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Should You Use a Private Parcel Insurance Plan?

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A customer purchases a product, eagerly awaits its arrival — and then this happens: The package arrives late, in a damaged box, which is not what the customer expected when ordering the product. At this point, you have a frustrated customer on your hands, and how you handle this situation could have a ripple effect on your business.

These types of situations don’t happen frequently, but when they do, the costs add up fast for businesses. First, you must pay to send the customer an undamaged product, pay additional shipping, and manage the internal cost of getting it all done. Situations such as this result in companies asking whether they should invest in a parcel insurance plan.

Many considerations factor into this decision, including the cost of the items being shipped, the carrier used, and the risk of loss. Understanding the details of parcel insurance and how it can protect your business allows you to make a more informed decision.

Why Buy Private Shipping Insurance?

The number reason is reduced cost!  There are many different providers of private insurance, and Shipware is happy to set up clients and prospective clients with what we have determined to be the best program in the industry.

In a perfect scenario, packages wouldn’t get lost, stolen, or disappear in transit. And while these situations are the exceptions and not the rule, they do happen. Insurance offsets the cost associated with these situations.

What’s more, customer expectations are constantly rising, which makes it important to put shipping insurance on your radar. The decision to purchase insurance is pretty straightforward for high-value items, but when the product value is lower, that’s when the decision gets more difficult.

Gathering information is a good starting point; then you can decide whether to purchase insurance and put together policies for collecting the required information if filing a claim becomes necessary.

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Understanding Potential Insurance Options

If you decide to purchase insurance for parcels, it’s good to know all of the available options. Most carriers, such as FedEx, UPS, and USPS, offer insurance, but they are not the only option. There are a few different options for purchasing insurance on parcels.

Carrier insurance. This is usually the first option that shippers consider when purchasing insurance. The major carriers offer insurance based on the “declared value” of the package. The declared value is simply a stated value, what you say the parcel is worth. If you file a claim, proof of that value is required.

Third-party insurance. (aka Private Parcel Insurance) In addition to the major carriers, third-party companies offer parcel insurance. These companies have their own shipping rules and regulations, so it’s wise to check those out before purchasing insurance. Some companies shipping a large number of parcels elect to use a third party for shipping because it drives down the overall cost of insurance and the claims process is expedited.

Self-insurance. Larger-parcel shippers might decide to self-insure, which means that they understand what is lost on shipping claims and elect to handle those claims internally with a preset budget. Most parcel shippers elect to use one of the other options, such as purchasing additional carrier insurance or third-party insurance instead.

How Much Does Parcel Insurance Cost?

An important consideration of parcel insurance is the cost. If you expect a certain number of claims each year, how much will you pay for insurance, and will that cost pay off?

If you’re using one of the major carriers, such as FedEx, UPS or USPS, for insurance, you know that each has their own set of pricing. And in many cases, the first $100 of coverage is free. But if you are shipping a higher-value item, it’s good to understand the cost of insurance and any potential exclusions and value caps. Here is a quick guide.

USPS Shipping Insurance Costs

USPS charges an incremental cost based on each $100 of insurance that you purchase. Rates increase occasionally, but here is an example of what to expect:

  • $100.01 – $200: $3.35
  • $200.01 – $300: $4.35
  • $300.01-$400: $5.50
  • $400.01 – $500: $6.65
  • $500.01 – $600: $9.05.
  • $600.01 – $5,000: $1.25 per $100 of incremental value.

If you plan to use international services, the cost varies by service. Check out additional details here.  

UPS Shipping Insurance Costs

The pricing below is for UPS service options that do not offer that first $100 of insurance for free, so you’re footing the entire cost. Here is a quick summary of what to expect for pricing based on the stated value of the package:

  • Value up to $50 is $1.65
  • $50.01 to $100 is $2.05
  • $100.01 to $200 is $2.45
  • $200.01 to $300 is $4.60
  • The price per additional $100 of insurance for items valued over $300 and up to $5,000 is $4.60 plus 90 cents for each $100 increment or fraction thereof.

