This article originally appeared in the January/February, 2018 issue of PARCEL
Anyone who shops online has had this experience: A big parcel carrier truck pulls up to your house, spewing CO2. They drop a large package on your porch. You open it up only to find the tiny product you ordered swimming in a sea of Styrofoam peanuts, air bags, and other filler. How does that make you feel? You don’t have to be Al Gore to be offended by the magnitude of waste.
Everyone loses in this scenario: The carrier that could not cube out their load, the e-commerce merchant that the carrier taxed with DIM fees for wasting space on their vehicle, the consumer who paid for the waste in the form of higher shipping charges or product costs, and, of course, the environment.
The latest generation of cartonization technology helps you avoid this lose-lose-lose-lose situation.
Carriers Hate Shipping Air, and They Will Make You Pay for It
During an investor conference at the end of the 2015 holiday rush, Fred Smith, FedEx’s CEO, famously went on a rant against e-commerce companies whose sloppy packing practices wasted valuable space on his trucks and planes during the holiday rush when demand for capacity was at an all-time high. He complained that “we were getting lots of packages that were one or two cubic feet and inside was a six-ounce stuffed toy.”
Can you blame him? It would be like expecting airlines to provide free seats on a plane just because you want to put your feet up on the seat in front of you. For some businesses, time is money. For carriers, space is money.
In response, both FedEx and UPS have ratcheted up the costs for shipping packages that are light relative to their size. FedEx and UPS reduced the standard DIM factor for 2017 from 166 to 139, making it more likely than ever that shipments with too much air will be subject to DIM weight rating — an “air tax.” LTL carriers have followed suit for the same reasons, introducing “space-based” rating.
The pressure is on to be more aware of cost-effective packing and palletization or else pay the price in the form of unexpected dimensional weight fees.
The Amazon Effect: Lose Money Shipping Air, but Make It Up in Volume
Amazon has established a new normal in e-commerce parcel delivery — free last-mile shipping, including two-day delivery and other premium services that are eating into margins, including Amazon’s. In 2016, Amazon's shipping revenue amounted to $8.98 billion whereas the company's outbound shipping costs came to $16.17 billion — which means they lost $7.19 billion on free shipping.
Amazon has done a good job convincing Wall Street that losses like this are A-OK. But businesses that don’t have Jeff Bezos as a CEO are expected to make a profit, and that is hard and getting harder if they can’t absorb shipping costs into higher product prices.
So why does it seem that Amazon habitually sends out packages filled with air, despite their public Amazon Packaging Certification Program? Maybe they think more about speed and the cost of fulfillment (reducing steps in their picking and packing process) than they do about the extra fees they would incur with dimensional weight surcharges. Or maybe they can afford to not be vigilant about transportation cost-effective packing because they’ve negotiated dimensional weight surcharges out of their carrier contracts. Have you? Probably not.
Weigh the Cost of Last-Mile Delivery: One Pyramid of Giza/Year
What do last-mile deliveries and the Pyramid of Giza have in common? Answer: nine million tons. That’s about what the Great Pyramid weighs. It’s also the weight of all CO2 emissions produced by last-mile parcel delivery trucks every year.
Yes, I couldn’t believe it either until I did a back-of-the-envelope calculation (transportation and logistics professionals, please check my math!). The major parcel carriers deliver around four billion residential packages every year, and this number is rising. The average last-mile segment of a residential delivery is around four miles, according to a parcel executive I know. The EPA estimates that a light duty truck’s CO2 emission is around 1.144 lbs./mile. Multiply the number of last-mile deliveries x four miles x CO2 lbs./mile and you get the total weight of CO2 introduced into the atmosphere: nine million tons.
You know what else weighs nine million tons: 25 Empire State Buildings, 98 US Capitol Buildings, 2,748 Saturn 5 rockets, 40,918 Statues of Liberty, and 1,534,416 elephants. You get the point. We’re talking about a lot of CO2. And the above assumptions don’t include reverse logistic activity (“returns”), which is becoming a permanent feature of B2C eCommerce merchant strategy.
If we don’t get smarter about packing, we may need a bigger greenhouse.
New Cartonization Technology Can Help Automate Cost-Effective Packing
It’s one thing to be aware of the need for cost-effective packing and another thing to put systems and controls in place to ensure those results are achieved. Those are missing in most fulfillment operations. In order entry and purchasing, agents are left to guess as to how many cartons or pallets will be required to fulfill an order and therefore estimating shipping costs often miss the mark.
During fulfillment, warehouse personnel are free to decide which cartons they should use to pack orders. But few take transportation costs and other business rules into account because the variables are too complex to assess manually. Use too many small cartons, and you will overpay in the form of minimum carrier charges. Use cartons that are too large, and you pay DIM fees. Ignore carriers’ DIM weight factors, and you may pay DIM fees when you don’t have to (an exception: USPS doesn’t charge DIM fees for local zones).
These decisions can be fully automated. The latest generation of cartonization technology borrows from the advanced mathematics and algorithms that have powered the video game industry for years. Learn more about how cartonization technology works by visiting PARCELindustry.com/Cartonization.
Make Cost-Effective Packing a Win-Win-Win-Win
As Amazon continues to use shipping costs as a competitive weapon, it is more important than ever to ensure your organization practices cost-effective cartonization. It’s good for your business, good for carriers, good for consumers, and good for the environment. That’s a winning combination.
For over 25 years, Bob Malley has helped thousands of businesses reduce transportation costs and streamline fulfillment with parcel TMS. As CEO of Pierbridge, Inc., Bob has built a global organization that developed Transtream, the only parcel TMS platform that has earned both FedEx Diamond and UPS/ConnectShip Platinum level status for excellence and customer adoption. He can be reached at 413.229.6619 or bob.malley@pierbridge.com.
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