PARCEL November/December 2016

PARCEL

NOVEMBER-DECEMBER 2016

HOW DOES YOUR SMALL-PACKAGE

www.PARCELindustry.com

OPERATION COMPARE? P.20

A PEEK AT THE UPCOMING FEDEX AND UPS 2017 RATE CHANGES. P.10 IMPLEMENTING YOUR DISTRIBUTION NETWORK PLAN. P.16 STEPPING UP TO THE PLATE: NEGOTIATING THE BEST CONTRACT FOR YOU. P.18

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CONTENTS

NOVEMBER-DECEMBER 2016 | volume 23 | issue 6

Features

Departments 06 Editor’s Note

Finishing the Year on a High Note

By Amanda Armendariz

08 Spend Perspectives

Fulfillment Undergoes a Makeover

By John Haber

10 Supply Chain Success FedEx and UPS Go Their Separate Ways

By Sam Simonson

12 Operational Efficiencies 16 Implementing your Distribution Network Plan: Part Two

In part one of this series, we covered the basics of distribution network planning. Now, we’ll show you the steps to get the ball rolling.

By Kim Brown

Managing Holiday Order Picking

By Susan Rider

14 Ship Right

Ship Like a Pro

By Chris Giles

30 PARCEL Counsel

Back to the Basics: The First Rule of Contracting Revisited

By Brent Wm. Primus, JD

18 Stepping Up to the Plate to Negotiate

There is no one-size-fits-all approach to negotiation, but there are some tactics every shipper should implement.

By Brittany Beecroft

20 2016 Parcel Pricing & Benchmarking Survey

We take a look at the PARCEL Forum participants’ live survey results. How does your organization stack up?

By Rob Martinez

26 PARCEL Forum Wrapup

The 2016 PARCEL Forum in Dallas, TX, was a resounding success. Here’s a peek into the best three days for the logistics industry.

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By Amanda Armendariz

Go back 1 page 4

NOVEMBER-DECEMBER 2016 | www.PARCELindustry.com

PARCEL president chad griepentrog publisher ken waddell editor amanda armendariz [ amanda.c@rbpub.com ]

editorial director allison lloyd [ allison.l@rbpub.com ]

audience development manager rachel chapman [ rachel@rbpub.com ]

marketing cierra bauer creative director kelli cooke advertising ken waddell (o) 608.442.5064 (m) 608.235.2212 [ ken.w@rbpub.com ]

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EDITOR’S NOTE

BY AMANDA ARMENDARIZ

Finishing the Year on a High Note love the sense of optimism that a new year brings. There is something so motivating about a clean slate, a fresh start, a new beginning. As much as I love the Thanksgiving and Christmas season, I always feel a mild sense of impatience as I wait for the calendar to switch from one year to the next. It’s as if my brain is raring to go, thinking, “I have these goals in mind, and I want to get started on them!”

But I truly believe to be successful at your resolutions (whether personal or professional), you need to prepare ahead of time. So often, we think, “I’ll get to [insert resolution here] at XYZ date,” ignoring the fact that what we are doing in the present could be completely contradictory to what we hope to achieve in the new year and, in fact, set us back several steps.

Just as most people would not consciously think, “I have a New Year’s resolution to eat healthier, exercise more, and lose weight in the new year, so I am going to spend November and December eating sweets, drinking cocktails, and sitting on the couch watching Christmas movies because there is no point in getting healthy until January 1, and I want to enjoy my bad habits while I can,” that is, in fact, exactly what many people end up doing (I may have been guilty of this a time or two myself). And by doing so, we start January out at a distinct disadvantage, because not only do we have to initiate these positive steps we planned on, but we also have to undo all the damage we did from our bad habits in November and December.

The same can be said for many small-parcel operations. Don’t wait until January 1 to take those steps to ensure the continued success of your organization. Start implementing these changes now so you can hit the ground running in 2017. Not quite sure how the upcoming FedEx and UPS rate changes and dim divisor changes will affect you? Start auditing your data now, and run an analysis to see what will change in 2017. Feel like you don’t have the best grasp on your DC operations? Go into the warehouse and analyze what you are doing right during this busy season as well as what you could be doing better for future peak seasons. This is the busiest time of year for us all, so while it may be hard to fit into your schedule, it’s definitely worthwhile to see how your DC handles peak volume!

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: • A Closer Look at the Recent FedEx GRI Announcement • How Much Is the FedEx Rate Change REALLY Going to Cost Me? • 4 Ways the Presidential Race Is Like the Small Parcel Market To get great articles like these emailed to you on a regular basis, just scan the QR code above or go to www.PARCELindustry.com/enews.

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.

These are just a couple of examples of items parcel shippers may overlook as they finish up a busy 2016. But if you can make a concerted effort to finish 2016 on a high note, 2017 could be your best year yet.

As always, thanks for staying connected with PARCEL, and happy holidays!

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NOVEMBER-DECEMBER 2016 | www.PARCELindustry.com

SPEND PERSPECTIVES

BY JOHN HABER

Fulfillment Undergoes a Makeover -commerce continues to represent a growing chunk of total US retail sales. Representing an average of eight percent of total US retail sales for the first half of 2016 (compared to 7.1% for the same period in 2015), e-commerce has prompted not only changes in the way retail is performed, it is also changing each component of the supply chain. Demand for faster delivery times has resulted in vast changes in warehousing and fulfillment operations. One area that has seen growth is the demand for warehousing facilities.

LOCATION, LOCATION, LOCATION Logistics hubs similar to the Inland Empire located in California are being replicated in other areas, including the Lehigh Valley area in Pennsylvania; Frankfurt, Germany; and Hangzhou, China. Characteristics of such hubs include proximity to large populations, good transportation infrastructure, and presence of large businesses. Hangzhou, China is a bit different. Home to Alibaba, Hangzhou was the first city in China to receive approval for a cross-border pilot zone specializing in e-commerce. As a result, government officials consider Hongzhou the starting point of the “Internet Silk Road.”

According to Green Street Advisors, e-commerce alone is responsible for 20% of current demand for warehouse space in the US — and these aren’t small facilities. In some instances, they can exceed one million square feet.

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Amazon has led the way, regularly announcing new facilities that are closer to its customers. In fact, Amazon added 18 fulfillment centers in the third quarter of 2016 alone. Retailers and logistics providers, including DHL, FedEx, and UPS, are following in the e-commerce giant’s footsteps as well and have announced similar investments along with expansion plans of existing facilities.

These warehouses and fulfillment operations are different from those that have been around for years. Previous fulfillment business models focused on low-cost labor and real estate in centralized locations within a country.

Instead, these new operations are more focused on automation and are responding to the growing e-commerce influence.

According to real estate property management company Prologis, online retailers require three times the logistics real estate to meet needs such as: } Wider product variety than in-store. } Greater inventory levels. } Individual product picking and larger outbound shipping space requirements. } Increased reverse logistics and returns processing.

AUTOMATING THE FULFILLMENT FACILITY Inside the facilities, equipment updating, the increasing use of robots, and testing of drones, along with augmented reality, are taking place. Earlier this year, DHL completed a pilot test for collaborative au-

NOVEMBER-DECEMBER 2016 | www.PARCELindustry.com

tomated order picking in its warehouse in Germany. The test involved a robot from the French start-up Effidence and is a fully automated trolley that follows pickers through the warehouse and handles most of the physical work. During the test, two robots supported the pickers by carrying the weight and automatically dropping off the orders once fully loaded.

Additionally, DHL has also conducted tests utilizing augmented reality.

Equipped with smart glasses, employees navigate through the warehouse along optimized routes via the glasses’ graphics display, enabling them to find the correct quantity and item. According to the company, the use of augmented reality increased the overall picking efficiency by 25%.