Some UPS services, such as Express Mail, include the first $100 of coverage at no cost. Pricing for additional insurance includes the following:

  • The first $100 of value is still covered for free.
  • Value over $100 up to $200 is 75 cents.
  • $200.01 to $500 is $2.10.
  • $500.01 to $5,000 is $2.10 plus $1.35 per each $100 or fraction thereof.

FedEx Insurance Cost

FedEx shipping insurance costs vary based on the service level and various other factors. For comparison purposes, here is what you can expect:

FedEx SameDay: The maximum declared value is $2,000, and the cost for declared value is $2.70 for shipments valued up to $300 and 90 cents per $100 of declared value of shipments that exceed this amount.

FedEx SameDay City: Maximum declared value is $2,000, and the cost for declared value is $3 for shipments valued up to $300. One dollar per $100 is the charge for declared values over $300.

U.S. Express package service, U.S. Ground service and International Ground services. The cost is $3 for shipments valued up to $300. After this amount, it is $1 per $100 of declared value for shipments over $300.

As a general rule, third parties may provide options that the major carriers don’t, such as faster claims processing or covering all your parcels across various carriers. Additionally, the cost may be lower, depending on the third-party vendor. But regardless of which parcel insurance you chose, it’s important to understand any potential exclusions.

Understanding Parcel Insurance Limitations

Reading and understanding the fine print is critical when investing in parcel insurance. Some items aren’t covered, and others are covered; however, there are exclusions based on the type of protection. Understanding the fine print with each carrier or third-party vendor helps you determine which is best based on the type of parcels you ship.

For example, FedEx has limitations on the declared value limits on items such as art, photos, jewelry, antiques, and musical instruments. They permit a maximum declared value of $1,000, so even if the item is worth more, the insurance coverage won’t extend beyond that amount.

USPS limits coverage on fragile items, and, according to USPS DMM 609 “Filing Indemnity Claims for Loss or Damage,” USPS is exempt from paying insurance claims if the “fragile nature of article prevented its safe carriage in the mail, regardless of packaging.”

UPS has limitations on the type of commodity that is shipped, which are outlined in the Liability Limits section of the UPS tariff terms and conditions. A few of these items include checks, gift cards, phone cards, and some types of media.

Start by taking inventory of the types of products that your company ships. Check with the carriers that you frequently use to see whether those items are covered or have limitations. Knowing this up front can save money and time and prevent a situation where you think parcels are insured but they actually are not due to specific limitations and exclusions.

Understanding the Claims Process

The moment a customer calls and notifies you that a package arrived damaged or didn’t arrive at all, the claims process should be set in motion. Start collecting information you might need and get in touch with the carrier right away. The customer service team should know exactly how to take care of the customer and what information to collect, and they should pull together the items required to minimize risk of claim denial.

Depending on the carrier, there may be multiple ways to file a claim, including online or by email, fax, or phone. Decide on the process that you prefer and ensure that customer service team members use a consistent process for filing claims in order to minimize confusion.

It’s also important to note that some carriers have waiting periods before you can file a claim. This waiting period gives the carrier time to try to find the package before moving forward. For example, a carrier might require you to wait seven days before filing a claim, during which time the carrier will conduct a search for the package. If that package is not found, then you are free to move forward and file an insurance claim. For international shipping, the waiting period may be longer, so check with your carrier on the process.

Also, pay careful attention to parcel insurance rules for packaging items. A carrier or third-party insurance company may ask to view the packaging material involved with damage claims. Ask the customer to keep all packing material and damaged goods in the original form in which they were received. Packing and damaged goods shouldn’t be disposed of or given to the carrier prior to taking photos and documenting them.

The Importance of Acting Quickly During the Claims Process

Once you find out that a customer’s package is missing or damaged, move quickly to file a claim. There are two reasons why it’s important to act fast. First, the carrier requires specific items to support the claim. You will need to prove the value of the item, show documentation of how the item was packed, and provide other relevant information if it’s requested. The sooner you file, the easier it is to collect these items.

