Shippers, here’s part one of a Top Ten list that’s not at all funny! (Look for part two in the November/December issue). Having met with thousands of parcel shippers over the past 25 years, I’ve compiled a list of recurring mistakes shippers continue to make. And it’s costing shippers big time – into the hundreds of millions annually!
The good news is that most of fixes are relatively easy, do not require significant capital outlay, are not overly time consuming, and can produce significant operational improvements and cost savings.
Sound good? Let’s go! Here are five of the Top Ten mistakes, in order.
10. Over relying on a single carrier
Are you still using a single carrier for the majority of your shipping? Many shippers sole source for convenience or to maximize revenue based incentives with carriers like FedEx and UPS. However, you could realize service improvements and cost reduction by adding additional service providers to your carrier mix.
The United States Postal Service (USPS), postal consolidators (FedEx SmartPost, UPS SurePost, UPS Mail Innovations, DHL Global Mail, OSM Worldwide, Newgistics, etc.), as well as regional carriers (OnTrac, Eastern Connection, Spee Dee Delivery Service, LaserShip, Pitt Ohio, and Lonestar Overnight to name a few) offer multiple shipping solutions and benefits to compliment parcel giants UPS and FedEx.
A 2012 Shipware survey on shippers’ usage of regional carriers reveals that less than 30% of volume shippers are using regional parcel carriers. And the vast majority of those companies that do use regionals do so for less than 15% of their overall shipments.
The top eight regional parcel carriers cover more than 85% of the U.S. population and specialize in short-haul delivery (typically up to 500 miles). Regional carriers maintain a low cost of operation through their regional focus, direct loading and transportation primarily via truck. With significantly lower operating costs than the “Big Two”, regional carriers are often 10% to 40% less expensive than UPS and FedEx.
Many regional carriers offer discounted pricing through simple contracts that often carry no volume commitments, include better pricing, improved dimensional divisors and far fewer surcharges than FedEx and UPS. Consider the fact that 3 of the top 6 regional carriers don’t tack on surcharges for residential deliveries!
Since regionals concentrate operations in a well-defined geographic market, service to that market is often better than what the national carriers provide. As an example, if you have high volumes of packages going to the West Coast, you could truck those shipments to OnTrac’s hub in Reno, NV and achieve 1-2 delivery to major ZIP codes within eight states from the Canadian to Mexican borders.
Not only can these companies offer new products, service enhancement and potential cost savings, but also help you gain leverage with the Big Two.
Another mistake is to rely solely on the carrier rep to negotiate pricing agreements. If you’re solely relying on your rep to act as your “advocate” within the carrier pricing departments, you are likely overspending. Shippers need to realize that their need to reduce costs and a rep’s desire to earn higher commissions are conflicting motivations. Carrier reps are compensated, evaluated and promoted in part on their ability to sell your business at the highest margins possible.
One of the worst negotiating mistakes a shipper can make is to exclude the non-incumbent carrier from contract discussions. The single best way to reduce costs is to leverage competition. With no threat of losing your business, what is a carrier’s motivation to lower costs?
Remember – if your goal is to reduce costs – your best friend during carrier negotiations is often the other carrier. UPS and FedEx are fierce rivals. Use the other carrier as leverage.
9. Not making time for your carrier rep
Notwithstanding the lessons learned with Mistake #10 above, of course some shippers make the opposite mistake in not giving their carrier rep the time of day.
I’ve heard many carrier reps complain that some customers do not make time for account reviews which allows the rep demonstrate additional value, new services and cost savings opportunities. Many shippers only contact the rep when there’s a problem, to resolve a billing issue or address the occasional late or lost shipment.
However, shippers can derive tremendous value in scheduling routine meetings with carrier reps. Carrier reps work with many other companies and can help you better manage your spend through best practices, leveraging value-added services and technologies, and integrating additional product offerings like LTL, mail, ocean, warehousing and other carrier services.
Reps have access to powerful management and service performance reports. Routine evaluation of these reports can help reduce address correction and other often preventable fees, identify trends, routing compliance, modal optimization and other opportunities.
Moreover, carriers like FedEx and UPS base their pricing on a sophisticated “cost to serve” model that most shippers don’t understand. Want better pricing? Collaborate with your carrier rep, and ask for ideas to lower the cost profile of your business.
