| By Bert Moore |
| Prognostication is always fun. When you�re right, no one remembers. When you�re wrong, no one forgets. So, rather than climb out on this limb all by myself, I�ve invited some industry experts out here with me. The Internet You don�t need a crystal ball to predict that the Internet is going to play an increasingly significant role in business in the coming year. Elsewhere in this issue, Mike Erickson�s article on Inbound Logistics, Kim Parks� article on Returns and Ted Kruse�s article on Web-based Barcodes all point to the fact that the Internet is becoming more closely entwined in our day-to-day activities. Carriers, customers, suppliers and third-parties continue to open their systems to the outside world, making it possible to create virtual integration of in-house data with data from a wide variety of sources. The U.S. Postal Service, for example, is looking at a number of e-initiatives, including Web-based manifesting that allow mailers to use a Web-based system to manifest parcels. The manifest software would reside on the Internet. Customers transmit weights, address information and special service requirements to the manifesting software, which would calculate postage and fees and return the manifest and postage statement information to the customer for hardcopy printing or to be submitted as an electronic file. Another initiative would be PC postage for commercial shippers, similar to the service available for letters. It would do away with many of the barriers that shippers face when using a permit imprint, such as volume minimums, the manifest application process, the requirement that manifest mailers do quality control and postal verification of manifest information. The initiative should also help increase business from small- to medium-size mailers who do not have enough volume to use a permit imprint. The USPS is also looking at an e-verification system. This initiative would allow mailers who manifest Parcel Select packages to deposit mailings without any front-end (origin office) postal verification; deposit parcels at Destination Delivery Units (DDU), Sectional Center Facilities (SCF), Bulk Mail Centers (BMC) and Auxiliary Service Facilities (ASF) without a PS Form 8125, Plant Verified Drop Shipment, Verification and Clearance; have postage verifications performed at destination facilities; have manifest postage reconciliations done on an accounting period, rather than daily, basis. Other carriers, such as Airborne, are now allowing shipping from home or business via their Web sites. Technological advances such as XML (eXtensible Markup Language) make it easier to collect and exchange data on the Web or in Web-enabled software. A growing number of online tools, from currency converters to transportation auctions, are available to even the smallest shipper. Sources ranging from your local high-school techno-weenie to IBM are offering Web site development for e-commerce. Pick a price, pick a set of features and you can find a source. Many good, a few not. All this has its down-side, of course. Knowing who�s behind the Web page can make a difference. At various transportation service sites, for example, some clearly show their affiliations with particular carriers, others don�t. And a flashy Web page may be just a fancy facade for a shoddily run organization. The ease of leaping into cyberspace is another threat. As Web sites proliferate, competition will get more and more intense. Competition itself isn�t the problem. The problem is that many Web sites will be launched without a sound business plan. Newcomers may slash prices or offer free shipping to win market share � possibly to the point where a valid business is pushed out of the picture � only to have the newcomers crash under realities of unrealistic pricing policies or inadequate (or non-existent) logistics planning. At the same time, newcomers that understand the power of the Web and use it to integrate their business processes and customer service will have a significant advantage over traditional businesses that move too cautiously. The ease of Web integration with specific carriers is both an opportunity and a challenge. The more deeply entwined your system is with a carrier�s, the easier it is to ship...and the harder it is to shop or change.The impact of e-commerce on the parcel industry � and the parcel industry�s impact on e-commerce � is another issue. John Campanelli, president of Chicago-based R.R. Donnelley Logistics Services, points to this issue. �Consumers are demanding a secure, reliable and cost-effective parcel shipping experience,� says Campanelli. �We can�t afford to have people bailing out of their electronic shopping carts when informed of shipping costs and vague delivery windows. We all must control costs, shorten standard delivery times, enhance track and trace systems and in general, make it easier for our business clients and their consumer customers to order and fulfill on a direct basis. Returns are another critical service area. Our company is offering a new returns solution that will make the whole returns process a better experience for both the direct marketer and the consumer.� At the same time, Steve DeFilippis, vice president of Sales and Marketing for Parcel/Direct, a national consolidator, points out that, �Last year, e-commerce hyped the idea of �free shipping.� Now, it seems to have joined the �no free lunch� club. Will �every order needs to be delivered tomorrow� be the next hype?