Second, most carriers have rules about when you can file a claim. As mentioned, there is usually a waiting period, mostly to give the carrier time to search for the package. Once that period has expired, there is a limited amount of time to open a claim. For example, for USPS Insured mail, you have up to 60 days. For UPS, it’s nine months for shipments within the U.S. and 60 days for shipments outside the U.S. And FedEx requires claims to be filed within 60 days from the insurance purchase date.

Once the claim is filed, you will need to wait for it to be processed. Typical processing time can range from seven to 10 business days. Some carriers will send a letter of authorization allowing you to file the claim, and once you provide supporting documentation, the claim will be processed for payment.

Moving Forward with Greater Peace of Mind

The decision to purchase insurance is an important one for businesses that want to minimize potential loss. There are many considerations, including the value of the items that you’re shipping and what carrier is being used to ship them.

However, if loss prevention is a concern for your business or you notice a high percentage of items having issues — either being damaged during transit or going missing — it helps to put some safeguards in place to minimize those losses. Parcel insurance plans can provide that peace of mind at a small cost per package to offset potential costs and keep your business running smoothly and better able to serve customers.

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About Shipware

Shipware delivers volume parcel and less-than-truckload shippers intelligent and innovative distribution solutions and strategies. Whether you ship with FedEx, UPS, USPS or regional carriers, our contract negotiation and invoice audit services are guaranteed to reduce your parcel and LTL shipping costs by 10 to 30 percent, with no disruption to current operations. Our team of experts has over 200 combined years of carrier pricing experience. We have negotiated thousands of FedEx, UPS and LTL contracts – saving our clients an average of 19 percent of their annual shipping spend.

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UPS Announces 2019 Rate Increases

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Shipware Preliminary Analysis: What You Need to Know

United Parcel Service (NYSE: UPS), will increase shipping rates effective December 26th, 2019 by an average of 4.9% for UPS Ground, UPS Air & International services while UPS Freight rates will increase by an average of 4.9% on December 27th, 2018. The change will impact the following:

  • UPS Daily Package Rates including UPS Ground, UPS Air, and UPS International services
  • UPS Alaska and Hawaii Daily Package Rates
  • UPS Retail Package Rates including UPS Ground, UPS Air, and UPS International services 
  • UPS Hundredweight Service Package Rates 
  • UPS SurePost Rates
  • UPS Air Freight Rates
  • U.S. Origin UPS Express Freight Premium Direct Rates

In addition, there will be changes to UPS surcharges and minimums also effective on December 26th.  Notable of those changes for 2019 include the following:

ups 2019 rate increase_shipware

Here are some highlights from the announcement, showing the changes to some of the more common surcharges, along with the percentage increase.  In recent years, the largest increases continued to be reserved for those surcharges related to package size and dimensions, and this year we also see US increasing the Third Party Billing Fee by 80%!

Take a closer look at Additional Handling, Large Package Surcharge and Over Maximum Limits. UPS increased these accessorials during the 2018 General Rate Increase in December 2017 and then again in July 2018, and all 3 are going up again. Additional Handling Weight has increased over 91% in 12 months! 

The comparison below of 2018 rates to 2019 rates shows the actual impact by service and weight break. In many cases, the actual increase is over 5% – even as high as 9.34%!

An analysis by zone reveals that the increases deviate from the 4.9% mark quite a bit. SurePost<1lb is taking the biggest hit with zone 2 increase of 9.87%.

This year, UPS is giving its customers only 3 weeks’ notice of the 2019 increase whereas many contracts state that there must be a period of 30 days’ notice. Some of the most notable changes in 2019 will be the following: 

  • Fuel surcharges will now apply to more surcharges than ever before.  Included among those are Additional Handling, Over Maximum Limits, Signature and Adult Signature Required.
  • Fuel surcharges are scheduled to increase, but details won’t be available until 12/27/2018.
  • UPS will charge a processing fee when Package Level Detail (PLD) is not provided to them prior to delivery.

Both UPS and FedEx continue to create a more complex pricing environment year over year. Many shippers understand that there is usually very little correlation between the carriers’ announced average increase and the actual increase by service level, zone and weight.  The impact to their parcel budget can vary significantly from the announced average increase depending on their shipper profile. A more thorough analysis by Shipware’s team of consultants will be forthcoming. 

