Parcel shipping usually has only one objective: Just get it there. If the package is on time, shippers are happy.
 
On a per-pound basis, parcel shipping is the most expensive method of shipping. Worse yet, unlike any other mode of transportation, the cost of parcels per pound can increase as the weight increases. For example, published rates from a major parcel delivery service show the following comparison of delivery from Chicago to Atlanta:
 
Pounds             Cost                 Cost per pound
68                    $15.89             23
72                    $23.98             33
 
The chart shows a 43% increase in cost per pound. (Note: The United States Postal Service doesn't deliver parcels greater than 70 pounds.)
 
With only a handful of parcel delivery options, who would look to parcel for cost-saving initiatives? Savings are there, though. Start by looking at on-time delivery guarantees, and you can reduce your parcel bill by one percent to six percent. Deliveries to commercial addresses come with an on-time guarantee; if it's late, the delivery is free. All service levels offered by the major service providers have a guaranteed delivery time, including the ground services. Although residential deliveries are not guaranteed, your B2B shipments are.
 
Exactly what the delivery guarantee is depends on the service purchased. For example, the following compares service times for a Chicago to Los Angeles delivery:
 
Service Name               Guaranteed Delivery Time
Ground                         End of fourth day
3 Day                           End of third day
2nd Day Air                 End of second day
2nd Day AM                12:00 PM of second day
Next Day Air Saver                  3:00 PM next day
Next Day Air                10:30 AM next day
Next Day Air Early AM            8:30 AM next day
 
In all the above cases, the package must be delivered by the time promised or it's free. So how does a shipper know if the delivery is late? Shippers can request an on-time delivery report from the major parcel services. However, the service provider will report the total percentage of on-time deliveries for that shipper, not information on specific shipments. The reporting doesn't show which deliveries were late, nor does it help collect the refund on late deliveries.
 
Filing for a Refund
The parcel carriers don't exactly make it easy to collect on their guarantees. The following seven steps are the actions necessary to file for a service failure refund:
 
1. Record tracking numbers provided by the parcel delivery service.
2. Calculate the guaranteed time of delivery.
3. Confirm the actual date and time of delivery.
4. Compare the actual delivery date and time with the guaranteed date and time.
5. Contact the service provider's call center.
6. Read off the tracking numbers to the call center.
7. Confirm receipt of the refund on the next billing statement.
 
As you can see, to obtain a refund on a package delivered late, a shipper must call the parcel delivery service, provide the tracking number of the late-delivered parcel and request a refund. The carrier validates the late delivery and, provided there are no weather-related delays, approves the refund. The shipper's net billing statement will hopefully show a line-item credit on the next invoice. Obviously, this is a time-consuming process. On top of that, the carriers restrict the time a claim can be filed, typically within two weeks of delivery.
 
The process is not that onerous if the claimant ships only occasionally. However, for larger shippers, time and therefore cost required to perform these steps manually would likely erode the benefits received. So why bother to look at on-time delivery guarantees?
 
The Benefits of Auditing
This is where parcel audit companies come in. Auditors link to a carrier's manifest system and can complete the process economically. Auditors generally mix Web-based support software and phone calls to get the job done.
 
The need for a third-party auditor depends on the number of deliveries audited. Parcel shippers with 10 shipments a day are successfully auditing the shipments manually. Parcel shippers exceeding 30 deliveries a day typically look to a third party to audit the delivery service.
 
Auditors sometimes find shippers to be apprehensive about using their services and possibly damaging their relationship with the service provider. Shippers continually ask, Will my rates be raised? Audits rarely cause a rate increase, but the carriers are certainly aware of the auditing cutting into their profit margins. They strike back by offering discounted rates, but only with a no- audit clause in the contract.
 
No-audit contracts typically provide shippers with an additional one- to two-percent discount of the published rates, provided they give up the right to service failure refunds. It can be a risky proposition for the shippers. Consider these concerns before signing a no-audit contract: Is the failure rate more or less than the percentage of discount the carrier offered, and what happens to service after a no-audit agreement?
 
Auditors feel that it is not advisable to concede the audit. The result is no leverage in negotiations and no alternative for service improvements. One can be pretty confident that a near-monopoly service provider is not giving incentives at a loss. Expect your service failures to be greater than the additional discount offered.
 
Auditors are well-positioned to support shippers in contract negotiations. Without violating most confidentiality agreements, auditors can communicate an expected discount rate for a given shipper's volume. Auditors can help shippers know their own volumes and understand the market options.
 
Simply knowing the current service failure rate will support you when negotiating a new contract. The information gained from the audit tells the shipper who is getting late deliveries; this can be critical in supporting your customer service function. Remember, the objective is always to get the delivery to your customer on time.
 
Further, one can't tell for certain if service would erode under a no-audit agreement, but if it does, you have no remedy. On the other hand, shippers using an audit service often report decreases in service failures. Parcel carriers are service-driven, and the service guarantee is a must to compete in the market. With only a few major parcel delivery services competing for the business, the objective has to be timely delivery.
 
The Bottom Line
Discussions with parcel shippers using audit services have a common theme  ease. One shipper observed, This is the first time someone told me it would be easy, and it was actually easier than I expected. Auditors have put software and processes in place to bring savings with little effort by the shipper.
 
Parcel shippers are typically saving one percent to six percent off their freight bills. Auditor fees are usually based on the refunds received. Generally, the auditor will ask to share equally in the refunded amount, and depending upon shipment volumes, shippers can often negotiate a more favorable split.
 
Parcel volumes are growing in large part due to the great service provided by the major parcel companies. And as volumes and competition continue to grow, shippers are exploring alternative strategies. Audit service providers have thus developed their niche. The millions of parcels shipped every day require software, people and processes to audit. The growth of parcel deliveries and information collected through audits is expanding the niche.
 
Steven Silvis is director of Engineering Services at IOgistics, Inc. of Green Bay, Wisconsin. He may be reached by e-mail at ssilvis@iogistics.com or by phone at 920-491-0342.