cutting measures now. Why is this a good time to review budgets if the new prices won’t go into effect until the beginning of next year? Because it typically takes a few months for shippers to conduct their due diligence and be prepared to make wise choices. This includes reviewing supply chain considerations such as distribution centers located closer to customers, evaluating operations and delivery patterns, sending out RFPs, and evaluating carrier options. It starts with having good data. In general, the greater your shipping volume, the more opportunities to lower your rates. But even small businesses have negotiating power. Overall, companies should consider the advantages of a diversified shipping portfolio, including regional carriers that are more flexible and cost-effective than the nationals. Shippers should question doing business as usual and look for creative delivery alternatives. With this in mind, we offer the following tips to help you cut costs:

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It’s Time to Review Parcel Price Increases— And Plan Ahead to Protect Your Bottom Line ASSESS ASSESSORIAL CHARGES Perhaps the most dramatic way for shippers to reduce expenses is by cutting their accessorial charges, which account for almost 50% of the total billing of UPS and FedEx. While the giants bill customers for over 100 accessorial surcharges and related hidden fees, most regional carriers have fewer than 20 of these additional charges (and lower base rates to begin with). Typical charges above the base delivery rates are for items such as: } Residential deliveries } Wrong addresses } Missing ZIP Codes } Surcharges for certain ZIP Codes } Late payments } Saturday and early-morning deliveries } Missing signatures } Special handling Check which of these charges you can eliminate or negotiate.

GET SMART ABOUT DIM CHANGES As high as the expected base rates will be next year, shippers can expect unwelcome additional charges in the way of new DIM (dimensional) billing, recently announced by FedEx and UPS. These changes apply to the weighing to all shipments, not just large packages, and this is expected to result in the shipping industry’s most dramatic cost increase in the last 15 years.

SEPTEMBER-OCTOBER 2014 | www.PARCELindustry.com

What can shippers do to fight DIM changes? Again, it’s important to be aware of what’s involved and be proactive in mitigating cost increases. For example: } Educate employees so they can determine your DIM weight vs. actual weight and ensure appropriate packaging. } Secure packages of different sizes so employees can choose the proper box for the shipments; strive for smaller and denser packages, as needed. } Meet with alternative carriers and determine projected cost increases upfront. } Negotiate and see if you can grandfather your existing DIM charges.

UNDERSTAND THE YEARLY BASE PRICE INCREASES While UPS and FedEx may quote an “average” price increase of 4.9%, that amount may turn out to be much higher. You need to factor in zone pricing and other tariff considerations before you arrive at an accurate estimate. So make sure you understand the variables and fine print before you sign on the line. Keep in mind that your annual agreement is usually a fixed amount throughout the year, but carriers can tack on additional surcharges for fuel, with prices that frequently fluctuate.

GET GROUNDED If you’re paying for priority air service,


you’re paying a premium, including the high cost of fuel. So consider migrating shipments to ground service, especially for parcels that aren’t particularly time-sensitive and don’t need to be there first thing in the morning. Listen to what your customers tell you about when deliveries really need to arrive. In this light, you need not “over-perform” — and over-pay — for priority vs. deferred ground service. At the same time, you want to ensure the most timely and cost-effective ground deliveries. Consider carriers that guarantee ground deliveries by the end of the next day, something the giants can’t match.

PREPARE FOR NEGOTIATIONS As stated earlier, you need to perform your due diligence so you can exercise your leverage when you negotiate. Among the tips presented here, perhaps your best strategy is to meet with different carriers and compare apples to apples. If your present carrier is UPS, and they know you’re also talking to FedEx and regionals, that should give you a negotiating advantage.

ASK FOR A SHIPPING ANALYSIS Since the stakes are so high, you should take the time to study many complicated variables, and you may need outside consultation to help you navigate this process. Many logistics consultants will provide this service… at a price. At the same time, the more sophisticated regional services will typically do shipping audits for no additional charge. Ask!