� He pauses, then asks, �What does the consumer really want?� His answer? �Consumers want shippers to minimize their costs yet maintain acceptable, and predictable, delivery times.� Third-Party Logistics An area that may seem like another no-brainer is third-party logistics (3PL). But this topic isn�t quite as simple as it looks. David Newberger, co-CEO of Marketing-Out-of-the-Box, a value-added 3PL, sees a growing trend towards companies focusing more on what they do best: marketing and product development. Regardless of the company, he suggests most don�t get a good ROI for warehousing/distribution dollars. Outsourcing can offer greater economies of scale � and focus on core competencies as well. At the same time, he cautions that the momentum to 3PLs is still relatively recent; and that, as the market expands, so do the challenges. 3PLs offer dedicated warehousing and logistics professionals to manage accounts and help negotiate rates. Many 3PLs have skilled negotiators who work with a wide range of carriers and consolidators to ensure best performance and value. A 3PL�s economies of scale should also allow it to make big investments in high-tech, which helps ensure performance and reduce costs. And, the big reason, is that companies can then focus on their core competencies. So far, it looks like a no-brainer. But not everything that looks like a 3PL really is a 3PL. And not all 3PLs are created equal. UPS, FedEx and Airborne have moved aggressively into this area, offering their customers complete logistics services. They are valid extensions of services for companies already tied into one of these carriers. But are these truly 3PLs since they�re not shopping for the best shipping costs and options? Independent 3PLs may not be panaceas either. Some companies with strengths in warehousing and distribution (LTL or truckload) have moved into the 3PL category. But do they have competencies in receiving, picking, packing and shipping? Do they offer the full IT support and integration you need? 3PLs, at present, can�t negotiate volume discounts based on all customers. Each customer must negotiate separate contracts. As 3PLs proliferate, there will likely be a trend towards consolidation, with 3PLs combining to gain core competencies or offering additional geographic coverage. Picking the survivors is the challenge. And picking the right one to begin with is an equally difficult challenge. As the president of WM Carter & Associates, a logistics management advisory group, William Carter, points out, some companies now claim inept 3PLs have either seriously hurt or destroyed their businesses. Virtual Distribution At the same time 3PLs are experiencing growth, another trend is contradicting them. More and more companies are discovering the benefits of �virtual distribution networks,� where companies have the master distributor or manufacturer handle fulfillment directly to the customer. Although this is a relatively new and developing option, expect it to grow dramatically as technical challenges are mastered. Gerald Pappa, vice president of Logistics Planning for the Home Shopping Network companies, part of USA International, which will soon finish an expansion that will provide it with a total of a million square-feet of its own warehousing space, is looking more and more to virtual distribution for certain products, particularly computers and electronics. Virtual distribution eliminates additional 2L handling, transit times and transportation costs by shipping product directly from a manufacturer or master distributor. Equally, or more importantly, virtual distribution reduces or eliminates inventory carrying costs and product obsolescence. The USPS recognizes this trend, however, and is considering issuing a National Permit. This would allow shippers to use the seller�s indicia and permit for shipping. At this point, however, there is a high degree of complexity in integrating sellers� IT and order systems with multiple distributors� systems. And there are limitations on the ability of the seller to negotiate favorable carrier contracts and interface systems for virtual distribution volume. Carrier Issues Of course, there�s no question that come February, we�ll see a UPS rate increase. And FedEx will likely match it closely in March. The question is how much? According to Joe Loughran, president of SmartTran, a logistics consulting firm, expectations are that the fuel surcharges will be eliminated early next year by being built into the standard rate structures. Although the rate increase calculations are fairly arcane and never revealed to mere mortals, the question will be (which will remain unanswered) whether fuel surcharge-based increases, which were based on the peak prices that have already begun coming down, will turn out to be additional profit centers if prices continue to drop or stabilize. Todd Larson, a regional manager for AMFS, a national freight consulting firm, has also observed that �the FedEx purchase of RPS has finally started making waves on the pricing side for FedEx. They seem to have adopted the RPS/UPS method of pricing based on cost to serve rather than straight, total revenue-based pricing. Contracts are taking much longer to process. They are also able to use a portfolio pricing method as UPS has for the past few years.