Areas for exploration include increasing the use of automated tender, pickup consolidation, hub bypass options, package tender and materials improvements to lower claims, minimizing high-cost call centers by through online self-tracking, changes to pick up schedules and delivery routes, packaging optimization to improve truck and aircraft utilization, and dozens of other options.
As a best practice, I encourage shippers to meet frequently with the carrier reps – both the incumbent (at least quarterly) as well as non-incumbent (at least annually). Challenge your carriers with ongoing rate improvement initiatives and zone skipping opportunities, and addend your pricing agreement as needed.
8. Failure to route packages by least cost/best way
Since carriers provide free shipping systems, why then would anyone consider a third party shipping solution that costs money? While carrier provided automation might be adequate for some shippers, third party automation options should be evaluated periodically to ensure maximum productivity and efficiency.
Here are several reasons to explore third party solutions:
Integration: Many carrier provided solutions are made up of a collection of PC’s and servers. As shipment volumes and supply chain complexities increase, companies that integrate mission-critical enterprise data and business processes into a centralized platform realize significant performance and efficiency benefits. Integrate carrier networks, brokerage, freight, TMS and 3PL services.
Savings: Reduce Transportation Charges as much as 10% through: Least cost routing across multiple carriers and service classes; Upfront address validation to avoid address correction fees; Validation of accessorial charges; Accurate capture of dimension and weight; Upfront capture of total costs for accurate charge backs, and more.
Leverage: The carriers provide free automation solutions not only so customers can efficiently use their services, but also as a means to lock them into exclusively using its services. The more integrated the carrier is in company operations, the stronger the lock becomes. The ability to ship with any carrier on a minutes’ notice offers significant leverage in negotiations, promotes multi-carrier solutions, and provides a backup plan.
Control: Maintain control of your shipping strategy across a global enterprise, and improve customer service with end-to-end visibility and shipment notification.
Ask yourself the question, what is my “free” system costing me? Then explore alternatives. Most shippers realize rapid return on investment when deploying third party solutions. Leading software providers include ABOL, ADSI, Agile Network, Cloud 9, CMS GlobalSoft, Descartes, Digital Shipper, Enroute Systems Corp, Harvey Software, Kewill, Logicor, Malvern, MEI Distribution, Oz Development, Pitney Bowes, Precision Software, ProShip, ProcessWeaver, RateLink, ShipJunction, ShipStation, ShipWorks, StarShip, and Varsity Logistics.
7. Failure to audit weekly parcel invoices
Each year, more than $3 billion in guaranteed service claims are not refunded because claims are never filed. Shippers that take the time to audit invoices can tap into this often overlooked source of cost savings.
In addition to late shipments entitled to money-back guarantees, shippers should audit for missing discounts, incorrect fuel surcharges, overcharges, shipments manifested but never shipped, and other erroneous charges common with parcel invoices.
Companies unable to audit internally might consider outsourcing to audit firms that specialize in parcel spend management. A qualified freight audit firm can produce weekly savings between 1% and 15% of the total weekly parcel invoice.
6. Lack of benchmarking
Have you been told by your carrier representative that you have the best pricing in the area? That you negotiated discounts and concessions that no one else gets?
Is the sales rep telling the truth, or is it just a negotiation line? Of course, not everyone can have the best rates.
How can you be certain your rates are truly best-in-class? By benchmarking your program against other shippers.
Imagine how your carrier contract negotiations would change if you knew you were getting the worst incentives in the area; or that three quarters of peer companies had negotiated a discount on a surcharge, the same surcharge the carrier rep told you is never discounted.
Through rate benchmarking, you gain an understanding what’s truly possible and how your rate programs compare with others. Most importantly, this information will increase the likelihood of negotiating significant improvements to your carrier agreements.
If you can’t benchmark internally, third-party consulting companies can conduct benchmark studies by industry and carrier, as well as by package volume.
Stay tuned for numbers five through one in our upcoming issue!
Rob Martinez, DLP is President & CEO of Shipware LLC, an innovative parcel audit and consulting firm that helps volume parcel shippers reduce shipping costs 10%-30%. Rob offers 25 years’ experience negotiating parcel contracts – on both sides of the negotiating table – for some of the most recognizable brands in the world, and is a sought after speaker and industry thought leader. He welcomes questions and comments, and can be reached at 858-879-2020 Ext 114 or rob@shipware.com.