CONSIDER OTHER COST-CUTTING MEASURES } Look into automated software to help you calculate correct addresses, etc. } Decipher your carrier’s invoicing and make sure it’s transparent. UPS is notorious for overly complicated invoices. } Use packaging provided by your carrier; this could help you avoid additional dimensional fees. } Consolidate packaging. If you group packages together, you may reduce costs. } Check out multi-year contracts. Overall, the regionals are much more flexible than the giants, whether it’s for DIM or base rates or other customized

solutions such as “over the threshold” deliveries into hospitals, offices, and homes. Also, keep in mind that time is money, and the regionals provide later pickups and earlier deliveries, as well as quality performance that matches or exceeds the nationals. Some things in life, like death, taxes, and weather changes, are givens. But paying higher shipping bills should not be on the “do not touch” list. Now is the time to be proactive, not complacent, in your logistics planning. So plan ahead to ensure your best solutions, lowest costs, and fewest surprises.

JIM BERLUTI is the President and CEO of Eastern Connection, one of the largest regional, small-package overnight carriers on the East Coast. Founded in 1983, Eastern Connection covers over 6,800 ZIP Codes in the Northeast. Services include Next-Day Ground, Priority Overnight, Same-Day, Logistics & Warehousing, Trucking, Medical Logistics, and Expedited Mail. For more information, visit www.easternconnection.com.

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WHAT TO SEE AT THE PARCEL FORUM: PRODUCT SPOTLIGHTS Reduce Order Fulfillment Time by 75%? Yes!

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Looking for ways to improve order throughput without increasing labor costs? You’ll save thousands of man-hours per year with ADSI’s smart, fast Pack-IT/Ship-IT solution. It’s guaranteed to turbo charge your order fulfillment and reduce your freight costs. Call today for a live demo!

Advanced Distribution Solutions Inc. (ADSI) 877.755.2374 marketing@adsionline.com www.adsionline.com

Ship Faster & Save Money Chicago’s largest regional carrier

Package Audits Reduce Your Costs

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Decrease your 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 and graphical reports with minimal fees. Reduce your shipping, administrative and accounting costs. No cost Proof of Concept work! CT Logistics 216.267.2000, ext. 2190 sales@ctlogistics.com www.ctlogistics.com

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United Delivery Service is a regional small parcel carrier providing same day & next day delivery solutions throughout the Midwest. Since 1972 UDS has been helping some of the largest retail, e-commerce and supply companies reduce their shipping costs and provide faster delivery times for their customers. Our proprietary software leads the industry in providing customers with complete visibility to real time package tracking with GPS, EPOD, VPOD and VPOA!

United Delivery Service 630.930.5201 sales@uniteddeliveryservice.com www.uniteddeliveryservice.com

NPI takes parcels to the Xstream

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The Xstream has the ability to sort flats, parcels to different bin destinations such as tubs, sacks and gondolas. With its ergonomic design, the Xstream is perfect for any processing environment. The Xstream has a throughput of up to 30,000 pieces per hour. NPI (Contact Michelle Benker) 214.634.2288 michelle@npisorters.com www.npisorters.com

EVEN MORE PRODUCT SPOTLIGHTS GrayHair Global Address Challenge How do your international addresses match up?

GrayHair, the leader in domestic and international address coding and correction, is offering a Global Challenge to all parcel shippers. This is a limited time offer to test your addresses via our database of over 200 plus countries. We know we will provide you a more accurate and cost effective addressing solution. GrayHair 866.507.9999 GrayHairSoftware.com/Challenge

Free Airsaver Air Pillow Machine! AirSaver provides a convenient, low cost alternative to traditional packaging supplies. Our business model allows us to provide you with a FREE machine with lower monthly spending requirements compared to other providers. By using AirSaver, you can expect to save up to 50% on your void-fill and wrapping supplies. ACM Technologies 800-782-9008 info@airsaverpack.com www.airsaverpack.com


PARCEL COUNSEL BY BRENT WM. PRIMUS, J.D

The 5 Most Important Things to Know about the Laws Governing the Supply Chain: Part I s this issue of PARCEL goes out to the readers, PARCEL Forum 2014 is just a few days away. I will be making a presentation at the Forum entitled, “The Five Most Important Things to Know about the Laws Governing the Supply Chain.” Because these matters are indeed so important, we will also examine them in this column.