These increases will significantly impact each shipper; however, the increase in overall cost will vary per each shipper’s unique shipping characteristics. Please contact us if you would like a custom analysis to understand the exact impact these changes will have on your business. rlannon@shipware.com

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Presidential Task Force Report Released: A Call for Shipping to Subsidize Mailing

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The shelved Presidential Commission report on the United States Postal System was on December 4, 2018, surprising many of us who thought it would never see the light of day.  The Commission was initiated by Trump to potentially privatize the USPS and dynamically change how the Post Office prices its services, specifically targeting Amazon’s alleged sweetheart deal.  Trump tweeted, calling the USPS Amazon’s “Delivery Boy” and stating it was being subsidized unfairly.

The scope of the study was intensive, with virtually every major organization and stakeholder involved.  Fortunately, there was no recommendation from the Commission to privatize. In addition, there was consensus in the report advocating legislative reform to strengthen oversight by both the Board of Governors and the PRC, adjust and amortize the prefunding healthcare requirement, reform the contributions into the Federal Retirement System, and eliminate the right of collective bargaining from compensation by aligning employees’ rights with other federal employees.

Many findings were consistent with expectations, such as aligning pricing by class to cover both actual and operational costs; sustaining the monopoly on mail and package delivery, including exclusive access to the mailbox; maintaining the Universal Service Obligation (USO), opening the door for revised delivery standards (i.e. eliminate Saturday mail delivery); and to pursue new revenue streams.

Surprising was the lack of mention on the reported abuse of the Reseller programs.  While the OIG was heavily consulted, somehow, the OIG findings of $1B in annual savings from fixing this program was not covered.

The report also showed the disconnect in Washington between reason and reality.  Instead of reforms that would allow the USPS to align healthcare costs like other government agencies, the Commission recommended keeping the prefunding of the healthcare mandate in place and provide relief by restructuring the payment schedule.  No other company or Government organization has this requirement. This is, and will continue to be, a dirty money grab by Washington politicians to Tax and Spend, but in this case, the tax is hidden in the form of increased postage. Let me explain.

If you follow the money, when the PAEA was passed in 2006, the USPS could forgo future overpayments into the Federal Retirement System for employees where the USPS was their 2nd Government career.  At the time, the OIG reported the USPS had overpaid $75B and was continuing to overpay.  In return for stopping these overpayments, Congress required the prefunding of their future retiree healthcare requirements to keep the cash flowing.  For a while, it was sustainable, until the 2008 recession hit the USPS especially hard.

This position clearly shows the bias in the report, where the goal is to protect the national budget and not to do what is right for the USPS and the American public.

The other disturbing finding was the recommendation on how to pay for the estimated $4.4B cost of the USO, by crossing a line separating the Market Dominant and Competitive businesses.  They want to increase prices on Shipping to pay for USO and took a page from UPS’ playbook, and their relentless attempts to get the PRC to change the “Operational Cost Coverage” methodology to pay a larger share by raising prices for Shipping services.  

While the Commission was in favor of creating new revenue streams by licensing the right to the mailbox from 3rd party providers and selling fishing and hunting licenses, they came out against allowing an expansion into banking services, citing an unnecessary risk to the balance sheet.  Another example of the Commission being influenced by industry. Studies have shown great support for USPS banking with little risk. It would open universal services to many rural areas with limited access to banks.

The frosting on the cake was this statement: “Many of the Task Force’s proposed reforms to pricing, costing, and services are designed to create such a transfer of value from commercially oriented products to socially oriented essential services.”  

The Commission is clearly crossing a line it shouldn’t.  Competitive products are priced based upon costs and market conditions.  Adding a Social Service fee would be punitive in nature. USO changes should be limited to market dominant services and continue to fulfill the original, grand design of our Postal System as put forth by Benjamin Franklin.

