It may appear odd to bring up the topic of preparing for the holiday peak season when we are so far away from the traditional peak shipping period. In order to make impactful changes though, one needs adequate time. Between analyzing one's shipment profile, developing a strategy, preparing an RFP, and negotiating with the carriers, implementing a best in class agreement with UPS and/or FedEx often requires at least three to four months to complete. If operational changes are required, it can take even longer.
With the holiday peak being nearly half a year away, now is the time to prepare. The following are three simple steps to take now, which can lead to significant savings as the peak season approaches.
Before you can make meaningful decisions, gain visibility to your shipment profile. Having detailed knowledge of your shipment data will provide the basis for any negotiations with the carriers, help assess packaging (dimensional weight) issues, as well as identify areas where simple fixes can be made.
OPERATIONAL CHANGES:
A common issue that shippers identify once they have visibility is that they are significantly overpaying for unexpected charges. Unexpected charges most often derive from one or more of the following; shipping charge corrections, late payment fees (now six percent with UPS), declared value (often generated by a vendor), Next Day Air AM or other “time sensitive” charges, address corrections, and from services that aren’t receiving the anticipated (or any) discounts. By gaining visibility to any of these items, organizations can develop internal processes to move less time sensitive shipments to the appropriate service levels, implement solutions to eliminate incorrect charges, change accounting practices, and implement shipping procedures with its vendors. Data will provide as little or as much detail that is needed to identify and address any unexpected charges.
PACKAGING AND THE IMPACT OF DIMENSIONAL WEIGHT:
Data will also provide the details needed to identify necessary improvements to address any dimensional weight issues. That can typically either be managed by changing box sizes (depending on the commodities and service levels) or by negotiating the necessary changes with the carrier(s). Note that the carriers continue to provide a three cubic foot threshold (for simplicity, the LxWxH needs to be less than 5,184 cubic inches) for Ground and HD shipments, so in those cases, the actual weight will be considered when determining the billable weight. Keep in mind that the carriers typically run out of space before they exceed weight requirements, so whenever a dimensional weight issue can be addressed through internal changes, that’s ideal. This then improves a shipper’s position to negotiate other items in the agreement rather than focusing on the dimensional weight factor or cubic foot threshold.
DISCOUNTS & FEES:
The most apparent opportunity for containing costs often lies within the rates themselves. All too often, we find that a shipper's agreement has expired or the revenue spend has changed so that the anticipated earned discount tier is not being met. The solution may be as simple as having the tier adjusted and reset or you may want to negotiate new discounts that's based on the current shipment profile and spend. Take the opportunity to ensure that all your services are included in your agreement.
Identify which accessorial charges have the most significant impact on your costs. Keep in mind that most accessorial charges are negotiable, so review those with the carrier. Fuel surcharges are also a key component of your accessorial charges. It will typically account for five to 10% of the transportation cost, or more, depending on the percentage in the fuel index in effect at the time of the shipment, as well as the fees that are being impacted by the fuel surcharge. Many are not aware that the fuel surcharge not only applies as a percentage of your base rate, but also to select fees, including the following:
• Residential Delivery Charges
• Delivery Charges
• Pickup Charges
• Return Services Charges
• A.M. Charges
• International Extended Area Charges
• Saturday Delivery and Pickup
• Large Package Surcharge
Although the typical mid-market shipper won't have the leverage to negotiate a reduction or a cap to the fuel surcharge, the rates and select accessorial charges that are impacted by the fuel surcharge can be reduced, which effectively reduces the fuel surcharge.
Whether you prioritize your logistics needs on any combination of convenience, reliability, on time performance, controlling damages, or any other criteria, we all want to work with a reliable carrier that meets our service expectations. Although FedEx and UPS justify their rates and increases by claiming to protect margins and yield, they are still, in the end run, competing for your business. As a result, there remains pricing flexibility from the carriers consistent with what we have seen in the past.