THE CRITICAL DIFFERENCES BETWEEN A CARRIER AND AN INTERMEDIARY: By carrier, I mean the asset-based entities that actually transport the freight — trucking companies, railroads, steamship lines, and airlines. By intermediary, I mean companies whose function is to arrange for transportation on behalf of its customers with the carriers. They include truck brokers, ocean freight forwarders, and intermodal marketing companies. One critical distinction between these two categories is that carriers have responsibility for the cargo in their possession and are liable to the cargo owners for any damage, loss and, to a certain extent, delay. On the other hand, intermediaries are not liable for cargo damage. One important exception to this distinction is that an intermediary can assume liability for damage to cargo by contract with its shipper customers. Another exception is that the courts will impose cargo liability upon an intermediary if the intermediary holds itself out to the public, through its advertising or otherwise, so that it would be reasonable for a customer to believe that it was dealing with a carrier, not an intermediary. 36

Another critical distinction between a carrier and an intermediary is that when a shipper customer pays the carrier’s invoice for freight charges, the carrier has indeed been paid. However, payment by a shipper to an intermediary is not payment to the carrier. If the intermediary fails to pay the carrier who actually moved the freight, the shipper faces the problem of having to pay a freight bill that it thought it had already paid. A third category of providers are entities which function both as a carrier and as an intermediary. These include surface freight forwarders, non-vessel operating common carriers (NVOCCs), and air freight forwarders (also referred to as indirect air carriers). From a legal perspective, they are a carrier with respect to the shipper…and a shipper with respect to the carrier. Although they may conduct drayage or other terminal operations, typically they do not actually transport the freight. However, since they are deemed to be carriers, they do have responsibility to their shipper customer for loss and damage to cargo regardless of whether they actually take physical possession of the freight. With respect to freight charges, at least in theory, if a shipper pays one of these entities, they have paid the carrier and are not exposed to the potential of having to pay the actual carrier. I say “in theory,” as these are very tricky concepts to present to a judge who may have little, if any, familiarity with the distinctions we are discussing here.

LIMITATIONS ON A CARRIER’S LIABILITY FOR LOSS OR DAMAGE TO CARGO: Over the centuries a legal concept has developed that carriers are responsible for the goods in their possession…but also that a

SEPTEMBER-OCTOBER 2014 | www.PARCELindustry.com

carrier can limit its liability to a shipper in exchange for a lower rate. In the past, the “default position” was that motor carriers, rail carriers, and domestic air carriers had full liability unless the shipper specifically agreed in writing to a lower limit. However, at the present time, unless the shipper takes affirmative steps to obtain a higher limit of liability, the tariffs and business terms of today’s carriers are written so that the carriers’ liability is limited to a stated amount, e.g., $25 a pound, $15 a pound, or even 50¢ a pound. These limits are set forth in the carriers’ tariffs or can be incorporated into an individually negotiated contract. A different legal pattern prevails in international transportation. Ocean carriers and international air carriers have limits of liability set by international treaties. In the Unites States the Carriage of Goods by Sea Act (COGSA) establishes a limit of liability of $500 per customary shipping unit. For international air carriers, the Warsaw Convention, with its revisions, establishes a limit of liability of 19 Standard Drawing Rights (SDR) per kilo, or approximately $13.21 per pound as of August, 2014. In the next installment of PARCEL Counsel we will examine the three remaining critical topics — i.e., the legal significance of bills of lading, time limits, and the distinction between a carrier’s liability for damage to cargo, cargo liability insurance and cargo insurance.