Drones within the warehouse are being tested by a number of companies.

French-based Geodis is testing the use of drones to count and report inventory at

its warehouse near Paris. The test combines the use of a drone with a groundbased robot. The system features indoor geolocation technology that functions autonomously during the hours when the site is closed.

Walmart is also testing this technology. In late 2015, the retailer applied to US regulators for permission to test drones for home delivery, curbside pickup, counting warehouse inventories, and filling and delivering online orders. The remotely controlled drone captures 30 frames per second of products on aisles and alerts the user when product is depleted or incorrectly stocked.

ample, startups such as South Africa’s cloud-based warehouse and logistics provider, Parcel Ninja, utilize technology to manage fulfillment and delivery services.

Shipwire, acquired by Ingram Micro in 2013, is another cloud-based fulfillment and delivery provider. It has warehouses around the world and provides numerous shipping options, pick and pack, labeling, and returns management.

In addition, Flexe offers on-demand warehousing. Describing the service as “pop-up fulfillment,” Flexe notes that such a solution can be useful during promotional or peak periods when sales volumes peak, putting strain on existing infrastructure.

THE STARTUPS Just a few years ago, a retailer had only a few options when it came to fulfillment.

Either do it themselves or outsource to a 3PL or to a niche player. Today, there are many alternative solutions. For ex-

FULFILLMENT BY ONLINE MARKETPLACE Online marketplaces, made popular by such providers like Amazon, eBay, Flipkart, and Alibaba’s Tmall, represent additional options for order fulfillment. These marketplaces allow third-party sellers to

leverage the providers’ warehouse infrastructure, potential shipping discounts, and placement preference on the providers’ websites. Some retailers will use this solution to expand into new markets such as India or China.

NUMEROUS OPTIONS EXIST Warehousing is moving closer and closer to customers as fulfillment services undergo dramatic changes thanks to new technology and the growth of e-commerce. There are many options available to retailers, and like everything else in the supply chain, there is no “one size fits all,” so retailers need to determine the best solutions to meet their needs. ¾

JOHN HABER is the Founder and CEO of Spend Management Experts. Contact John at solutions@ spendmgmt.com.

NOVEMBER-DECEMBER 2016 | www.PARCELindustry.com

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SUPPLY CHAIN SUCCESS

BY SAM SIMPSON

FedEx and UPS Go Their Separate Ways n September 20, FedEx announced its 2017 general rate increase (GRI).

UPS announced its 2017 GRI earlier, on September 1.

FedEx announced a 4.9% average increase for Ground and a 3.9% increase for US Domestic Express, Export, and Import services. UPS announced an average increase of 4.9% for Ground and 4.9% for US Domestic Air services. The FedEx GRI will take effect on January 2, 2017, while the UPS GRI will take effect one week earlier, on December 26, 2016.

CARRIER

AIR INCREASE

UPS

GROUND INCREASE 4.9%

FEDEX

4.9%

3.9%

4.9%

Table 1: Announced Rates

THE RATES Since these GRIs are described by the carriers as an average net, the actual impact to certain service level rates can vary greatly.

Both UPS and FedEx announced a 4.9% average increase for their Ground service; however, the 2017 Ground rates will be different between the two carriers, which is a first in many years. The US domestic air increase for FedEx (3.9%) is one percent less than the UPS Air increase (4.9%).

While the average increase for FedEx is lower, it is very important to consider how these averages are calculated and which services will take the greatest increase.

The UPS increase is broken out by service level and weight breaks in Table 2 10

WEIGHT BREAK GROUND 5.4% 1-5 LBS.

NEXT DAY 4.8%

NEXT SAVER 4.7%

2ND DAY 6.2%

2ND DAY AM 5.8%

3 DAY 6.4%

6-10 LBS.

5.3%

4.8%

4.7%

6.0%

5.5%

6.1%

11-20 LBS.

5.1%

4.7%

4.7%

5.9%

5.4%

5.8%

1-150 LBS.

4.6%

4.7%

4.7%

5.9%

5.3%

5.8%

ZONE 2, 1LB.

5.5%

5.2%

4.7%

6.2%

5.8%

7.0%

Table 2: UPS 2017 Transportation Increase

WEIGHT BREAK GROUND 4.9% 1-5 LBS.

NEXT DAY 3.0%

NEXT SAVER 3.4%

2ND DAY 5.9%

2ND DAY AM 4.8%

3 DAY 3.8%

6-10 LBS.

5.4%

2.7%

3.5%

5.9%

5.0%

3.8%

11-20 LBS.

5.3%

3.4%

4.5%

5.9%

5.2%

3.8%

1-150 LBS.

4.6%

3.2%

4.0%

5.7%

4.9%

3.6%

ZONE 2, 1LB.

4.5%

1.9%

3.2%

5.2%

2.1%

0.0%

Table 3: FedEx 2017 Transportation Increase

to give a better idea where the largest increases will take place. On average, Next Day Air and Next Day Air Saver will take less than the announced increases at 4.7%, while the Ground rates are slightly higher than 4.9%. Meanwhile, 2-Day and 3-Day rates will increase over six percent. Most shippers will utilize the less expensive Air services, thereby causing a greater impact than anticipated by the GRI announcement. It is also noteworthy that the 3-Day, Zone 2, one-pound rate, upon which the minimum charge is based, went up seven percent. As always, minimums have a disproportionate impact on total cost relative to list rates for most shippers.

Table 3 shows how FedEx will follow UPS in the pattern of increases, but not in the amounts. Next Day Air will take the lowest average increase at 3.2%. The largest increase will take place on 2-Day Air, with an overall 5.7% increase. However, 3-Day Air averages are misleading, and the minimum increase of 0% is a

NOVEMBER-DECEMBER 2016 | www.PARCELindustry.com

good indicator of why. Zones 2, 3, and 4 will increase 0% because shippers are aware that Ground service can typically get packages to those zones in two to three days, which means less demand for 3-Day service to those zones. Zones 5 and 6 will increase 7.2%, from one to 50 pounds, and zones 7 and 8 will go up 6.2% for the same weight range.

This demonstrates how a 3.9% average increase can result in a much higher realized increase.

ADDITIONAL CHARGES Both carriers will be implementing changes to their accessorials, surcharges, and rating logic. FedEx, for example, will be changing its Express and Ground DIM divisor from 166 to 139 for all domestic shipments. UPS will be doing the same, except for those domestic air and ground parcels less than one cubic foot.

It is apparent this will equate to a cost increase for shippers without a negotiated DIM divisor.

UPS will also make changes to how and when its Additional Handling Surcharge will be applied. On December 26, 2016, this surcharge will be charged to Air and International packages with the longest side greater than 48 inches (currently 60 inches). UPS will also start applying the Additional Handling Surcharge to SurePost packages on January 8, 2017.

FedEx will be adjusting its Fuel Surcharge percentage on a weekly basis instead of the normal monthly adjustment.

This change will be effective on February 6, 2017. The effect of this change is a mixed bag. While it adds sensitivity to fuel price changes, it is typical for fuel prices to decrease slowly but rise quickly.

Given this pattern, the weekly fuel surcharge adjustment will be a cost increase over the long run for shippers.

