Shippers beware! Dramatic changes to the way landed costs are calculated for all major carriers are now in effect.
Parcel carriers started to impose both residential and commercial Delivery Area Surcharges (DAS) for their services along with residential surcharges as a way to drive additional revenues effective January 5, 2004.
Last year�s published UPS� Next Day Air tariff shows a $1.15 surcharge for delivery to residential destinations and an additional $1.75 charge for packages delivered to residences in 24,555 rural ZIP Codes. In contrast, if you were to ship a package this month, you would expect to pay a $1.40 surcharge for delivery to residential destinations and an additional $1.75 for each package that falls within one of 23,462 DAS Zip Codes.
If the movement is commercial and falls within a DAS ZIP, a $1.00 surcharge would be imposed per package. Although this revision may appear minor at first glance, it could bring a greater than 10% increase in total landed cost if greater than 40% of parcels are within the DAS Zip Codes.
FedEx�s 2003 Express US Domestic Rate Book shows a residential surcharge of $1.40 per package and a $1.75 charge for ZIP Codes that fall within the extended delivery areas, which consist of 9,627 ZIP Codes. This year, FedEx is imposing a $1.75 Residential Fee, $1.75 Residential DAS and a new $1.00 Commercial DAS fee. Exacerbating the problem is FedEx�s decision to increase the number of DAS ZIP Codes by over 200%, a change which will increase a shipper�s annual spending by over 15%.
Fair Fees?
Advanced technology has aided parcel carriers in assessing additional charges. As parcel carriers move to highly sophisticated sort centers with dimensional scanning and billing systems, it has cut their costs. However, it has also made it easy for them to charge additional fees because they can calculate and invoice them very economically.
In most cases, surcharges are paid only by customers who actually use specific services. They are intended to make prices fairer because only that specific user must pay extra, allowing companies to avoid raising prices across the board. In other cases, the fees apply to all customers as a way of passing along the extra cost associated with doing business.
It is also important to remember the conveniences of some surcharges. For example, what would a hazardous shipper do if it didn�t have the ability to pay a premium to ship hazardous parcels with Airborne, UPS, FedEx or other carriers?
Things You Can Do
So what does all of this mean to your bottom line? If you have a representative time period of line item data with weight, zone and service information, you can build a spreadsheet to quickly analyze the effect. The first step is to determine how many movements you have for each individual weight, service and zone. You can do this by writing a cross tab query that sums the total movements by service and zone. Run cross tab queries for all of your services and weights, and insert them into a spreadsheet.
The next step would be to insert your rates from 2003 and 2004 in the same spreadsheet. The final step for a rate analysis is to multiply the total movements by weight and zone by the corresponding rates for 2003 and 2004, and compare the landed cost for all of your movements.
If you would like to determine the effect of Commercial DAS, simply go to the carrier�s Web site and download the DAS in a format that you can import into a query tool with your movements table. Once the file is imported, join the ZIP field of the two tables and run a query to determine the total effect of the 2004 rate increase!
Outsourcing of parcel logistics is also becoming a popular option. Many companies are relying on third parties for parcel data warehousing due to the size and complexity of the files. Data warehouses identify critical data that can be used in freight payment, reporting, engineering, negotiation and exposure on areas of high costs to help determine the overall carrier value.
Next Steps
In an effort to reduce the financial effect of surcharges, some shippers are re-negotiating their contracts, filing claims for billing errors, filing Guaranteed Service Failures, disputing residential surcharges and using third parties to represent them.
Like it or not, new and increased fees are a reality. This year, FedEx and UPS both added new surcharges to their tariffs. These increased fees are causing more and more companies to take notice. Under-stand the charges and know how they influence your bottom line.
Bill Knasinski is the vice president of Parcel and Logistics Services for GENCO. For more information, you can reach him at 920-491-0342 x 1109 or e-mail him at knasinsb@genco.com.
