If there is a silver lining in the rise of fuel, it’s that more and more companies are assessing their use of express shipping. Fuel surcharges exceeding 30% have forced a closer review of selected services. Years of effective advertising has convinced the shipping public that faster is better… with a price. Used wisely, express service is an effective mode of transportation to have in your arsenal. On the other hand, if it is used without discretion, the result will be very costly.
FedEx and UPS are both excellent companies with outstanding service. Their express service is backed by a guarantee (unless you foolishly signed it away for an extra point of incentive), which promises reimbursement of your transportation expense if the shipment does not arrive by the promised date and time. (Note: Effective September 2, 2008, UPS changed its policies on parcel service guarantees and no longer includes the fuel surcharge in its refunds.)
Hopefully, you know by now that many, many express shipments travel in trailers, not airplanes, from origin to destination. Hub sortation and linehaul schedules enable it, and it results in reduced carrier operating expenses. Today it is rare for a shipment traveling 300 miles or fewer to ever see an airplane. These short-haul parcels travel over-the-road in the same trailers used to service ground parcels rather than aboard a high-cost airplane. Yet, when you compare the base rates of ground to express service, the differences are staggering and certainly do not reflect the true operational costs. For example, UPS Next Day Air and Ground Commercial base rates for a zone 2, 10-pound parcel are $25.45 and $5.59, respectively. That’s quite a difference for two parcels that will travel side by side from shipping dock to consignee!
Now let’s consider the same package with the September fuel surcharge (Ground: 10.5%, Express: 34.5%) added to it. UPS Next Day Air and Ground Commercial costs become $35.23 and $6.18, respectively. There is a $29 premium for nothing. That’s the price of poor management.
Many people think that on-time service is quite different between ground and “air” service. The difference is actually quite small. In fact, maybe one percentage point! And even less for the shorter length-of-haul shipments since low zone parcels only go through a single hub (if that). And don’t forget that ground commercial parcels also are guaranteed, and the vast majority are delivered in the morning!
Where do you begin to examine your use of express service? Here are a few guidelines:
• Gather statistics about your shipping characteristics, such as service type, parcel weight, zone and destination ZIP Code.
• Determine who decides which service type is used, particularly for express service. It could be a customer who has a real need for a product, or it could be the shipping clerk that is unaware of the service/cost trade-off.
• Research the coverage of ground overnight service (for example, UPS offers ground time-in-transit map for all origin ZIP Codes on their website, www.ups.com) and use this mode instead of express service. Did you know that 10:30 AM delivery is not offered to most ZIP Codes? Train your staff to ask if it really needs to be there next day by 10:30 AM and what the commitment time is for the ZIP Code in question. It’s a good idea to conduct a small pilot test to give you some confidence before switching over completely.
• For shipments that must be sent via the high- priced express service, start requesting reimbursement for late deliveries. It’s money that’s due you!
• Lastly, monitor your express service utilization on a quarterly basis to ensure your plans are being properly executed.
All logistics networks have at least some need for express service. A well thought out, detailed operating plan defines when, where and how often the service is used. Ensure your operating plan is communicated to the front lines and the people responsible for processing the shipments. Remember that the goal is not to eliminate the use of express service, just to use it wisely.
Joe Loughran is President of SmartTran, Inc. and an expert in small package pricing and carrier rate analysis. SmartTran is a transportation consulting company offering services in carrier rate negotiation, guarantee refund service and logistics planning for 12 years. SmartTran’s management team has over 70 years of executive level experience in package transportation management. Joe can be reached at 724-934-0626 or loughran@smarttran.com.