While I am glad privatization is off the table, it looks like it is going to be a tough road ahead for legislative postal reform.  The biggest problems facing the Post Office were created by Congress and need to be fixed by Congress. Unfortunately, politics will likely forestall unbiased reform.   I remain hopeful that we end up with a better deal than the last one. The American public deserves to keep a viable and competitive Postal Service.

Gordon Glazer, CMDSM, CMDSS, MDP, MDC is a Senior Consultant, USPS Specialist at Shipware LLC, an innovative parcel audit and consulting firm that helps volume parcel shippers reduce shipping costs 10%-30%. Gordon is a postal industry veteran with 32 years’ experience and is a sought-after speaker and industry thought leader. He welcomes your questions and comments, and can be reached at 858-724-0457 or gordon@shipware.com.

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How Much Does Freight Insurance Cost?

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Protection from financial loss is a key consideration for businesses working to safeguard their assets and future. Loss of cargo due to theft is estimated at $22.6 billion annually, according to the BSI Group’s Global Supply Chain Intelligencereport. Depending on where that freight is traveling, the risk may be higher. According to the Transportation Assets Protection Association, in November 2016 alone, 231 freight thefts occurred in the Europe, the Middle East, and African regions, with losses that topped $64,000.

Freight insurance, also known as cargo insurance, helps protect against this type of loss, covering a variety of transportation means, everything from ocean to trucking to air, depending on the policy.

If you’re shipping goods that are valuable, it’s a good idea to look into freight insurance to protect those goods during transport. Carriers provide some coverage, but that coverage is limited and does not cover all situations. The first step in understanding freight costs is knowing what type of insurance is available and what factors play into that cost.

What is Freight Insurance?

Freight insurance provides additional protection that extends beyond what is offered by most standard carriers. This type of insurance typically includes coverage during the transport of goods and is purchased from a carrier or third-party insurance company.

Businesses can ship cargo without insurance, but if an unexpected event occurs during transport, the shipper  absorbs all the costs. If the carrier were at fault, you might be able to recover some of the loss, and legal action is available, but it could be complicated and time-consuming — especially when dealing with international shipments.

Additionally, some carriers limit liability when an event is out of their control. For example, flooding, hurricanes, lightning strikes, and earthquakes are considered “acts of God” and therefore may be excluded. At this point, having an insurance policy in place is the best way to recover the loss.

Understanding Freight Insurance Categories

The potential cost of insurance is tied to the type of insurance that you purchase. There are two major categories: open coverage and single coverage.

Open Coverage

Do you import and export items frequently? If so, open coverage might be a good option. With this option, you pay premiums annually, and the coverage extends to several shipments traveling at one time, depending on the policy details. Open coverage policies provide coverage until the plan is terminated, with most companies reviewing them annually. This is a good option for large-volume shippers that find purchasing single-coverage policies inefficient and need a more cost-effective option.

Single Coverage

Do you ship freight infrequently? If so, single coverage might be the best option. For example, if you’re a small-business owner who ships occasionally and needs coverage from departure to arrival, single coverage is a good choice.

Once you understand the two general categories of freight insurance, you can take a deeper dive into the various types of insurance and what to expect in terms of premium costs.

The Cost of Freight Insurance: What to Expect

Freight insurance costs take into account a variety of factors, including the value of goods, origin and destination points, and even the carrier’s loss history. The mode of transportation is also a factor. For example, insurance on ocean shipments may be more expensive than on air shipments, since goods are exposed to various risks for an extended amount of time.

Items that are considered “high risk for theft” are more expensive to insure. For example, let’s say that you’re shipping electronics — mobile phones or laptops. These items are high-risk due to the potential for loss and theft. On the flip side, if you’re shipping plastic tables or inexpensive toys, the theft risk is low, which drives down insurance premiums.

The way in which goods are packed also affects pricing. For example, items that are packed in crates or containers may be priced more reasonably than goods that are shrink-wrapped and thus more vulnerable to both damage and theft.