Other accessorials/surcharges increased along with the rates. The surcharges do not really have an average increase, but the individual increases vary from zero to 11%. Table 4 outlines the primary accessorial increases and compares the FedEx increases versus UPS. SIMPLIFYING THE COMPLEX INCREASES FedEx and UPS, while different in some ways, followed pretty much identical rules and policies, and in 2016 they had identical rates for most services. 2017 is unique in the way that the two carriers are diverging, not only in transportation rates, but also the DIM factor and fuel surcharge calculation. Analyzing the impact of the carrier GRIs prior to the implementation of the changes is highly recommended, as the realized impact will almost certainly be greater than the announced increases. Moreover, renegotiating contracts just got more complex as the 2017 changes will have major consequences on the total spend. A thorough analysis is a must to measure the true impact of the GRI. ¾

SAM SIMPSON is a Senior Transportation Analyst

at enVista. Sam’s diverse background includes expertise in negotiation, analytics, contracts, and vendor management. His main focus during his career has been generating savings through

ACCESSORIAL SURCHARGE

CARRIER UPS

ADDITIONAL HANDLING FDX UPS ADDRESS CORRECTION FDX COMMERCIAL DELIVERY AREA SURCHARGE

UPS

COMMERCIAL EXTENDED AREA SURCHARGE

UPS

RESIDENTIAL DELIVERY AREA SURCHARGE

UPS

RESIDENTIAL EXTENDED AREA SURCHARGE

UPS

FDX

FDX

FDX

FDX UPS

ADULT SIGNATURE FDX INDIRECT SIGNATURE/ DELIVERY CONFIRMATION

UPS FDX UPS

DIRECT SIGNATURE FDX UPS RESIDENTIAL DELIVERY FDX OVERSIZE/LPS CHANGE UNAUTHORIZED CHARGE

UPS FDX UPS FDX

detailed analytics and process improvements.

Sam’s experience as an analyst and negotiator gives him a unique perspective on opportunities to generate savings and improve processes.

SERVICE

2016 $

2017 $

2017%

Ground Air Ground Air Ground Air Ground Air Ground Air Ground Air Ground Air Ground Air Ground Air Ground Air Ground Air Ground Air Ground Air Ground Air Ground Air Ground Air Ground Air Ground Air Ground Air Ground Air Ground Air Ground Air Ground Air Ground

$10.50 $10.50 $10.50 $10.50 $13.00 $13.00 $13.00 $13.00 $2.30 $2.45 $2.30 $2.45 $2.30 $2.45 $2.30 $2.45 $3.15 $3.70 $3.15 $3.70 $4.00 $4.00 $4.00 $4.00 $5.25 $5.25 $5.25 $5.25 $2.25 $2.25 $4.25 $4.25 $4.25 $4.25 $4.25 $4.25 $3.25 $3.65 $3.25 $3.65 $67.50 $67.50 $67.50 $67.50 $110.00 $110.00 $110.00

$10.85 $10.85 $11.00 $11.00 $13.40 $13.40 $14.00 $14.00 $2.30 $2.45 $2.45 $2.60 $2.40 $2.55 $2.45 $2.60 $3.25 $3.80 $3.35 $3.90 $4.20 $4.20 $4.20 $4.20 $5.50 $5.50 $5.50 $5.50 $2.50 $2.50 $4.50 $4.50 $4.25 $4.25 $4.50 $4.50 $3.40 $4.00 $3.45 $3.85 $70.00 $70.00 $72.50 $72.50 $113.50 $113.50 $115.00

3.3% 3.3% 4.8% 4.8% 3.1% 3.1% 7.7% 7.7% 0.0% 0.0% 6.5% 6.1% 4.3% 4.1% 6.5% 6.1% 3.2% 2.7% 6.3% 5.4% 5.0% 5.0% 5.0% 5.0% 4.8% 4.8% 4.8% 4.8% 11.1% 11.1% 5.9% 5.9% 0.0% 0.0% 5.9% 5.9% 4.6% 9.6% 6.2% 5.5% 3.7% 3.7% 7.4% 7.4% 3.2% 3.2% 4.5%

Table 4: Primary Accessorial Increases NOVEMBER-DECEMBER 2016 | www.PARCELindustry.com

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OPERATIONAL EFFICIENCIES

BY SUSAN RIDER

Managing Holiday Order Picking s the holidays approach and people turn their minds to gift buying, business surges are realized in the distribution center. Many will experience all-time highs, and others will call in a number of temporary employees to handle the extra load. Processes must be in place so temp employees can get up to speed as quickly as possible. Since order picking in most facilities is where all the action is, it is here that the greatest opportunities for improvement can be found.

TRAINING AND ATTITUDE Do you have room for improvement? Usually, the answer is yes. As mentioned earlier, training is often at the top of the list.

When was the last time an overall training program was completed? Do order pickers know why they are doing certain steps? If they don’t, many may find the steps irrelevant and skip the process, thinking there is no harm. A typical distribution center will experience between 50% to 60% turnover rate in this area per year (yes, I know many facilities have much higher rates, while some smaller facilities have much lower, but this is the average). With that kind of high turnover, a training program is instrumental in the success of productivity and accuracy. Plus, with holiday rush periods, temporary help is commonplace.

Some in the order fulfillment world will experience over 50% of their volumes during this period. Training, especially if you have a warehouse management system, pick-tolight, carousels, or any type of automation or software, is critical.

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Another area of improvement is second or third shifts. Often the productivity/accuracy rates are lower on these shifts, and managers seem to be okay with this.

Why? Your team should be productive and accurate whether it’s light or dark.

So work on building that team of supervisors on off shifts.

My favorite area is attitude. Okay, I see you rolling your eyes! But in many facilities I visit, there is this attitude about the order fillers like they are second-class citizens, and that attitude promotes a complacency that is prevalent in the area.

They think no one cares, so why should they bother to do a good job? This is a management issue that many higher-ups don’t even know exists. When was the last time you walked the floor or picked an order? Do you have a recognition or affirmation program? Seriously, do you spend more time catching people doing things right, or do you focus on catching them doing things wrong? Do you know what it costs per error? If you ship short, most will hear about it, but what if you ship too many? On a rental car bus once, I was admiring a business traveler’s roller briefcase. She said, “I ordered it online; it was $250 but they sent me two, so I gave one to my sister.” This, unfortunately, is a common scenario, and many times, the distribution center doesn’t realize it has this problem.

ACCOUNTABILITY When performing an audit in one distribution center that had an abnormally high number of errors, I discovered a surprising issue. Many order fillers could not count. We administered a simple math test, and unfortunately, 30% did not pass. Tracking the errors and having

NOVEMBER-DECEMBER 2016 | www.PARCELindustry.com

accountability is another gold nugget.

In the early days of pick-to-light, it was not uncommon to get at least a 50% increase in productivity. One of the tangible gains was from accountability, which is why labor management systems are so popular. If employees know that you will see everything they have done, they have a different mindset. Whether you have a manual system or an automated system, accountability is a huge key for productivity and accuracy. If you don’t know who picked every order every time, start today with a manual system to accomplish accountability, and down the road, look to an automated system.

Start a Key Performance Indicators (KPI) or benchmarking program; it will pay dividends.

SLOTTING Slotting is another area of opportunity. A great example is the golden zone. Do you need sophisticated slotting software to put your fast movers in the golden zone?

No, a simple spreadsheet and a little management guidance will work fabulously. Review your slotting today. Look for fast movers on the bottom. If you have a fast mover on the bottom of a gravity flow rack and you are making an order picker bend every time they pick it, over a period of a couple of hours, productivity will go down over 10%. Depending on volumes, it could be more. While you’re looking at slotting, don’t forget the guys stocking. If the order filler goes to the slot and has to wait for product, you’ve just created a bottleneck. ¾

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

SHIP RIGHT

BY CHRIS GILES

Ship Like a Pro ealing with ramped up demand at this time of year can be a problem. Shipping volumes from your organization may not be astronomical, but the huge volumes carriers must handle will impact everyone’s service. During this time of year, delivery time frames are actually the critical concern — even more so than cost, which is usually the key issue. To know which carriers are most likely to meet your delivery needs, you have to ship like a pro.