Thomas Andersen, MBA is responsible for parcel cost management services for AFS. AFS specializes in reducing shipping costs through freight and parcel auditing, carrier contract optimization and advanced shipping analytics.
With the holiday peak being nearly half a year away, now is the time to prepare. The following are three simple steps to take now, which can lead to significant savings as the peak season approaches.
Before you can make meaningful decisions, gain visibility to your shipment profile. Having detailed knowledge of your shipment data will provide the basis for any negotiations with the carriers, help assess packaging (dimensional weight) issues, as well as identify areas where simple fixes can be made.
OPERATIONAL CHANGES:
A common issue that shippers identify once they have visibility is that they are significantly overpaying for unexpected charges. Unexpected charges most often derive from one or more of the following; shipping charge corrections, late payment fees (now six percent with UPS), declared value (often generated by a vendor), Next Day Air AM or other “time sensitive” charges, address corrections, and from services that aren’t receiving the anticipated (or any) discounts. By gaining visibility to any of these items, organizations can develop internal processes to move less time sensitive shipments to the appropriate service levels, implement solutions to eliminate incorrect charges, change accounting practices, and implement shipping procedures with its vendors. Data will provide as little or as much detail that is needed to identify and address any unexpected charges.
PACKAGING AND THE IMPACT OF DIMENSIONAL WEIGHT:
Data will also provide the details needed to identify necessary improvements to address any dimensional weight issues. That can typically either be managed by changing box sizes (depending on the commodities and service levels) or by negotiating the necessary changes with the carrier(s). Note that the carriers continue to provide a three cubic foot threshold (for simplicity, the LxWxH needs to be less than 5,184 cubic inches) for Ground and HD shipments, so in those cases, the actual weight will be considered when determining the billable weight. Keep in mind that the carriers typically run out of space before they exceed weight requirements, so whenever a dimensional weight issue can be addressed through internal changes, that’s ideal. This then improves a shipper’s position to negotiate other items in the agreement rather than focusing on the dimensional weight factor or cubic foot threshold.
DISCOUNTS & FEES:
The most apparent opportunity for containing costs often lies within the rates themselves. All too often, we find that a shipper's agreement has expired or the revenue spend has changed so that the anticipated earned discount tier is not being met. The solution may be as simple as having the tier adjusted and reset or you may want to negotiate new discounts that's based on the current shipment profile and spend. Take the opportunity to ensure that all your services are included in your agreement.
Identify which accessorial charges have the most significant impact on your costs. Keep in mind that most accessorial charges are negotiable, so review those with the carrier. Fuel surcharges are also a key component of your accessorial charges. It will typically account for five to 10% of the transportation cost, or more, depending on the percentage in the fuel index in effect at the time of the shipment, as well as the fees that are being impacted by the fuel surcharge. Many are not aware that the fuel surcharge not only applies as a percentage of your base rate, but also to select fees, including the following:
• Residential Delivery Charges
• Delivery Charges
• Pickup Charges
• Return Services Charges
• A.M. Charges
• International Extended Area Charges
• Saturday Delivery and Pickup
• Large Package Surcharge
Although the typical mid-market shipper won't have the leverage to negotiate a reduction or a cap to the fuel surcharge, the rates and select accessorial charges that are impacted by the fuel surcharge can be reduced, which effectively reduces the fuel surcharge.
Whether you prioritize your logistics needs on any combination of convenience, reliability, on time performance, controlling damages, or any other criteria, we all want to work with a reliable carrier that meets our service expectations. Although FedEx and UPS justify their rates and increases by claiming to protect margins and yield, they are still, in the end run, competing for your business. As a result, there remains pricing flexibility from the carriers consistent with what we have seen in the past.
Thomas Andersen, MBA is responsible for parcel cost management services for AFS. AFS specializes in reducing shipping costs through freight and parcel auditing, carrier contract optimization and advanced shipping analytics.