Calculating the cost of insurance requires knowing all the variables involved, but to give you a sense of potential pricing, let’s look at an example. First, here are the most common variables that you’ll need to consider to better understand freight insurance pricing:

  • Value of goods
  • The insurance rate (provided by the insurer)
  • Freight (the shipping cost)

For example, let’s say that the commercial value of the goods is $5,000 and the insurance rate is 0.6%. Multiply these numbers and you’ll get $30. Let’s assume that the freight (which is the shipping cost) is $1,200. Add these numbers together and you get $6,230 ($5,000 + $30 + $1,200). This gives you the “total insured value,” which you multiply by 110 percent (the extra 10 percent goes to unexpected costs) — which gives you $6,853. Multiply that number by 0.06, which gives you $41.12, the cost of insurance.

This is just one example, and the cost will vary based on the factors above, but the important thing to remember is that the cost will vary based on the value of goods; potential risk, which affects the insurance rate; and the shipping costs. You can also elect to purchase insurance that does not include the shipping cost, and we’ll discuss this in greater depth shortly. But first, where should you purchase freight insurance?

Understanding Where to Purchase Freight Insurance

When shipping freight, some businesses use “freight forwarders” that offer insurance packages from an insurance broker. This is an easy method for securing insurance, since they can complete the transaction quickly. Also, when filing a claim, resolution may be more streamlined, since the freight forwarder has an established relationship with insurance brokers.

The second option is to work directly with a broker, which is a good option if you frequently ship high volumes and need a long-term solution for insurance. Gather pricing for both options to determine which is more cost-effective for your business.

Additional Cost Considerations

There are a few more factors that affect cost when determining pricing. For example, let’s say that you want to insure your goods. One option is that you can use the carrier’s insurance, which is very limited and may not cover you fully. A second option is that you insure the cost of goods only. If a loss occurs, you will be reimbursed for the cost of goods but not the freight charges you paid. And the last option is that you insure the cost of goods and the money you spent shipping them. Below we walk through each of these options:

Legal Liability

Legal liability coverage is what most carriers offer. With this option, the goods are automatically covered under the liability standard for the transportation industry. You don’t pay for this option, and the coverage is very limited. For example, domestic shipments may extend coverage equal to 50 cents per pound with a $100 minimum. This insurance is typically available if the carrier is found responsible for the event that damaged or lost the cargo.

Insurance of Cost of Goods Only

This type of insurance covers situations of a total or partial loss of the damaged items, and it pays the replacement value of the goods. For example, let’s say that the commercial invoice value is $10,000 and the insurance company charges 60 cents per $100 of insured value. The total cost for insurance would be $60. If a loss occurs, you would be covered for the cost of goods but not for any additional costs, such as freight.

Insurance of Goods and Shipping Charges

If you want the cost of shipping the goods to be covered, this option is your best choice. It will cover the cost of goods and the cost of shipping those goods. The calculation for this example was used above, and it is typically more expensive than the other two options.

Reading the Fine Print

Freight policies have limitations, and fully understanding those limitations before purchasing a policy helps protect you from unexpected losses. For example, some insurers may require that fragile goods — such as glass, marble or tiles — must be professionally packed in order to qualify for coverage. What’s more, you’ll need to keep receipts to prove that you complied with this rule in case loss or damage occurs.

Additionally, some items may not be insurable at all, depending on what type of products you ship, so keep this in mind. For example, cellphones or other specific items might not be insurable with some policies, so ask questions about the types of products you plan to ship.

Insurers also have rules about packing guidelines for cargo. For example, if the items arrive damaged, one of the first questions that may be asked is about the packing of the items. If cargo is damaged due to poor or improper packing, the cargo insurance is unlikely to pay a claim for these damages.

Weighing Cost with the Risk of Under- or Over-Insuring

Weighing the cost of insurance with potential loss is a difficult balance to strike. Consistently over-insuring items results in wasted resources. On the flip side, under-insuring can result in serious financial losses if an unexpected event occurs.

Find the right balance by studying your risk over time. As you ship more items and purchase insurance, you will start to see patterns. How many losses do you see annually? What’s more, how much are you paying annually for insurance? Does it make sense to pay extra premiums to cover shipping costs, or could you pay to insure the freight only and put the money saved in reserve to cover extra shipping in case a loss occurs? Weigh the potential risk with savings, and figure out the right strategy for your company.