Pro shippers whose high-volume businesses depend on order fulfillment constantly adjust carrier criteria — such as delivery time, cost, tracking capabilities, and customer needs — throughout the year. Office shippers now have to do the exact same thing. The only problem is that while high-volume pro shippers are able to use multicarrier data systems, the cost and complexity of those solutions make them impractical in lower-volume shipping environments.

Unfortunately, manually gathering and analyzing carrier information on delivery time frames, cost, and tracking requires a ton of time. Carriers do have software available to look at their own data, but every carrier’s software is different and so is the way information gets displayed on their individual websites. Ultimately, it’s extremely difficult to make an apples-to-apples performance comparison across the different carriers.

HAPPY HOLIDAYS FROM THE CLOUD! At this time of year, what office shippers need most is a multi-carrier system. For14

tunately, cloud-based solutions are now available that allow office shippers to access and analyze multi-carrier information, providing a single, comprehensive, unified view into all shipping activities with all carriers. And because these new solutions are offered as SaaS (software as a service), there’s no large upfront cost. You simply buy a subscription to the software, and all functions and data reside in the cloud instead of on servers your IT has to support.

This not only saves money, it also creates a more agile, flexible approach since sending can be initiated and managed from virtually anywhere you have internet access.

On a multi-carrier cloud-based system, it doesn’t matter if the criteria for carrier selection change over time. Information is presented the same way for each carrier and service, and this consistent presentation of the data makes it easy to compare how carriers will perform so you can make the right carrier decision. Plus, having a single solution housing all carrier data lets you find the data you need quickly. Without this kind of visibility into delivery time frames, shippers often wind up making the wrong decision for their needs.

BENEFITS ALL YEAR A multi-carrier cloud-based system ensures you’ll accomplish what you need to before the end of the year and start the next year out in great shape. In addition, organizations are finding out these solutions make a big difference throughout the year. Office shipping environments are typically seeing an ever-increasing volume of ad hoc operational shipments — product samples and information packets requested by customers; important documents that need to be delivered in critical time frames; items going out to labs for

NOVEMBER-DECEMBER 2016 | www.PARCELindustry.com

analysis. With a multi-carrier cloud solution, office shippers are able to work as effectively as high-volume operations.

And let’s not forget that customers are expecting, if not demanding, a higher level of delivery service. Blame it on Amazon and a host of other online retailers who have set the bar higher, with one- or two-day delivery time frames at little or no cost. A multi-carrier system will help you meet these expectations.

Yet the holidays can mess up anyone.

Back in 2013, more than one major carrier missed making deliveries promised for Christmas because of the unexpectedly high volume of online purchases.

Carriers have since set up systems that do a better job of handling spikes, but shippers still need to closely monitor their performance at this time of year.

It also pays to check into carrier shipping deadlines. The USPS says that to ensure cards, letters, and packages are delivered within the US by December 25, they need to be mailed by: December 15 for USPS Retail Ground, December 20 for FirstClass Mail, December 21 for Priority Mail, and December 23 for Priority Mail Express.

Deadlines for mailing and shipping to international addresses vary by region and level of service, but some are as early as December 1! Check with USPS and other carrier websites for all deadlines.

And be sure to look into those cloudbased multi-carrier shipping systems. We always talk about pricing, but at this point in the year, timing is key — and the best way to make the right carrier choice is with a single system that looks at all the data. ¾

CHRIS GILES is Vice President, Business Development, Global Product Management, Pitney Bowes.

By Kim Brown

IMPLEMENTING YOUR DISTRIBUTION NETWORK PLAN: PART TWO In part one of this series, we covered the basics of distribution network planning.

Now, we’ll show you the steps to get the ball rolling.

Y

ou have created a distribution network plan that incorporates your “go to market” strategy, inventory and logistics strategies, as well as supports your customers’ expectations. Now what? Some logistics professionals are hesitant to take this next step, fearing the task to be too daunting, but the process doesn’t have to be like that. For the purpose of this article, we will assume the plan is to add new locations and/or reduce or move current location(s). Why would a plan require you to do this? Maybe it is because your customers’ expectations have changed to expecting product sooner, and the plan supports that it is less costly to add a warehouse closer to the customers than it is to ship next day air. Perhaps your analysis suggests that the current locations are not in the right place to reach your current customer base as well as you could be doing. Or maybe the plan reveals that you have more warehouses than you need/can afford. Whatever the reason, if you accept the plan, there are

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a number of steps that you need to do to implement it.

STEP ONE Create a cross-functional team, and develop a budget! All areas of the business need to be represented in this endeavor. Business will be impacted, and everyone needs to be on the same page as to what those impacts are and be prepared for them.

STEP TWO You need to prioritize the order in which you are going to implement your new strategies. Which new location provides you with the most bang for your buck?

Look for the density of customers who will get an improvement on time in transit. This is a key step where the footprint maps of your carriers come into play.

STEP THREE You need to select a new location. You have determined the area that you want to add; now you need to narrow it down to the actual city/location. This is where you can have cities vie for your relocation. In-

NOVEMBER-DECEMBER 2016 | www.PARCELindustry.com

centives can be offered to you, such as workforce training dollars, low interest loans to help you with your move, grants for adding new jobs in the area, etc. One thing to keep in mind is where your carriers are located. A rule of thumb that I use is to stay within a 30-minute circle of where your primary carriers are located to allow for the latest pickup times available. If your primary carrier is a parcel carrier, also make sure that the hub you are going to be located by is one that has all of the sorts! You want to be serviced out of the main hub – not a spoke! Another thing to note is the caliber of the local workforce as well as the availability of enough employees.

STEP FOUR You now need to make the decision between leasing and buying. Look for guidance from your company’s strategy around real estate. Is leasing more preferable than buying/building? The time to open a leased building is typically half the time it takes to build or purchase your own building. A rule of thumb is

that by leasing a new building, you can be up and running within six months.

Purchasing can take up to a year due to additional time on due diligence regarding environmental studies, title research, and closing of the sale. Building your own building can take up to two years depending on the area that you relocate to.

approximately 10% or more of your new workforce be current employees that relocate. Also leave some of the higher-paying leadership type positions available for new hires from the local area so that you can attract new hires that have potential. It allows local employees to see possibilities of advancement.

pancy permit. All the details of opening a new location occur in this step! The website for the city that you are relocating or expanding into is a helpful resource for finding out all you need to do. The landlord should also provide you with information about the local utilities, suppliers, etc. to help you get set up.

Lastly and more importantly — be sure to provide communication to your customers about your new location and how it is going to service them. The key thing they will want to know is when you will be open for business and how it will benefit them! ¾

STEP FIVE STEP SEVEN Let’s say that you have decided to This is where the cross-functional team lease your new facilities. Now that you comes into play. You need to create your have chosen an area, you need to start racking plan, operations plan, office layyour search for available buildings. You out, etc. You will be working with your should engage a local real estate agent landlord on tenant improvements based to work on your behalf. They can provide on your plans. You will be pulling permits a market report to let you know what to get your stuff installed. You need to KIM BROWN is Director of Distribution, Quality Bicycle the going lease rate in the area is, what get a local business license and an occu- Products. She can be reached at kbrown@qbp.com. types of buildings are available, and how quickly buildings are being leased. This can be important, as it indicates whether the area is growing or not as well as how competitive the market is. Nice to know when you are going into negotiations on a building! Some other things to look for: Visit PARCELindustry.com/DistributionNetworkPlanning Height of the buildings – rent is calculated on square footage (not cubic), so if your operation allows for taller racking, you will get more bang for your buck out of real estate to go up instead of out.