� The other major questionmark is the pending USPS rate increase. Clearly any Postal Service rate increase will affect the other carriers. UPS, FedEx, Airborne and others are not going to be put in a position where they�re the low-cost provider of services offered by the USPS. According to DeFilippis, the question is whether the modest requested rate increase for Standard Mail (B) will hold, or whether new data will show increased operational costs that will cause the Postal Rate Commission to adjust the rate upwards. AFMS� Larson is a bit more emphatic. �Everybody seems to be in a holding pattern waiting for the USPS rate change. It could have a dramatic impact on the residential market for UPS. All of those less than five-pound residential packages they chased away a few years ago might be coming back.� At the same time, he notes that �the switch at UPS to compensate their sales force based on sales rather than just a straight salary base has caused them to be much more concerned with volume and revenue development...but they are not [yet] set up to encourage new business if an account has not been assigned to a sales person. It seems that if it is assigned to small accounts, the senior and major accounts people can�t touch it. The small accounts person, if I can get them to respond, seems overwhelmed with tasks other than volume development.� Mike Sullivan, CEO of PSI, a regional consolidator covering the West Coast, sees stability in the USPS. With no proposed changes for the DDU rate, he sees another three to four years of consistent pricing for some postal products, whereas he expects a 10% to 15% increase in other parcel carrier rates. Donnelley�s Campanelli says a strong USPS is one of the prerequisites for a superior value parcel logistics strategy. �We�re confidant the USPS has the best model for that �last mile� of residential delivery of packages,� says Campanelli. �We�re a strong supporter of the USPS and have been active in the current rate case testimony to ensure that the USPS package services offering is consistent with the needs of our customers. Unfortunately, we as an industry often have to counter the testimony of UPS and others that advocate substantially higher USPS rates.� In short, on the issue of rates, everyone agrees they�ll go up...but whether a little or a lot is the big question. Technology & People History has shown that carriers aren�t going to simply raise rates in the coming months. Carriers will continue to offer innovative services and opportunities to further enhance customer loyalty. That can present a challenge to some smaller shippers who want to take advantage of these new services. Lisa Gilmore, vice president of Sales and Marketing for UCI DistributionPLUS, a West Coast regional carrier, points out that regionals are experiencing many of the same challenges as the national carriers � in addition to issues that impact smaller companies. Some of these issues apply whether you�re a carrier or a shipper. Demands for technology plague smaller companies with more constraints on their IT budgets than larger companies. Customer expectations and demands on real-time tracking mount can�t be ignored. UCIDP is now providing delivery confirmation via the Internet and is in a phase-in program with a tracking system. Parcel/Direct�s DeFilippis agrees that technology is a key factor. He asserts that �it is essential for shippers to continue investing in auto-mation and technology to reduce costs and provide trend-line data to help grow or maintain market share.� They should also explore with their parcel delivery service carriers how to get critical information. Gilmore points to another challenge: attracting and retaining quality employees. This, she is quick to point out, is not unique to UCIDP since many industries are experiencing similar challenges. Gilmore�s company has reviewed and improved its driver benefits package as well as deployed employee recognition programs to enhance retention. Having seen the result of employee dissat-isfaction in both parcel delivery and other sectors, employee morale and retention will be a much hotter issue in the coming year. The USPS itself is looking at challenges and opportunities. Some of the key points it has identified are consistency and consolidation. The Postal Service, in its own words, �must provide small parcel shippers with a consistent national policy on mail preparation, pickup, delivery and payment options � combined with conclusive technological solutions.� As part of that consistency, it�s also looking at a Universal Shipping Label (Package Services) to create a standard shipping label format that will be used across all product lines. The label will include an integrated barcode solution that will allow mailers to use a single barcode to identify special services and mail class, thereby eliminating the need for multiple labels and barcodes on packages. Consolidators Consolidation is, of course, one of the hot topics. UCIDP�s Gilmore points out that there is increasing pressure for regional carriers and others to enter the residential delivery market as a consolidator. UCIDP has resisted these pressures due to the lack of route density and inherent costs. And that�s a significant point. Companies need �critical mass� to be effective at the DDU level. Sullivan of PSI, notes that �consolidators are striving to provide customers with a consistent product. But, at this point, no consolidator can do saturation DDUs nationwide. With 44,000 DDUs, it�s impossible to hit them all. In the first six to 12 months, we saw a significant shake-out. Harte-Hanks pulled out. The �real� players potentially can strike strategic alliances. Consolidators will have to work together on a regional basis to provide the best and most consistent service. It is critical for postal partners to do good work and eventually to work together.