Additionally, put together a process for keeping documents in the event of loss. For example, keep current paid premium bills that show you’re up-to-date on payment and copies of all insurance contracts. If you’re required to have fragile items professionally packed, keep receipts organized so you can quickly furnish those in the event of a loss. Also, read the fine print about how much time you have to file a claim. For example, if damage is noted on the bill of lading at the time of delivery, you might need to submit the claim within a specified number of days.

Moving Forward with Greater Safety

Protection from unexpected loss is an important safeguard for businesses. One important factor in calculating that risk isprice. How much will you pay for insurance, and what is the right amount of insurance for your company? Does coverage extend to all items in a shipment, and if so, what does that coverage include?

Answering these questions during the shopping phase is important in selecting the right option for your freight. Reading the fine print and understanding exclusions and how much a policy will pay will help ensure that you’re buying the right amount of coverage, neither too much nor too little. As a result, you’ll have greater peace of mind when shipping freight, and you can be certain that your goods are covered in the event of an unexpected loss.

About Shipware

Shipware delivers volume parcel and less-than-truckload shippers intelligent and innovative distribution solutions and strategies. Whether you ship with FedEx, UPS, USPS or regional carriers, our contract negotiation and invoice audit services are guaranteed to reduce your parcel and LTL shipping costs by 10 to 30 percent, with no disruption to current operations. Our team of experts has over 200 combined years of carrier pricing experience. We have negotiated thousands of FedEx, UPS and LTL contracts – saving our clients an average of 19 percent of their annual shipping spend.

FedEx Shipping Insurance: A Comprehensive Guide

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When serving customers, companies have many considerations, including shipping and its impact on the customer experience. And when evaluating shipping options, there are a number of variables, including cost, value, and dependability that must be taken into account. But companies also must plan for what happens when something goes wrong.

A customer calls and complains that a package didn’t arrive on time, or equally as serious, the package arrives broken or in poor condition. The first priority is finding a resolution for that customer, but what amount, if any, can you recover for the loss?

FedEx is a popular carrier choice, shipping 14 million packages to 220 countries and territories daily. The company offers insurance to handle these types of situations, but how much does it cover, and what is the cost? Understanding the pros and cons of FedEx shipping insurance can help you decide what role, if any, this option should play in your business operations.

What is FedEx Shipping Insurance?

FedEx offers insurance to help offset the cost if a package is lost, stolen, or damaged. The first $100 of insurance doesn’t cost anything, but if the value of the package is higher, you can purchase additional insurance to cover potential losses.

There is a small risk of package loss during transit, but damage is more common. One study found that up to 11 percent of packages are damaged during transit. Damage results by carrier vary, but the study found the following percentage of damaged packages by carrier:

  • UPS: 11 percent
  • USPS: 10 percent
  • FedEx:7 percent

FedEx had the smallest percentage of damage in this study, but in these events, shipping insurance helps offset the cost. Purchasing the right amount of insurance is key and involves stating a “declared value.”

Understanding FedEx Declared Value

Purchasing insurance requires you to tell the carrier the value of the shipped items. Upfront proof or receipts are not required at this stage; however, if you make a claim, these will be required to confirm the value of the package.

The first $100 of insurance is free for most services; however, you can purchase insurance for more than this value (more on this shortly).

Adding more insurance to a package can be accomplished online or in person.

Also note that with FedEx insurance, the carrier will not automatically replace the item if it’s broken and can be repaired. Additionally, FedEx has a maximum declared value, which varies based on the service you select.

How Much Does FedEx Insurance Cost?

The cost of insurance varies based on the type of service that you select and the items you plan to ship. Here are a few samples of what to expect:

FedEx SameDay & SameDay City:Maximum declared value is $2,000, and the additional cost for declared value is $3 for shipments up to $300. One dollar per $100 is charged for declared values over $300.

U.S. Express package service, U.S. Ground service, and International Ground services.The additional cost is $3 for shipments valued up to $300. After this amount, it’s $1 per $100 of declared value over $300.