Number of dock doors – make sure you plan for growth here.

Size of the office – office rent is more expensive than warehouse rent, so if you can minimize the office area to actual need, you can save on the overall rent.

Length of the lease – what is the going lease length in the area? Typically, the longer the lease, the lower the rent you can negotiate. A good rule of thumb for distribution center leases are for at least three years and sometimes as long as 10. Make sure that you get your return on investment on the startup of the operations within your lease term! Look for expandability within the building that you are leasing — after all, moving is expensive! It is easier and less costly to expand into a new space within the current building. Also make sure your lease allows you an out in case the market turns south as well as an extension in case business stays good or grows! *Go by the areas you are considering at night to get a better sense of the area’s security. This is especially important if your operations are more than one shift.

Miss part one of this series, where we describe what distribution network planning is?

STEP SIX Hire your startup team! It is important to have some of your current employees relocate to the new location if you want to preserve/expand your company culture to this new location. Having current employees relocate also helps you to hit the ground running on operations since they are familiar with how the company operates. It is a good idea to have NOVEMBER-DECEMBER 2016 | www.PARCELindustry.com

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By Brittany Beecroft

STEPPING UP TO THE PLATE TO NEGOTIATE

There is no one-size-fits-all approach to negotiation, but there are some tactics every shipper should implement.

S

mall parcel shippers understand the nature of the General Rate Increase, and they attempt to mitigate the increase accordingly. We can negotiate a solid contract, but if our understanding and visibility of data suffers, so can our expected savings.

Is there a one-size-fits-all approach to negotiation? No. Are there bases every shipper should cover? Absolutely.

FIRST BASE: DATA This is, by far, the most commonly overlooked first step in any Request for Pricing (RFP). How will you reduce costs if you don’t know what drives them? Are you looking at all volume or just outbound shipments? Paying too much for inbound freight has a direct relationship with outbound rates. Is your data “all in cost,” or can you break down freight, fees, and fuel separately to better analyze where improvements need to be made? Is your data even accurate — in other words, is the raw data you pull from the carrier website, once imported into your data warehouse, manipulated incorrectly or incompletely?

Revenue tiers appear on many agree-

18

ments. If you can’t proof-check your data against your invoice, how can you confirm you are hitting your target tier? We need leverage to negotiate. We lose leverage if we don’t know what we shipped, where we shipped, what mode we shipped, and what that shipment cost.

SECOND BASE: SERVICE GUIDE Once we understand our data, we need to understand how to price those shipments. Each year, usually towards the end of the year, each carrier announces the general increase to their service guide rates. We say “general” because the increase announced is not specific to industry or client, but rather overall carrier base. Analyzing your actual increase per weight and zone is highly recommended, whether you do it in-house or through an outside party. What you thought was a 4.9% increase may actually be 13.5% if are you shipping the Express Saver package to Zone 7 (as an example — which underscores again the importance of knowing your data).

But it’s not enough to just know where to find the service guide online and run a quick impact analysis. We need to know

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the details in the service guide, especially around those surcharges.

A case in point is the FedEx Ground Residential surcharge. Not only is it not the same as the Home Delivery fee, but the Ground Residential fee also carries a substantially higher cost differential over its Home Delivery counterpart and possible flat rate options. As shippers, we may see our Ground Commercial rates lower than Home Delivery’s and choose to put everything in the Ground Commercial network, allowing FedEx to then determine commercial versus residential charges. Or we may be accustomed to UPS and one residential fee for Ground, not realizing that with two separate networks at FedEx come two separate residential fees. The Ground Residential fee at FedEx is not a hidden cost, but it can easily be a costly oversight during negotiation.

Can we avoid this Ground Residential fee? If you ship anything Home Delivery over proof-check, 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. As part of FedEx Ship Manager, by entering the consignee’s address, city/

state, or ZIP Code, Address Checker can: 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 THIRD BASE: WEIGHT We know our data. We know the rates applicable to the data. Or do we? If you are looking only at actual weight, and not billed weight, you may be in for a costly surprise.

When considering dimensional impact — and how to offset it — we must first understand how to calculate it. We can go fast and furious and attack the dimensional divisor itself, but few shippers get the divisor waived. Instead of immediately targeting the surcharge, let’s understand what drives it — and how we can reduce it outside of the contract.

To calculate your dim weight — the weight that you will be billed — take the total inches and divide by 166 (for shipments within the US) or 139 (effective January 2, 2017, if you are a FedEx customer shipping within the US). If the dimensional weight is greater than the actual weight, you may be assessed charges based on dim weight, which becomes your billed weight. Simply put, this means that your list rate will increase. Your package may actually weigh eight pounds, but given the box size, it dims to 30 pounds and is now seen as a 30-pound package. This almost quadruples your actual base rate.

You need to negotiate at the 30-pound rate regardless what the actual weight is.

We also want to pack our boxes efficiently. The average e-commerce shipper achieves 60-65% cube utilization on outbound boxes. This means that package has 35-40% of its inner space occupied by fillers or air. Unfortunately, you aren’t paying peanuts to ship those 30-pound foam pieces.

HOME PLATE: RATE CAP A rate cap does essentially as the name implies — caps the maximum rate increase on the list rates. The maximum increase on the rate only applies to base rates and minimums — not additional charges. Why is that important to remember? If you are a hockey stick merchant looking at a

14.8% increase on the Oversize Fee this year, and you negotiated a four percent rate cap, you are still getting hit with the full Oversize increase. If fees are a cost you pass through, you want to be cognizant of what needs to be assessed, or your black line could become red.

If you don’t have an agreement with flat minimums, your work on the cap is not done. You can drill down the list rate to ensure it only took that four percent increase. But you likely have minimum reductions on your contract. If those reductions change from that last time you negotiated, your list rate could be at a four percent increase but your minimum charge increases 14% due to the change in the reduction.

A good takeaway for all shippers — but especially lightweight shippers — is to watch the minimum net charges. You can effectively cap rates by just negotiating a competitive minimum reduction. But if the carrier is more willing to offer the rate cap versus the minimum reduction, be sure the rate cap applies to, and is implemented on, minimum charges as well. Minimums aren’t as small as they sound when they drive your rates up 14% versus the expected four percent.

BULL PEN: CONTRACT LANGUAGE Equally important, although not always the primary focus, is contract verbiage.

One potential pitfall during carrier negotiations is misunderstanding the terms of the deferred incentive.

The deferred incentive, more commonly known as a rebate, is a quarterly incentive program that offers shippers payment as a percentage of net transportation spend.

The incentive is generally structured as a percent back at a certain tier level. Rebates reflect incentive off net transportation spend, less fuel surcharges paid. Generally tiered, the revenue bands are determined by a customer’s weekly average net transportation charges, these charges being based on the 52-week rolling average. The spend excludes surcharges and any applicable accessorials. The incentives are calculated quarterly, and within 30 days after the end of period, UPS sends a check to the customer — if incentive has been earned.

We negotiate spend levels to ensure we achieve incentive, so how wouldn’t we earn the incentive? With the rebate, the culprit can be the minimum. Packages that hit the minimum net package charge will contribute to the deferred rebate revenue tier calculations. However, the minimum language stipulates the rebate amount will not be paid on these packages. The rebate incentive is subject to all applicable minimums in all active agreements.

Addressing the minimum itself can be the best way to mitigate impact. The less volume hitting the minimum equals the more spend contributing to your tiers. ¾

BRITTANY BEECROFT is Regional Sales Vice President at AFMS. She can be reached at 304.374.4739 or brittany.beecroft@afms.com.