� R.R. Donnelley�s Campanelli sounds a similar note. Says Campanelli, whose company earlier this year purchased Minneapolis-based CTC Distribution Direct, the nation�s leading parcel mail consolidator, �A lot of companies jumped into this market on the promise of exploding demand for small parcel shipping. It takes more than a business plan and some venture capital to succeed in this business. You need experience, knowledge, skill, technology � and more than a little volume to drive your economies of scale and performance levels.� Judith F. Marks, president and chief executive officer of Paxis LLC, a national provider of parcel shipping and other package logistics services, sees one major issue affecting the industry as the market growth of small packages surges. �The issue here is the inability to predict accurately how fast � and to what extent � the e-commerce, business-to-residential market will grow and the ability to grow and service this market consistently.� She also sees a shake-out in the industry with �continued consolidation within the parcel consolidation industry as companies try to optimize the infrastructure.� She raises one more issue on which the crystal ball remains silent: the continuing national debate on privatization or liberalization of the USPS. With the entry of Emery into the quasi-consolidator role through Parcel@Home, the question of �who�s a consolidator and who�s an expediter� is raised. According to Doug Foster, vice president of Sales and Marketing for Emery Worldwide, the question may be moot. Emery, as well as airborne@home service, also service international shippers, along with most consolidators have yet to address this question. The point may be not that Emery is entering an increasingly crowded market but rather it�s expanding the market. Foster points out that while there has been a lot of activity in the book, CD, video and other small item areas, �none of the carriers have been concentrating on heavier weight shippers of high-tech, high-value personal computers and home electronic and entertainment products. The burgeoning online product ordering system of small packages had already proven to be a near catastrophe last year because transportation systems were not well planned. Emery analysis showed that...[what was lacking was]...multiple package drop offs to a single address with weight flexibilities as high as 70 pounds per piece.� Foster continues, �The alliance formed by Emery and the Postal Service under the Parcel@Home service gives shippers, no matter where located, a seamless cost-effective way to move pallets or bulk shipments through our system and then on to home addresses throughout the United States via the world�s most comprehensive residential network as maintained by the U.S. Postal Service.� On the Horizon There are still many issues facing shippers and carriers in the next 12 to 18 months, and some solutions are now beginning to emerge that may be viable alternatives in the near future. Returns remain a significant issue, but new services such as iReturn (www.ireturn.com) and Return Valet (www.newgistics.com) are coming to the fore to address these concerns. Perhaps the most novel is Return Valet, which will provide return drop-off locations in malls, shopping centers and other high-traffic areas. Not quite as convenient as having UPS, FedEx or the USPS pick up the return? It depends. Plans call for the customer to be able to just bundle up all the bits and pieces and packaging and take them to a drop-off location where the item will be repackaged, labeled and shipped. And, this is a significant point, consumers will be able to receive credit for the returned item at once, since the return has been verified by the Return Valet employee. Another issue is that of secure home delivery. A number of start-up companies are well underway with home delivery �vaults� that will protect deliveries and may even provide a controlled climate for grocery deliveries. One of the newest of these is ShopperBox Networks, based in Seattle, Washington, which is beta testing delivery units designed for high-density dwellings such as condos and apartments. One feature is that a single shipment might be split over multiple �lockers� � as in the case of a computer system which has multiple cartons. Customers would get an e-mail notification of delivery identifying the �locker(s)� in which their shipments have been placed as well as the code to unlock it. One is tempted to say �more of the same� when it comes to predicting what changes will occur in the next 12 to 18 months. And yet, there are many startling new initiatives in testing or on the drawing boards that have the potential to significantly affect parcel shipping. So, if we�re going to go with the �more of the same� scenario, let�s append �more innovation, more options...and more for you to keep up on.� Bert Moore is editor of Parcel Shipping & Distribution and director of IDAT Consulting & Education. You can reach him at bmoore@idat.com or on the Web at www.psdmag.com. |
