Before manufacturers were able to apply strategic sourcing practices to their operational expenses with the same discipline they used to buy the “direct supplies” used on the factory floor, procurement departments referred to off-contract purchases as “maverick spending.” A catch-all term, it referred to spending that failed to leverage the organization’s negotiating power, or, even worse, purchases made by employees without knowing if the price was advantageous or even acceptable.
In purchasing parlance, maverick spending was the antithesis of efforts to bring spending under management – a long-standing effort that became possible for entire industries when Software-as-a-Service-based e-procurement applications enabled organizations to gain visibility over their purchases and aggregate them to create value-based, preferred contracts. Once in place, these contracts made it possible to optimize spend – a reality that led to the rise of chief procurement officers and ultimately made such sourcing agreements table stakes in many industries.
Today we are a similar, but even more striking evolution in parcel shipping. Shippers, erroneously thought to oversee a cost center of business for far too long, are increasingly appreciated as strategists who oversee a business function that has the ability to dramatically impact the revenues not only of e-commerce companies and omnichannel retailers, but businesses in innumerable industries.
Regrettably, though, for many organizations parcel shipping remains the last frontier of spend optimization efforts, with shippers at many companies continuing to engage in “maverick spending,” in which they have little real insight into their own shipping activity, are unaware of hidden costs in their carrier agreements, do not know how the rates they pay compare with those of their competitors, and consequently have no ability to use shipping performance as a competitive differentiator. Not surprisingly, carriers have aggressively safeguarded this lack of transparency with a litany of hidden fees, complex rules, numerous surcharges, and contracts comprised of numerous fine-print details.
Despite this, more shippers are showing in very real terms how a more strategic approach to parcel shipping is not only helping their organizations save money, but also driving top-line results. Just as procurement professionals did a decade ago, these shippers are embracing the visibility SaaS-based applications make possible and then applying the resulting intelligence to their efforts. Broadly applicable, these efforts deserve a closer look and offer a sampling of the many ways shippers can impact businesses. Examples include:
● Shippers are educating executives and advocating on the importance of the parcel shipping function: With the Census Bureau of the Department of Commerce estimating that US retail e-commerce sales for the first quarter of 2023 reached $272.6 billion, or 15.1% of total sales, it is clear parcel shippers play a central role in the fulfillment process for a significant portion of the economy. They are driving this point home with senior leaders; not only are the costs involved significant – in some cases shipping costs amount to 10% or more of a business’s revenue – but they are a core consideration for consumers.
● Strategic shippers are dispelling the myth of free shipping, underscoring their impact on sales and comparing their performance with peers: Shippers know from experience that demonstrating their value by showing how they slow cost increases is a losing battle, especially when carriers’ rates perpetually increase. Instead, they are showing how their costs compare with peers or competitors that have a similar shipping profile. They are also advocating for, and educating business leaders on, how their efforts enable the organization to offer lower shipping costs – a win that can play a crucial role in consumers’ buying decisions online and significantly boost top-line results.
● They are creating budgets with unprecedented accuracy: For decades, the major carriers have introduced their general rate increases annually, with the new rate cards typically going into effect in early January. More than a few shippers have taken the increases at face value only to have their budgets fall victim to a litany of surcharges, new rules on everything from zones to package dimensions, and fees that result in dramatically higher costs. (Notably, our data scientists found that fewer than five percent of businesses will see their shipping costs increase by 6.9% or less – the record-breaking rate increases announced by FedEx and United Parcel Service (UPS) for 2023. On average, those that ship via UPS will pay 10.2% more in 2023 than they did in 2022, and most FedEx customers will pay 9.1% more in 2023, with some shippers seeing increases of 21% or more.) Instead, savvy shippers are using models to create budgets with unprecedented precision.
● Shippers are moving beyond relationship-based negotiations to secure and save with competitive carrier contracts: Historically, shippers negotiated with their carrier rep to get the “best” deal possible. Now strategic shippers are not only analyzing their contracts with far greater rigor – and negotiating based on fact rather than perception – but they are negotiating more frequently throughout the year and more effectively with many securing savings far in excess of past expectations. Just as importantly, many are also moving to a carrier-agnostic model in which they can switch carriers if needed, or alternatively utilize a mix of partners, including regional transportation companies.
● They are proactively looking for savings opportunities: Traditionally, shippers learned of problems – for example, an entire product line being subject to overage charges for packaging that was slightly too large – only after receiving their quarterly invoice. Now shippers are using technology to alert them not only when issues arise, but when opportunities to actively lower their costs present themselves.
With such strategies in place, today’s shippers are proactively working to make sure that parcel shipping does not remain the last frontier of spend optimization for long. Instead, they are realizing a future where the crucially important impact of shipping acumen, the role it plays in online retailers’ fulfillment operations, and its impact on business operations in companies of all kinds is not only known and valued but expanded up – developments that promise the beginning of a golden era.
Josh Dunham is the co-founder and CEO of Reveel, founded in 2006 to help shippers level the playing field for carriers. The company’s Shipping Intelligence Platform provides shippers with the actionable insights they need to make decisions that optimize their operations and deliver opportunities to save money.
This article originally appeared in the July/August, 2023 issue of PARCEL.