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NOVEMBER-DECEMBER 2016 | www.PARCELindustry.com

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2016 PARCEL PRICING & BENCHMARKING SURVEY – LIVE PARCEL FORUM RESULTS UNVEILED

By Rob Martinez We asked the questions, you provided responses. For the fourth consecutive year at the PARCEL Forum, Shipware, LLC conducted a live parcel pricing and benchmarking survey in which 56 shippers responded to survey questions about their parcel usage, carrier preferences, cost reduction strategies, and other valuable benchmarking data. Survey respondents collectively commanded approximately $2 billion in annual parcel spend.

Contracts were not shared, but rather, participating shippers responded anonymously to survey questions based on ranges.

Technology-enabled and totally blinded to avoid confidentiality concerns, the survey was designed to help shippers to better understand how their pricing stacks up with other shippers.

Moreover, all survey responses were cross-tabulated by industry,

company revenues, primary carrier, and annual parcel volume/ spend for more meaningful like-volume correlations.

Why is benchmarking parcel pricing data so critical? Well, the most common challenge I hear from volume parcel shippers is that they don’t know how good – or bad – are the incentives, terms, and structure of their carrier pricing agreements. While no shipper would ever negotiate a contract and knowingly leave money on the table, the reality is that some shippers have clearly done a better job than others when it comes to negotiating the most favorable rates and terms.

Published for the first time to non-survey participants, this article provides survey results on general parcel procurement, general rate increases, strategies to mitigate rising costs, receptivity to US Postal Service parcel products as a complement to the services of the private national carriers, and more.

SURVEY DEMOGRAPHICS Industry

Annual Revenues

While participants included a mix between several industries, the most common sector was retail/wholesale/e-commerce.

Small and large companies alike were represented with annual sales revenues ranging from under $100 million to those businesses that generate revenues greater than $10 billion.

7.4% Retail/wholesale/ e-commerce 3PL/warehousing/ fulfillment Manufacturing Other

Parcel Spend

18.5%

Annual parcel expenditures likewise revealed a balanced mix of shippers of all sizes. Collectively, Shipware estimated survey participants command annual parcel spend of $2 billion.

25.9%

15.7%

27.5%

21.6%

21.6% 13.7%

Parcel spend (~annual net revenue)

20 17.3%

10 0

20

<$100M $100-$500M $500M-$2B $2B-$10B >$10B

48.1%

30

Employer’s size by annual revenues

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11.5% 1.9%

5.8%

<$1M

$12.5M

$2.55M

21.2%

17.3%

15.4% 9.6%

$5-10M

$1020M

$2050M

$50- >$100M 100M

Primary Carrier

Parcel Volume

Predictably, 95.1% of all survey participants named UPS or FedEx as the â&#x20AC;&#x153;primaryâ&#x20AC;? carriers (as defined as more than half of overall volume). Other carriers included USPS and regional carriers, although adoption of carriers outside of FedEx and UPS was not common.

Our primary parcel carrier is:

Annual parcel volume revealed a balanced mix of small, medium, large, and mega shippers, although as expected for the PARCEL Forum audience, half of the survey participants shipped high volumes of more than two million parcels annually.

Parcel shipping volume (~shipments/year)

FedEx | 31.4%

<500K | 13%

FedEx SmartPost | 2% 500K-1M | 18.5%

UPS | 56.9% UPS SurePost or UPS MI | 3.9%

1M-2M | 18.5%

USPS | 5.9%

2M-3M | 13%

Regional carriers | 0% >3M | 37%

Other | 0%

0

10

20

30

40

50

60

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GENERAL PARCEL PROCUREMENT By a margin of 4.5 to one (76.2% to 16.7%, with 7.1% reporting no difference), survey respondents feel carrier negotiations have become harder rather than easier over the years. We followed up by asking those shippers that feel it’s harder than ever to negotiate pricing with the major national carriers to explain their answer. Here’s how they responded (they were able to check all that applied):

100

80

78.1%

However, the most effective rationale for initiating pricing improvements with FedEx and UPS is the variety of changes in the marketplace. These changes include the rise of the USPS as a legitimate third option — especially when comparing Priority Mail to Ground — regional parcel carrier options, package consolidators and parcel select players, and service guide and pricing changes initiated by FedEx and UPS, etc.

81.3%

60

50%

40

We advocate that shippers should create an expectation with carrier reps of ongoing cost reduction. Notable reasons to bring the carriers back to the negotiation table include changes in shipping profile: volume fluctuation, changes in shipping product utilization, zonal distribution shifts, weight/DIM changes, etc. Moreover, changes in FedEx earned discounts thresholds and UPS portfolio tier changes, up or down, are legitimate reasons to make contract changes.

We followed up by asking what changes were made during the most recent negotiations. Respondents were able to check all that applied.

40.6%

20

21.9% Minor language changes | 25%

0

Change revenue thresholds | 56.3%

Few competitors Carriers focused on revenue/margin Commoditized pricing FedEx & UPS have tacit agreement to avoid “price wars” Restrictions on 3PC

Improved discounts | 83.3% Decreased discounts | 8.3% Changes to DIM | 47.9% Changes to accessorial | 75%

Shippers and carriers were busy making pricing changes in 2016.

A full 63.5% negotiated pricing with their primary parcel carrier within the last 12 months. By further correlating actual pricing results mapped to the frequency of negotiations, the data would suggest that those companies having negotiated contracts more recently are in fact driving deeper discounts than those shippers that hadn’t negotiated in more than two years.

Changes to min charge | 33.3% Added rebate | 37.5% Adjustments for GRI | 45.8%

When is the last time you negotiated pricing with your primary parcel 30.8% carrier? < 6 months 6-12 months 1-2 years > 2 years

22

0 21.2%

15.4%

32.7%

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20

40

60

80

100

It is important to note that what’s meaningful for one shipper may not be meaningful for another. It is important to conduct a comprehensive analysis to understand which pricing contract changes will have the most material impact.

When asked to rank the top three ways shippers would change their UPS and FedEx pricing agreements, minimizing surcharges was the highest weighted response (66%), amazingly higher than getting deeper discounts (64%). Shippers would also like to lower minimum charges (50%) and have more favorable DIM factors/thresholds (44.0%).

If could change your UPS or FedEx pricing agreement, how would you?

(Rank top 3) Other | 4% Improved DIM | 44% Lower min charges | 50% Strike confidentiality | 6% Kill early termination | 8% Better payment terms | 8% No revenue based | 32% Fewer surcharges | 66% Improved discounts | 64%

0

10

20

30

40

50

60

70

80

While historically a UPS discounting vehicle (deferred rebates), FedEx is also offering rebates. Called FedEx Earned Discount Override Program, select shippers who receive rebates get monthly, quarterly, or annual rebate checks for meeting negotiated revenue thresholds. Rebates are quickly becoming a popular carrier incentive. Forty-six percent of survey participants now get rebate checks from either UPS or FedEx. There are pros and cons of rebates. In general, we do not advocate rebates. Rebates are one of many forms of carrier retention tools designed to keep shippers locked into using their services only. Plus, the carrier hangs onto your money for a specific time period (in some cases, one full year). Not good for those companies that need working capital. Rather, we prefer to see the carrier give those discounts to shippers upfront, rather than “earn back” dollars through rebating.

Unfortunately for shippers, one-sided contract language, including Early Termination Agreements (ETAs) — essentially, financial penalties for terminating parcel contracts prior to its renewal date — is becoming more common, with more than one-third (39.5%) of shippers reporting their contracts include ETAs. Penalties for “early termination” are typically stated as a fixed percentage, between one to three percent or more of the previous 52-week net charges (63.6%), but can also be a specific dollar amount (36.4%).

