In recent years, we’ve seen record high general rate increases (GRI), large jumps in fuel costs and extended peak seasons. 2022 has been no different and will be a year to remember for many reasons. But what lies ahead in 2023? It looks to be more of the same. But when I say more, I mean a lot more. So, what can you do to prepare? Which aspects of your parcel shipments are in your control and which ones aren’t?
To prepare for 2023, the most important thing you can do is understand your shipping profile and customer base, which will allow you gain better insight from your shipment data. This is very different from having data in your system and creating non-value add dashboards. Many companies are data-heavy, but insight-light. FedEx and UPS can provide huge amounts of data with hundreds of column headings and thousands of rows, and while it’s great to have all of that information, it can be intimidating and overwhelming to know what to do with it. The best strategic decisions are made from strong, clean, clear data.
The first step to reducing your costs is by using your data to optimize your service selections. Time, tide, and fuel wait for no one. As we inch closer to 2023, fuel now accounts for nearly 20% of total parcel spend, in comparison to its 8% mark in the middle of 2021. In 2022, there have been multiple fuel cost increases that have really taken a toll on shippers. Most other surcharges are only applied if a package qualifies for it - an oversize or residential package, for example. But the fuel surcharge is applied to all packages. Since fuel is a percentage of your total spend, you need to reduce fuel cost. The right data will clearly show that higher fuel costs are associated with more expensive, faster services. By optimizing these services, you’ll reduce your net spend.
If you’re using those more expensive services, compare the delivery times to some of the less expensive ones. You will be surprised how close the delivery times are, especially for the lower zone destinations. FedEx and UPS state that they have a very fast ground service. Put it to the test. Ship packages via ground and express to customers in zones 2 and 3 to evaluate if the lower cost service is an option for you.
You can also change your internal process, giving yourself a few extra days to get a package to its destination. If you use an overnight express service to deliver a package on Friday, change your internal process so the package is ready earlier in the week and use a less expensive service that will get it there on Friday. Of course, if you do change the process, ensure that everyone is fully trained on the updates. Training everyone in the office is very important, but you also need to ensure that the people in the shipping department who are physically responsible for labeling the packages have a thorough understanding of the new process and the logic behind it.
Every shipper should have a few backup plans. While FedEx and UPS are the main players, the regional carrier landscape is growing. A single carrier model has been the norm for many companies for years, but with recent capacity issues, the multi-carrier model has increased in popularity and will continue to do so in 2023.
Be set up and ready to ship with more than one carrier. Reaching out to a different carrier on a day when your primary carrier is not able to collect your packages is too late. You should have at least two carriers set up in your system at all times so you can easily pivot if needed. Ensure any additional carriers are integrated with your systems, printers and TMS, or any other tools that you need to ship your packages. It’s also beneficial to periodically ship some packages with a secondary carrier to ensure a smooth transition to a larger volume if needed down the road.
Stay up to date and educated on what’s happening in the industry. You need to understand how changes in fuel, peak surcharges and the GRI affect your business. What is the true cost of those changes? The GRI is announced every year, but it’s an average percentage over all services and you need to know how it will impact your costs for the upcoming year. A GRI of 6.9% will more than likely be higher than that in reality for your business, since that 6.9% does not include the increase in surcharges. You need to know how the announced changes will affect your bottom line so you can forecast accordingly for the year ahead.
There are macroeconomic factors that are out of your control, but there are factors that you can control. Don’t just accept the status quo. Review your data with someone who understands the dynamics of parcel shipping. By knowing your shipping profile and having a true understanding of the services you use, you can make smart decisions that will help your bottom line in the coming year.
Micheal McDonagh is President, Parcel, AFS Logistics.