During the course of my career, an uncomfortable conversation has occurred again and again. It is one most shippers know all too well.
That conversation is one which historically occurred with a parcel consultant and that now happens increasingly frequently within businesses when shippers digest the results of their own shipping analytics. I am talking about when they first learn of it – the big mistake that led to out of control shipping costs.
On some occasions, the big mistake is the cumulative impact of many smaller errors. At other times, it is a large and overt misstep – for example, shipping an entire product line at a loss because the packaging is now “oversized” under newly introduced, but overlooked, carrier rules. But in all cases, the reaction is largely the same.
First there is disbelief, then anger. Remorse comes later.
It is often painful to witness these moments. When an operations professional finds out their operation lost $2 million dollars because it missed an opportunity to secure savings or didn’t see a fine-print clause in their carrier contract, the news hits hard.
In addition to the obvious unnecessary spending, the opportunity cost must also be considered. How could those funds have helped the business? How did they impact coworkers?
Given the complex nature of parcel contracts and the web of ever-changing surcharges, new rules, and fees the carriers roll out on a continual basis, even the best shippers know such heartache all too well. But as with all endeavors, we can learn from our “mistakes” and missed opportunities – particularly in a field like ours in which the inherent complexity of parcel shipping has prevented transparency for decades.
Now things are changing. Advanced machine learning, data analytics and artificial intelligence make it possible to know like never before and in real time where and how shippers can immediately take proactive steps to save money. When looked at in the aggregate, these outputs also reveal where shipping operations typically lose money.
What quickly emerges is a trend line, one that reveals the biggest mistakes shippers make – the broadly applicable areas where companies that lack shipping intelligence and visibility over their shipping spend lose out most frequently. If they sound familiar, you are not alone.
● Shippers don’t know their shipping vital factors: Even today, many shipping operations do not know the fundamental and most vital metrics that must be monitored to not only effectively negotiate with carriers, but actively manage costs. These include total parcel shipping spend, surcharge spend, the average cost per shipment, the average weight of shipments, the impact of minimum charges, and the average zone. Without this intelligence, shippers are operating blind.
● Shippers create inaccurate annual budgets: More than a few shippers fall victim to a common mistake each year – taking the carriers’ annual general rate increases (GRIs) at face value. Unfortunately, rate cards only tell part of the story. Hidden fees, surcharges, and new rules quietly included in carrier contracts can radically impact costs. This year is no exception. FedEx and UPS introduced a record GRI for 2023 – 6.9% – but our analysis last fall, using real shipping data from the $1BN+ spend under management on our platform, showed that less than five percent of UPS customers will see their shipping costs increase by 6.9% percent or less this year. On average, US businesses will pay 10.2% more to ship via UPS in 2023 than they did last year, and FedEx customers will pay 9.1% more.
● Shippers rely on relationships when negotiating: Many carrier reps are good friends, but they come to the negotiations table armed with data. Data and analytics are absolutely crucial for shippers not only to get the best discounts, but to know where you are in relation to additional tiers and volume discounts. It is imperative to know your shipping data better than the carrier does.
● Shippers fail to educate senior leaders on the impact of parcel shipping: It’s no secret that shipping acumen and performance can dramatically impact the bottom line, but it impacts top-line results as well – for example enabling businesses to offer discounted shipping to attract customers. Notably, this mistake is most often made because shippers lack the data visualization tools needed to inform the C-suite.
● Shippers set it and forget it: It’s tempting to negotiate a carrier contract once a year and consider the job done, but shippers should continually be on the lookout for new opportunities to negotiate new terms and conditions. The most overt example is when discounts negotiated on surcharges expire before the contract does. Carriers count on shippers to lose track of them and gain significant additional revenue as a result.
● Shippers enrich consultants: The gain share model used by most parcel consultants creates a vicious cycle of payment fatigue. Savings are secured early in the relationship, but consulting fees continue for typically three years and often increase as a result of factors the consultant had no part of. Shippers today have the ability to gain real data and intelligence without paying someone else to provide guidance based on trends, hypotheticals, or general best practices.
● Shippers allow themselves to become victims of vendor lock-in: Ideally, shipping operations create a platform that enables them to be carrier-agnostic, or in the absence of that, have the ability to divert parcel shipping volume to alternatives, including regional shipping companies, when needed. Notably, this is something that must be strategically planned for. It does not happen overnight.
The pandemic and the rapid increase in e-commerce that accompanied it focused significant, and long overdue, attention on the crucially important role that parcel shipping operations play in business today. Mistakes will of course continue to be made – to err is human – but as an industry, we have an opportunity to eliminate the unforced errors that have, for some, long been considered part and parcel of our field.
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 September/October, 2023 issue of PARCEL.