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If “yes” to early termination question, what is the stated penalty?

1%(of previous 52 weeks net charges) 2% 2.5% 3% or greater A specific $ amount

18.2% 36.4%

27.3% 9.1%

9.1%

Today’s parcel contracts often (43.2%) have other retentionfocused language, including minimum volume commitments. Like ETAs, minimum commitments carry financial penalties should the shipper’s volume fall below stated commitments.

Carrier retention strategies like rebates, ETAs, minimum commitments, and many others have been extremely effective in UPS’s and FedEx’s ability to maintain long-term customer relationships despite an extremely competitive industry. In fact, nearly three quarters of shippers (73.6%) feel it would be very difficult to switch their primary carriers.

Why is this? There are a variety of reasons.

Carrier systems in place | 47.5% Too integrated | 50% Operational complexity | 55% Service differential | 15% Cost to change too great | 37.5% Customers’ preference | 27.5% Loss of rebates | 32.5% Other cost | 15% Relationship | 32.5%

0

10

20

30

40

50

60

These retention strategies contribute to the fact that the majority (55.8%) of shippers surveyed single source (as defined as 80% or more volume going to a single carrier).

24

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Despite these results, it is surprising that less than half of shippers exclusively (17.4%) or mostly (23.9%) use carrier-provided automation to create shipping labels. The remaining 58.7% mostly or exclusively use manifesting systems that enable greater choice and flexibility in carrier selection.

Carrier-provided automaton to generate shipping labels?

40

31.9% 30

23.9%

20

17.4%

19.6%

10 0

Yes, exclusively Mostly, although we have other systems too Yes, but mostly other systems We only use other systems And shippers are continuing the move to greater flexibility and carrier choice, with nearly three quarters (74%) reporting that they concurrently or plan within the next year to use rate shopping tools for least-cost, best-way package routing between multiple carriers.

Everyone knows that FedEx and UPS offer package delivery by defined and guaranteed transit times or your money back, right?

Yes, but only if you haven’t waived your right to file service claims, which exactly half of our survey audience has done.

For those shippers that haven’t waived their service guarantees, the majority (88.9%) conduct some level of auditing to identify late packages and other invoice credits, while 66.7% outsource the work to professional audit companies. Surprisingly, 11.1% of our PARCEL Forum audience do not audit carrier invoices in any way.

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 more than 25 years’ experience negotiating parcel contracts — on both sides of the negotiating table — for some of the most recognizable brands in the world. He welcomes questions and comments and can be reached at 858.879.2020 ext. 114 or rob@shipware.com.

Want to see even more survey results, so you can continue to see how your operation stacks up to those of your peers? Visit PARCELindustry.com/ 2016Benchmarking for the full results!

PARCEL FORUM 16 WRAP UP The 2016 PARCEL Forum in Dallas, Texas, was a top-notch place for logistics professionals to come together to improve their small-parcel operations. A huge thank you to everyone who made the event what it was!

“Susan [Rider] does a great job leading the tours. Extremely knowledgeable.

I always enjoy the tours arranged

by PARCEL Forum, and it is a unique opportunity to have.”

— Andra Gibson, Project Manager, Logistics Service Solutions, Carhartt

T

he 2016 PARCEL Forum, held in Dallas, was a resounding success. Professionals from a multitude of organizations converged on the Gaylord Texan in an attempt to improve their small parcel operations. The Forum is certainly the ideal place for those with this goal, as the conference sessions covered all aspects related to the small package process, from contract negotiation to packaging and material handling topics to management issues. Not to mention, the networking that happened at this show is nothing short of amazing. The chance to discuss hot topics related to the parcel industry with a group of peers is invaluable.

And speaking of hot topics, there was almost nothing that was discussed as

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much as UPS’s announcement regarding the 2017 GRI, which came a few months earlier than anticipated! Those of us in the logistics industry know to look for that rate increase announcement sometime in November, so the fact that it came out in early September was a surprise to many.

Many conversations revolved around wondering if FedEx would follow suit with its announcement. Not surprisingly, the other member of the Big Two did indeed announce its 2017 GRI, shortly after the Forum. What was shocking, however, was the fact that for the first time in many of our memories, the FedEx announcement did not mirror UPS’s. For 2017, FedEx’s published rates, minimum charges, dimensional divisors — not to mention many surcharges — will all differ from

NOVEMBER-DECEMBER 2016 | www.PARCELindustry.com

UPS. While this was of course not known yet at the Forum, I did have discussions with several attendees in which we speculated whether or not FedEx was going to go off on its own, so to speak, in the matter of next year’s GRI. Obviously, several of these folks I chatted with were correct, so I’d like to tip my hat to them… and potentially get their input the next time I buy a lottery ticket.

OUR GAMBLE PAID OFF This year, we introduced something completely different with our conference sessions — and it paid off big. For the first time ever, traditional conference tracks were eliminated and new, business-focused learning pods were created. These 18 pods were designed to be an enriched

MORE THAN JUST CLASSES…

The PARCEL Forum sessions were top-notch, but we’d be remiss if we implied that was the only reason to attend. We had some fabulous events from, well, pretty much dawn until dusk, and our attendees loved it!

Relaxing southwest-style at Monday night's pool party was the perfect way to end the day.

Monday Morning First-Timers Networking Breakfast This networking breakfast was great for first-timers to find out from their peers, the PARCEL Forum Advisors, how to get the most out of the conference. Board member Gene Holmes of Cintas Corporation hosted the event and gave insight on attending sessions, networking events, and exploring the exhibit hall. He spoke about his first year attending the Forum… and why he keeps returning.

According to Holmes, after his first year of attending our show, he took home so much actionable information that he saved Cintas millions of dollars the next time they negotiated their transportation contracts.

Monday Evening Platinum Party at the Pool Reception What better way to end an eventful day than with a relaxing poolside reception? For those attendees with a Platinum Package, they were able to do just that in true Texas style, with margaritas and southwest-style appetizers flowing as they networked their way through the evening. Sponsored by: Neopost

Networking was the name of the game at Tuesday morning's breakfast.

educational and networking experience, and from the feedback of our attendees, it’s clear we reached that goal. Each learning pod specifically addressed a business issue that transportation, logistics, warehousing, and packaging professionals deal with in their daily professional lives — and provided actionable solutions to overcoming those challenges.

For example, someone who is tasked with managing and reporting on their organization’s logistics data likely spent a good chunk of time in the Data & Benchmarking Learning Pod. The sessions contained therein focused on the top data analyses that get results, an interactive Q&A on pressing transportation issues, and the ever-popular live parcel pricing benchmarking survey (for

Attendees said this year's keynote luncheon speaker was one of our best yet!

The beautiful Riverwalk Cantina was the perfect setting for the opening night reception.

Tuesday Morning Bacon & Eggs with a Side Networking Breakfast One of the main reasons many attendees came to the Forum was the chance to network with fellow logistics professionals. This year’s breakfast featured, as always, a light-hearted icebreaker game that got the conversation flowing! Sponsored by: AFS Tuesday Keynote Luncheon Once the sessions concluded on Tuesday, it was time for our Keynote Luncheon. This year’s speaker was Major General Vincent E. Bole, and he was nothing short of phenomenal. He had the audience captivated as he described the road that led him to his last assignment as Assistant Deputy Chief of Staff, G4, on the Army Staff in the Pentagon, where he oversaw Logistics Operations and Readiness for the 1.1 million soldier force to include the surges into Iraq and Afghanistan. We also announced the winner of the PARCEL Forum Game-Changer of the Year award; a huge congratulations to Cascade Orthopedic!

