Have you heard the expression, “GIGO?”
It used to mean “Garbage In, Garbage Out.” It referred to the problem of incorrectly inputting data and expecting the computer program would “do the right thing.” In our times, GIGO has been refined to mean “Garbage In, Gospel Out.” This refers to our tendency to put excessive trust in computerized data, and the tendency to blindly accept what the computer says. With computerized shipping systems, blindly trusting that to calculate the shipping costs you pay is a serious mistake.
Here is something else to think about: if you are shopping for the best rates, is your shipping system configured correctly to compare apples with apples? Most of the time it is not, and the result is inefficiencies amounting to 25% or more.
Here is what you need to know about making sure your system is rating correctly.
Thirty years ago, it was easy to determine the rate for shipping a package. You would find the zone by looking at a chart and converting your ZIP Code. Then you would weigh your package and look at another chart that would show the cost, which would be at the intersection of the zone and the weight. That was the amount you would pay. If you had a parcel register, you would set that amount and print it out on a tape, similar to the way a postage meter works. That was the exact amount you would be billed. Today, that is the methodology used to compute just the base rate; however, now there are over 25 variables that affect the cost of shipping a parcel, in addition to weight and distance. These variables can double the cost of shipping a package! So, if your shipping system is comparing rates but does not include all the variables, it is costing you money, rather than helping you save.
Let’s look at a few specific examples. With the exception of the U.S. Postal Service, parcel carriers are charging a fuel surcharge that has been as high as 34.5%. This additional charge changes every month. Many shipping systems require the operator to be trained to make the change (and remember to do it). What if that shipping clerk is sick or on vacation? Are you confident your system has the right fuel surcharge?
The vast majority of parcel shippers do not pay standard rates; they have negotiated a discount. Even the USPS offers discounts today. Typically, these discounts are based on 52- week rolling averages, revenue tiers and net minimum charges. Some are based on specific weight and zone brackets. Some carriers offer ramp-up discounts, bonus discounts and rebates. Most shipping systems are programmed with standard rates. Unless you specify that you want your net rates, or have your carrier’s contract programmed, your shipping technology is not providing the rate that you pay. The consequence is that it is making bad decisions.
You need to make sure that your shipping technology is utilizing the rates you are paying. One of the most effective means of accomplishing this is to implement a system that compares what your shipping system computed as the cost (or what you expected to pay) to the actual invoice you receive from the carrier and provides you with reports on any discrepancies. Many shippers use freight-auditing firms to check the accuracy of their carrier invoices, but this does not solve the problem. The majority of shippers charge their customers shipping costs based on the amounts provided by their shipping system, not on the actual invoices from their carriers. You want reports that detail transactions where the expected costs deviate from the actual carrier invoice costs, including address corrections, residential surcharges, delivery area surcharges, dimensional weight charges, duplicate charges, parcels that were manifested but not shipped, unauthorized account usage, and other exceptions. It is like balancing your checkbook; you want to compare what you entered as the amount of a check with the amount the bank deducted.
An additional benefit to a system that reports on exceptions from what you expected to pay, compared to what you actually paid, is the analysis you can perform on your shipping operation. For example, when you are shopping for the best shipping rate, you want to compare delivery times and costs. An analysis can show that you are paying premium prices for second-day service to ZIP Codes the carrier already ships to the next day with ground service, at half the cost. Therefore, you want to make sure your shipping system is comparing all the delivery dates and times from multiple carriers.
Ever since Deep Blue, the IBM chess computer, beat the world chess champion, Gary Kasparov, in 1996, it has been easy to assume that computers are smarter than people. Yet, as easy as computers have made our lives, if they are not programmed properly, they can create losses that can cost us plenty. Make sure your computer is helping you make smart decisions.
Mark A. Taylor, DLP, is an author, speaker, and business consultant. With three decades of experience, he has met with thousands of parcel shippers. He has been featured as an industry expert on ABC News and in the New York Times, and is the author of Computerized Shipping Systems: Increasing Profit & Productivity Through Technology. Taylor was named a Distinguished Logistics Professional (DLP) by the American Society of Transportation & Logistics in recognition of the contributions he has made to the field of logistics during his 30-year career. He can be contacted at 212-867-5849 or at Mark@myshippingcoach.com.