The good news is that most of fixes are relatively easy, do not require significant capital outlay, are not overly time consuming, and can produce significant operational improvements and cost savings.
Sound good? Let’s go! Here are five of the Top Ten mistakes, in order.
10. Over relying on a single carrier
Are you still using a single carrier for the majority of your shipping? Many shippers sole source for convenience or to maximize revenue based incentives with carriers like FedEx and UPS. However, you could realize service improvements and cost reduction by adding additional service providers to your carrier mix.
The United States Postal Service (USPS), postal consolidators (FedEx SmartPost, UPS SurePost, UPS Mail Innovations, DHL Global Mail, OSM Worldwide, Newgistics, etc.), as well as regional carriers (OnTrac, Eastern Connection, Spee Dee Delivery Service, LaserShip, Pitt Ohio, and Lonestar Overnight to name a few) offer multiple shipping solutions and benefits to compliment parcel giants UPS and FedEx.
A 2012 Shipware survey on shippers’ usage of regional carriers reveals that less than 30% of volume shippers are using regional parcel carriers. And the vast majority of those companies that do use regionals do so for less than 15% of their overall shipments.
The top eight regional parcel carriers cover more than 85% of the U.S. population and specialize in short-haul delivery (typically up to 500 miles). Regional carriers maintain a low cost of operation through their regional focus, direct loading and transportation primarily via truck. With significantly lower operating costs than the “Big Two”, regional carriers are often 10% to 40% less expensive than UPS and FedEx.
Many regional carriers offer discounted pricing through simple contracts that often carry no volume commitments, include better pricing, improved dimensional divisors and far fewer surcharges than FedEx and UPS. Consider the fact that 3 of the top 6 regional carriers don’t tack on surcharges for residential deliveries!
Since regionals concentrate operations in a well-defined geographic market, service to that market is often better than what the national carriers provide. As an example, if you have high volumes of packages going to the West Coast, you could truck those shipments to OnTrac’s hub in Reno, NV and achieve 1-2 delivery to major ZIP codes within eight states from the Canadian to Mexican borders.
Not only can these companies offer new products, service enhancement and potential cost savings, but also help you gain leverage with the Big Two.
Another mistake is to rely solely on the carrier rep to negotiate pricing agreements. If you’re solely relying on your rep to act as your “advocate” within the carrier pricing departments, you are likely overspending. Shippers need to realize that their need to reduce costs and a rep’s desire to earn higher commissions are conflicting motivations. Carrier reps are compensated, evaluated and promoted in part on their ability to sell your business at the highest margins possible.
One of the worst negotiating mistakes a shipper can make is to exclude the non-incumbent carrier from contract discussions. The single best way to reduce costs is to leverage competition. With no threat of losing your business, what is a carrier’s motivation to lower costs?
Remember – if your goal is to reduce costs – your best friend during carrier negotiations is often the other carrier. UPS and FedEx are fierce rivals. Use the other carrier as leverage.
9. Not making time for your carrier rep
Notwithstanding the lessons learned with Mistake #10 above, of course some shippers make the opposite mistake in not giving their carrier rep the time of day.
I’ve heard many carrier reps complain that some customers do not make time for account reviews which allows the rep demonstrate additional value, new services and cost savings opportunities. Many shippers only contact the rep when there’s a problem, to resolve a billing issue or address the occasional late or lost shipment.
However, shippers can derive tremendous value in scheduling routine meetings with carrier reps. Carrier reps work with many other companies and can help you better manage your spend through best practices, leveraging value-added services and technologies, and integrating additional product offerings like LTL, mail, ocean, warehousing and other carrier services.
Reps have access to powerful management and service performance reports. Routine evaluation of these reports can help reduce address correction and other often preventable fees, identify trends, routing compliance, modal optimization and other opportunities.
Moreover, carriers like FedEx and UPS base their pricing on a sophisticated “cost to serve” model that most shippers don’t understand. Want better pricing? Collaborate with your carrier rep, and ask for ideas to lower the cost profile of your business.