Look for an article in the January/February issue of PARCEL on their operation and what led our Board to choose them as the winner! Sponsored by: Spend Management Experts Tuesday Evening Grand Reception By far one of the most anticipated events, the Grand Reception has become synonymous with the PARCEL Forum. This year, attendees mingled at the beautiful Riverwalk Cantina as they enjoyed music, drinks, and great food with their peers. Sponsored by: USPS

NOVEMBER-DECEMBER 2016 | www.PARCELindustry.com

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BRAND-NEW LEARNING PODS Negotiating Contracts (day-long workshop) Omni-Channel (half-day workshop with tour) Transportation Law (day-long workshop) DC Tours (day-long workshop) Data & Benchmarking What’s Trending Transportation Systems Peer Exchange DC Efficiencies Senior Stratagems Last-Mile (CLDA pod) 2017 Rate Impact Transportation Planning Warehousing Systems Measuring Performance Alternative Channels Packaging Optimization Same-Day Logistics (CLDA)

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more on those results, see page 20).

Meanwhile, an attendee who deals with more of the operational side of things likely found valuable take-aways in the DC Efficiencies Learning Pod. There, a multitude of talented speakers shared insider knowledge on topics such as eliminating labeling bottlenecks and maximizing throughput; marrying unified commerce design and omni-channel integration; and managing an increase in SKUs and fewer lines or orders.

Naturally, while some attendees gravitated mostly towards the pod that dealt with their specific professional sector and attended mainly those sessions, many other attendees are among the logistics professionals who wear many hats in their small shipment operation. These folks maximized the show's value by "pod-hopping" their way through the conference, picking which specific session spoke to their operational issues.

HIGH PRAISE FOR OUR TOURS There is probably no better way to under-

NOVEMBER-DECEMBER 2016 | www.PARCELindustry.com

stand the heart of the small shipment process than by seeing a working operation, which is why we were so proud of this year’s distribution centers tour. Monday’s attendees were able to tour the DCs of Fossil and Michaels — two very different setups, but both providing valuable insight into the inner workings of a retailer’s DC. Serving North and Latin America, the Fossil’s Retrodome ships out 33 million units of accessories annually, composed of Fossil-brand, proprietary-brand, and licensed-brand product. These accessories are then distributed through more than 400 company-owned stores, department stores, specialty retail, independent distributors, and e-commerce websites. The tour was especially insightful for me because it illustrated so well the challenges that many companies are facing when it comes to the ever-growing world of e-commerce. Our tour guide explained that e-commerce orders make up 17% of orders, but only two percent of units, which can present some unique challenges.

As an example, if we round that 17%

“[I am a] first-time attendee and will be back next year.”

— Katie Pison, Director of Global Logistics, Interstate Batteries up to 20% for the purposes of illustration, here’s what happens: The DC ships out five orders a day, for a total of 100 units. Four of those orders make up 98% of the units. Two orders may have 26 Fossil purses each going to two different Macy’s locations, while two other orders may each have 23 watches going out to Fossil stores. In essence, 98% of units make up 80% of the orders. But then you have that last order, with just two units; perhaps a consumer is ordering two personalized watches, one for her father and one for her husband, for the holidays. So a very small percentage of units makes up a rather substantial 20% of the orders, which requires different order handling than those massive bulk orders being shipped out to retailers, often resulting in increased la-

bor costs due to the specialized handling.

I knew that these challenges were happening, of course, but seeing the real-life example really put into perspective what these DCs are facing on a daily basis.

SEE YOU IN NASHVILLE! If you haven’t already, please take a look

at our September/October issue of PARCEL. It is jam-packed with articles on topics that are relevant to professionals at all points in the small-parcel process — and it gives you a sneak peek into what our attendees experienced this year in Dallas. I know you’ll find it relevant, and if you’re not already a regular attendee of the Forum, we think that issue will change your mind.

We hope to see you next year, September 18-20, in Nashville as we celebrate 15 years of serving the needs of the parcel shipping and logistics professionals.

A HUGE THANK YOU TO OUR PARTNERS

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29

PARCEL COUNSEL

BY BRENT WM. PRIMUS, J.D

Back to Basics: The First Rule of Contracting Revisited any years ago, I heard a story that has stuck with me ever since. It went like this: France surprised everyone in the world of sport judo when the French team won several gold medals in the Olympics, blowing away powerhouse countries such as the USA, Russia, and Japan. When the press asked the French coach what he was planning to do next, he said, “Go home and work on basics.” Please consider: The French team had just beat the world, and now the coach wanted to go back to the basics.

In this installment of PARCEL Counsel, we will be going back to the basics of transportation contracting. When I first formulated rules for contracting, the first rule was, and still is, “Know with Whom You Are Dealing.” At that point in time, I had in mind the factors generally considered as part of a duly diligent inquiry regarding a potential business partner — credit worthiness, reputation in the industry, trade references, and other similar factors.

I previously wrote about the first rule of contracting for the May/June 2009 issue of PARCEL (PARCELindustry.com/Contracting). There, I discussed an additional factor critical in transportation contracting — whether the provider of the services is a carrier and, if so, which type of carrier? Or are they an intermediary and, if so, which type of intermediary?

The reason that this is so critical is that each category of provider has distinct legal characteristics giving rise to distinct rights and obligations with respect to its shipper 30

customers. However, within the last few years, I have realized that there is an even more basic inquiry that needs to be made as a critical first step to the contracting process — determining the name, address, and identifying numbers of the provider.

THE CRITICAL FIRST STEP Accordingly, the crucial first step in contracting is to, at a minimum, gather the following information from the provider: } The exact corporate name including Inc., Corporation, LLC, etc. } Non-lawyer, transportation professionals need to know and understand that ABC Transportation Co. is not the same as ABC Transportation Services, LLC. From a legal standpoint, they are separate and distinct corporate entities — and a contract with one is not at all a contract with the other. } The provider’s primary business address and state of incorporation. } This information should be included in the recitals in the contract and to facilitate Step Two. } The licenses held and identifying numbers for the provider. } Does it hold a federal license as a motor carrier and, if so, what is its MC number and US DOT number? } Or, is it a transportation broker and, if so, what is its MC number and US DOT number? } What licenses will the provider be using to provide the performed services? } Put another way, will they be acting as a motor carrier or transportation broker? } Other possibilities include providing services as a surface freight forwarder or as an indirect air carrier. } For entities that hold multiple li-

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censes, this information is particularly important. If the provider will be providing more than one type of service, the contract terms and conditions certainly need to reflect this.

STEP TWO Once this information is gathered, the second step is at least as critical as the first step: Compare the information received from the provider with the information posted on the FMCSA website Licensing and Insurance page (http://li-public.fmcsa.dot.gov/LIVIEW/pkg_html.prc_limain).

You will be amazed to see how often the information provided is simply wrong: That there is not a match between the company name provided and the MC number provided… or that someone who said they were a carrier only holds a license as a broker… or even getting the provider’s name wrong.

It should be noted that contract templates or forms typically provide spaces for this information to be inserted. However, it has been my observation that this is usually not done until all of the negotiations of the terms and language have been completed and the parties are preparing the final draft for signature… which is far too late in the process.

By the way, our office has developed a two page questionnaire for shippers to submit to a provider as a first step in the contracting process. If you would like a copy of this, just shoot me an email. All for now! ¾

BRENT WM. PRIMUS, J.D., is the CEO of Primus Law Office, P.A. and the Senior Editor of transportlawtexts, inc. Your questions are welcome at brent@primuslawoffice.com.