Thirty-seven years! Many years, flights, hotels, meetings, countries, contacts, colleagues, and, more importantly, many, many friends. I saw so much regarding technology, instant information, international trade, changing and emerging markets, and a new group of people (both vendors and their customers) embrace these changes and try to navigate this playing field. One thing that has never changed in the last 37 years and will remain the same for years to come is the goal of getting a parcel from point “A” to point “B,” safely, economically, and on time.
I had the privilege to be a part of this (chaotic) parcel market, employed by a major carrier 37 years. I began as a dock worker at the age of 19, drove a package car, and ultimately spent many more years wearing a management hat with many dollars at stake. I have experienced, strategized, invented, and helped to implement these seemingly misunderstood procedures, contracts, services, and rate enhancements that we are faced with today.
My parcel background has been in District, Region, and Corporate/National Account Pricing ( aka “Revenue Management”), sales strategy/training, finance/accounting, supply chain analytics, and for fun, a bit of FTL/LTL forwarding sprinkled in. This leads me to believe the feelings of chaos in the parcel industry will continue for years to come. Whether you are the shipper, consignee, third party, or even grandma shipping something during the holidays to the grandkids, you have a stake in the parcel game. And it is just that — a game. It’s a game you can win; you just have to know how to play it. Similarly, the carriers play this game with one another, seeing who will blink first, implement first, gain market share, and ultimately drive revenue. The key for them is to do it without you noticing! Let’s be clear, these parcel carriers with technology and vision, and especially in the wake of the Internet explosion, drove tremendous growth of commerce and wealth in the United States, made many businesses possible here and around the world, and have provided for a better life for all of us and what we come to expect in our daily lives.
I think we can all agree for most businesses to grow, or just compete within their industry, they typically need to ship or receive a product. The average business day sees over 35 million new packages moving through the network. No slight to the ketchup and mustard guys, or the red white and blue guys, but brown and purple make the rules, own the board, and usually control outcomes. Customers (the players) need to understand the dynamics of this game to lessen the cost of their parcel businesses while improving their supply chain. Understanding how your packages are effected by the carrier’s annual or semiannual changes (rate changes, DIMs, and fuel, etc.) is key to accomplishing a win in the game. No problem, huh? Frequently, the carrier account executives scratch their heads and groan as well when these new changes are applied by Atlanta, or Memphis, so you are in good company. The only ones celebrating are the stockholders.
I have been challenged during my 37 years of service to my company and now as a consultant to use my skill set to advise and direct companies on the best strategies to achieve lower parcel cost and process improvements for my clients. In this new role I have confirmed that many parcel customers do not have a firm grasp of this, and many tend to struggle keeping up with the industry. Recently I have met with customers and interested parties that are categorized as Private Equity Groups (PEGs), 3PLs, national accounts, and smaller accounts that use the same carriers (you know the colors!). The common question regardless of size or parcel spend is “How do we take the mystery out of the parcel industry and lower our cost?” Most attempt to answer this question by asking, “Should we keep it in-house? Stay with what got us here? Throw more people at it? Use third party? Move it away from the traffic manager? Hire a traffic manager? Make the current traffic manager a logistics manager? Off shore it?” All are good options (but don’t off shore it!).
There is no magic bullet — no one size fits all. Every supply chain is unique, and therefore, your solution will be unique. Each organization must stop, take a breath, and really look at their parcel supply chain and break it down and benchmark. Assess your parcel footprint and how important you are to your current carrier(s). Your revenue and volume are two key components carriers use to determine importance, and discounts, but they are not the only factors. There are many other important contributors to a parcel profile that define each customer to the carrier, but it all comes down to revenue per piece for the carriers. Some other key elements are pick up and delivery density, which, in a nutshell, is the customer’s contribution to the carrier network as the carriers drive cost down through driver stops per hour, and at each stop, the amount of packages on or off the car. Average weight to cube (DIM) helps establish an average parcel identity, and how far away the customer’s average package is from the upper left hand corner of the rate chart. If the carriers played within one to five pounds, zone 2-3 only, they would have a difficult time pulling down about 100 billion per year in parcel alone. Additionally the parcel mix (air vs ground, commercial vs residential), existing agreements, and flexibilities beyond just rates all contribute. Other considerations are accessorial flexibilities, minimums, age of existing agreements, mode of pick-up, i.e. package car vs tractor trailer, payment terms. All are part of the equation to help further understanding of the parcel profile, footprint and your importance to the carriers.
Doing business today requires a “Parcel Professional,” whether in- house using the existing team with a more robust approach to understanding parcel, or a consultant or third party. Companies choosing to improve their internal employee acumen can find help through further education at local community collegesor universities, as most now offer logistics classes and degrees. Seminars, associations, networking with like companies, and trade magazines are also effective educational tools and are not that costly. Since the recession, third party logistics firms (3PLs) have grown quickly as company traffic staffs have decreased, but there could be cost associated, whether it be hard dollars or soft, and some loss of control. They can be very effective, however, to vet and choose the right 3PL can further confuse the process. Companies may also consider a middle ground alternative by bringing on board a “subject matter expert” or consultant with parcel experience that can help navigate and make some suggestions and be available when needed via an “a la carte” approach. Companies can work them into the process helping to educate the existing staff along the way. Regardless of choices, company investment in this area needs to be considered to understand their own unique parcel profile and footprint as this game will only become less understood, and more costly in the future.
Brian H. Sternberg has over 37 years of experience in the parcel industry and is available to companies or individuals to discuss this topic and assist in understanding and strategizing their parcel, LTL/FTL, or forwarding supply chains. For further information, email Info@InframeInc.net.