I believe if you look hard enough you can find a silver lining in almost any troubling event. Call me an optimist. Color me crazy, but I think some good may be coming out of the economic slowdown as it relates to parcel shipping.
United Parcel Service and FedEx are reporting drops in volume and revenue as their customers shipping needs are reduced. There is no question both companies have been significantly impacted by the global economic downturn. To the carriers’ credit, they’re reducing expenses rather than laying people off. When the rebound hits, they will have the right people in the right places to handle the volume. Industry experts can’t remember such difficult times. In fact, FedEx CEO Fred Smith was recently quoted as saying, “There’s no question this is the most serious economic situation I can remember.” Pretty heavy stuff.
While carriers are doing a lot of good things on the cost side, the real problem they have is the economy is slowing faster than they can take costs out of the company. To counter the declining profits, carriers have attacked both ends of the equation. They have implemented extremely high price increases for 2009 while freezing or reducing managerial pay for an undetermined amount of time along with halting all matching contributions to employee retirement plans.
With difficult times come difficult measures. Many shippers are taking a serious look at what carrier services they actually use and questioning whether there is a less expensive alternative. The immediate results can be impressive.
One of the first analyses that I conduct when working with a new client is to determine whether they are using the least-cost services for their various shipping needs. For example, is my client using Second Day Air to a two-day Ground service point? Obviously, there would be immediate savings by simply using Ground service.
Invariably, I can always make cost cutting suggestions that do not compromise service. These costly oversights are often the result of a hectic daily routine for the shipping manager coupled with more pressing matters. But with rising base rates and top-down pressure to minimize expenses, shipping managers are becoming more focused in this area. This was confirmed in a February 4 Wall Street Journal article about the woes of UPS. It claimed that Next Day Air service was down 8.6% for the latest quarter compared to last year. For comparison purposes, overall domestic volume only dropped 2.8%.
I met with one of my clients last week to assist them in their carrier negotiations. A FedEx user, they are a low-zone shipper whose base rates have increased dramatically from last year. Ground went up 8.2%, Priority Overnight jumped 9.1%, and Standard Overnight rose 10.1%. Likewise, 2Day and Express Saver went up 6.8% and 9.5%, respectively. As you can see, the increases were huge.
Aside from the carrier contract negotiation strategy, much discussion was given to my analysis of ground versus air service and the implementation of a cost reducing plan that did not jeopardize service requirements. The client was thrilled when significant savings were immediately realized. More than a 10% reduction! Not too shabby.
How’s that for a silver lining? Our current economic time is just ticket to search for savings. I suggest you do the same. You’ll be surprised at what you might find. It’s a great bandwagon to jump on. Enjoy the ride.
Joe Loughran is President of SmartTran, Inc. and an expert in small package pricing and carrier rate analysis. SmartTran, in its 14th year, is a transportation consulting company offering services in carrier rate negotiation, guarantee refund service and logistics planning. SmartTran’s management team has over 70 years of executive level experience in package transportation management. Joe can be reached by phone at 724-934-0626 or by email loughran@smarttran.com.
United Parcel Service and FedEx are reporting drops in volume and revenue as their customers shipping needs are reduced. There is no question both companies have been significantly impacted by the global economic downturn. To the carriers’ credit, they’re reducing expenses rather than laying people off. When the rebound hits, they will have the right people in the right places to handle the volume. Industry experts can’t remember such difficult times. In fact, FedEx CEO Fred Smith was recently quoted as saying, “There’s no question this is the most serious economic situation I can remember.” Pretty heavy stuff.
While carriers are doing a lot of good things on the cost side, the real problem they have is the economy is slowing faster than they can take costs out of the company. To counter the declining profits, carriers have attacked both ends of the equation. They have implemented extremely high price increases for 2009 while freezing or reducing managerial pay for an undetermined amount of time along with halting all matching contributions to employee retirement plans.
With difficult times come difficult measures. Many shippers are taking a serious look at what carrier services they actually use and questioning whether there is a less expensive alternative. The immediate results can be impressive.
One of the first analyses that I conduct when working with a new client is to determine whether they are using the least-cost services for their various shipping needs. For example, is my client using Second Day Air to a two-day Ground service point? Obviously, there would be immediate savings by simply using Ground service.
Invariably, I can always make cost cutting suggestions that do not compromise service. These costly oversights are often the result of a hectic daily routine for the shipping manager coupled with more pressing matters. But with rising base rates and top-down pressure to minimize expenses, shipping managers are becoming more focused in this area. This was confirmed in a February 4 Wall Street Journal article about the woes of UPS. It claimed that Next Day Air service was down 8.6% for the latest quarter compared to last year. For comparison purposes, overall domestic volume only dropped 2.8%.
I met with one of my clients last week to assist them in their carrier negotiations. A FedEx user, they are a low-zone shipper whose base rates have increased dramatically from last year. Ground went up 8.2%, Priority Overnight jumped 9.1%, and Standard Overnight rose 10.1%. Likewise, 2Day and Express Saver went up 6.8% and 9.5%, respectively. As you can see, the increases were huge.
Aside from the carrier contract negotiation strategy, much discussion was given to my analysis of ground versus air service and the implementation of a cost reducing plan that did not jeopardize service requirements. The client was thrilled when significant savings were immediately realized. More than a 10% reduction! Not too shabby.
How’s that for a silver lining? Our current economic time is just ticket to search for savings. I suggest you do the same. You’ll be surprised at what you might find. It’s a great bandwagon to jump on. Enjoy the ride.
Joe Loughran is President of SmartTran, Inc. and an expert in small package pricing and carrier rate analysis. SmartTran, in its 14th year, is a transportation consulting company offering services in carrier rate negotiation, guarantee refund service and logistics planning. SmartTran’s management team has over 70 years of executive level experience in package transportation management. Joe can be reached by phone at 724-934-0626 or by email loughran@smarttran.com.