Areas for exploration include increasing the use of automated tender, pickup consolidation, hub bypass options, package tender and materials improvements to lower claims, minimizing high-cost call centers by through online self-tracking, changes to pick up schedules and delivery routes, packaging optimization to improve truck and aircraft utilization, and dozens of other options.
As a best practice, I encourage shippers to meet frequently with the carrier reps – both the incumbent (at least quarterly) as well as non-incumbent (at least annually). Challenge your carriers with ongoing rate improvement initiatives and zone skipping opportunities, and addend your pricing agreement as needed.
8. Failure to route packages by least cost/best way
Since carriers provide free shipping systems, why then would anyone consider a third party shipping solution that costs money? While carrier provided automation might be adequate for some shippers, third party automation options should be evaluated periodically to ensure maximum productivity and efficiency.
Here are several reasons to explore third party solutions:
Integration: Many carrier provided solutions are made up of a collection of PC’s and servers. As shipment volumes and supply chain complexities increase, companies that integrate mission-critical enterprise data and business processes into a centralized platform realize significant performance and efficiency benefits. Integrate carrier networks, brokerage, freight, TMS and 3PL services.
Savings: Reduce Transportation Charges as much as 10% through: Least cost routing across multiple carriers and service classes; Upfront address validation to avoid address correction fees; Validation of accessorial charges; Accurate capture of dimension and weight; Upfront capture of total costs for accurate charge backs, and more.
Leverage: The carriers provide free automation solutions not only so customers can efficiently use their services, but also as a means to lock them into exclusively using its services. The more integrated the carrier is in company operations, the stronger the lock becomes. The ability to ship with any carrier on a minutes’ notice offers significant leverage in negotiations, promotes multi-carrier solutions, and provides a backup plan.
Control: Maintain control of your shipping strategy across a global enterprise, and improve customer service with end-to-end visibility and shipment notification.
Ask yourself the question, what is my “free” system costing me? Then explore alternatives. Most shippers realize rapid return on investment when deploying third party solutions. Leading software providers include ABOL, ADSI, Agile Network, Cloud 9, CMS GlobalSoft, Descartes, Digital Shipper, Enroute Systems Corp, Harvey Software, Kewill, Logicor, Malvern, MEI Distribution, Oz Development, Pitney Bowes, Precision Software, ProShip, ProcessWeaver, RateLink, ShipJunction, ShipStation, ShipWorks, StarShip, and Varsity Logistics.
7. Failure to audit weekly parcel invoices
Each year, more than $3 billion in guaranteed service claims are not refunded because claims are never filed. Shippers that take the time to audit invoices can tap into this often overlooked source of cost savings.
In addition to late shipments entitled to money-back guarantees, shippers should audit for missing discounts, incorrect fuel surcharges, overcharges, shipments manifested but never shipped, and other erroneous charges common with parcel invoices.
Companies unable to audit internally might consider outsourcing to audit firms that specialize in parcel spend management. A qualified freight audit firm can produce weekly savings between 1% and 15% of the total weekly parcel invoice.
6. Lack of benchmarking
Have you been told by your carrier representative that you have the best pricing in the area? That you negotiated discounts and concessions that no one else gets?
Is the sales rep telling the truth, or is it just a negotiation line? Of course, not everyone can have the best rates.
How can you be certain your rates are truly best-in-class? By benchmarking your program against other shippers.
Imagine how your carrier contract negotiations would change if you knew you were getting the worst incentives in the area; or that three quarters of peer companies had negotiated a discount on a surcharge, the same surcharge the carrier rep told you is never discounted.
Through rate benchmarking, you gain an understanding what’s truly possible and how your rate programs compare with others. Most importantly, this information will increase the likelihood of negotiating significant improvements to your carrier agreements.
If you can’t benchmark internally, third-party consulting companies can conduct benchmark studies by industry and carrier, as well as by package volume.
Stay tuned for numbers five through one in our upcoming issue!
Rob Martinez, DLP is President & CEO of Shipware LLC, an innovative parcel audit and consulting firm that helps volume parcel shippers reduce shipping costs 10%-30%. Rob offers 25 years’ experience negotiating parcel contracts – on both sides of the negotiating table – for some of the most recognizable brands in the world, and is a sought after speaker and industry thought leader. He welcomes questions and comments, and can be reached at 858-879-2020 Ext 114 or rob@shipware.com.