BRENT WM. PRIMUS, J.D., is the CEO of Primus Law Office, P.A. and the Senior Editor of transportlawtexts, inc. Previous columns, including those of William J. Augello, may be found in the “Content Library” on the PARCEL website (www.PARCELindustry.com). Your questions are welcome at brent@primuslawoffice.com.


WRAP UP BY MICHAEL J. RYAN

Jack Be Nimble, Jack Be Quick! he ecommerce B2C business is expected to reach $1.77 trillion in 2015… WOW! This market is growing at 20%+ per year and putting many challenges on the infrastructure that supports the selling and distribution of products. This is also creating the perfect storm in the parcel industry. I would like to touch on three topics: (1) Is the supply chain industry adapting; (2) How are the parcel providers changing to meet the customers’ delivery needs; and (3) Who is the customer? This is one of the most exciting times in the world of commerce but the market is changing rapidly. It will be the “Jacks” of the world that will be the leaders and survivors. Here are the three areas that will impact the world of ecommerce: IS THE SUPPLY CHAIN INDUSTRY ADAPTING? There has been a flurry of activity in the past five years where companies and 3PLs have changed their focus on building DC Networks and infrastructure that supports the ecommerce world. They can no longer provide effective service from the corner of the building. There has been a vast amount of investment in developing optimized networks, material handling equipment and order processing technology. Some organizations are building dedicated facilities to handle just their ecommerce business, and many are utilizing a 3PL until they can build the volume and scale to support their own network. Many of the major re38

tailers are competing with small e-tailers with minimal operating cost. The shipper and customer can be anywhere in the world… more on this below. HOW ARE THE PARCEL PROVIDERS CHANGING? It is clear that the leaders are adapting to change and planning for the future. One of the biggest changes in 2014 is the USPS rate change for its Priority Mail service. We can truly say that the third competitor has “arrived” in the US…the USPS! It has positioned itself to be the market leader in the residential delivery market, which is where most of the ecommerce traffic is going. In fact, both FedEx and UPS use the USPS for the final mile delivery of their SmartPost and SurePost services. As the USPS builds its residential parcel delivery business, it will get stronger and more effective. It would be remiss of me to not mention Amazon because it has built a infrastructure that is second to none in the ecommerce business today and is well-positioned to offer its own delivery through a private fleet or the utilization of multiple courier companies. The global delivery market is still the wild, wild west. DHL still commands a leading position from their vast global network and international customs expertise. However, there are many different options available that have a global postal element to the delivery equation. The international community is still struggling with the service/cost relationship and the ability to provide tracking information. WHO IS THE CUSTOMER? The ecommerce customer is anyone, anywhere at any time. Have you ever ordered something on the web and wondered if it actually shipped from an actual business

SEPTEMBER-OCTOBER 2014 | www.PARCELindustry.com

or someone’s garage? Most likely, you will never know. If the quoted transit is a little longer, it might be coming from outside the US. On the flipside of this, the etailer does not know you either (some of the larger retailers are gathering more information on you through your buying habits and the ability to handle big data). The challenge for the global ecommerce business is that the consumer (you and me) are changing on a daily basis and are not predictable. This makes it difficult for the etailer to create a close relationship with the buyer. However, a great buying experience will bring that person back but if it is a bad buying experience, the consumer will never come back and will tell 20 of their friends about their experience. Not to mention what they could do in the social media space. The moral of this story is that every customer is king… all order sizes. In summary, we are seeing the infrastructure to support the ecommerce world build capacity and are constantly looking to make improvements to their capabilities. The consumer is ever changing and it is up to all supply chain entities and parcel service providers to “jump over the candlestick” for their customers.

MICHAEL J. RYAN is the Executive Vice President at Pro Star Logistics and has over 25 years’ experience in the parcel industry. He can be reached at 708.224.1498 or michael.ryan@prostar.com.


PARCEL September-October 2014  

PARCEL September-October 2014

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