Direct Signature Confirmation service is available at no cost if you state the value is in excess of $500. As a result, FedEx will require a signature from the package recipient when delivering the package. If nobody is available to receive the package, the carrier will attempt delivery again. Shippers sending multiple items should also carefully consider whether shipping multiple items together makes sense. Insurance covers the entire package, regardless of the value of each item shipped.

For example, let’s say that you plan to use FedEx SameDay City, which has a maximum declared value of $2,000. You are shipping two items, each worth $1,500. In this case, it might make sense to ship the items separately to ensure you achieve full coverage.

Understanding Insurance Limitations

When using any carrier, including FedEx, it’s a good idea to verify which items are not covered or have limitations on coverage. For example, the Declared Value and Limits of Liability sections of the FedEx Service Guide explain that items of extraordinary value and those items with a value that is difficult to ascertain may not be declared. According to the FedEx site, limitations include the following:

For Shipments containing the following items of extraordinary value the Declared Value for Carriage is also limited and depends on the contents and destination of the Shipment:

  • Artwork, including any work created or developed by the application of skill, taste or creative talent for sale, display or collection. This includes without limitation, items such as paintings, drawings, vases, tapestries, limited-edition prints, fine art, statues, sculptures, collector’s items, customized or personalized musical instruments or similar items.
  • Antiques or collectable items, or any commodity that exhibits the style or fashion of a past era and whose history, age or rarity contributes to its value. These items include but are not limited to, furniture, tableware, porcelains, ceramics and glassware. Collectable items may be contemporaneous or relating to a past era.
  • Film, photographic images, including photographic negatives, photographic chromes and photographic slides.
  • Any commodity that by its inherent nature is particularly susceptible to damage, or the market value of which is particularly variable or difficult to ascertain.
  • Jewelry, including but not limited to, costume jewelry, watches and their parts, mount gems or stones (precious or semiprecious, cut or uncut), industrial diamonds and jewelry made of precious metal.
  • Precious metals, including but not limited to, gold and silver, silver bullion or dust, precipitates or platinum (except as an integral part of electronic machinery).
  • Furs, including, but not limited to, fur clothing, fur-trimmed clothing and fur pelts.

FedEx might not exclude insurance on the above items outright, but may limit the amount you can declare. For example, FedEx permits a maximum declared value up to $1,000 for the following items:

  • Artwork
  • Photos
  • Glassware
  • Jewelry
  • Furs
  • Precious metals
  • Plasma screens
  • Antiques
  • Stocks, bonds, and cash equivalents
  • Collectibles, such as coins or stamps
  • Some musical instruments
  • Models, such as dollhouses

If you state a value that exceeds the amount allowed, you simply won’t be able to recover more than what is set forth in the FedEx rules and regulations.

How to Insure Your FedEx Package

Taking advantage of FedEx insurance is easy. When you drop off the package to be packed and shipped, simply fill out the value section of the shipping form. If the package includes items worth less than $100, don’t worry about purchasing additional insurance; coverage is already provided.

Additionally, you can pack your own item and have it picked up at your location, which is ideal for businesses shipping large numbers of packages. Ensure that you follow FedEx packing requirements, which is important if you file a damage claim. Packages that exceed $100 in value require a declared value. And all you need to do is state the value, knowing that you’ll need to have documentation if a claim is required.

Packing Details and Considerations

FedEx has guidelines about packing items, and if you file an insurance claim, these guidelines become important. In the case of damage, FedEx wants to make sure that the package was packed properly so they can determine who was at fault for the damage. If the package was not packed according to their guidelines, they may deny the claim. The carrier makes a few suggestions for packaging, including the following:

  • You may use your own packaging if the boxes are sturdy and undamaged with all flaps intact.
  • Chipboard boxes, including gift or shoe boxes, must be packed into a corrugated outer box.
  • If items are heavy, use double-wall boxes.
  • Place small packages inside a larger outer box.
  • All fragile items should be double-boxed with 3 inches of cushioning in and around the smaller box.
  • Wrap items individually with cushioning material and center them in boxes away from other items and not near the sides, corners, top or bottom of the box.
  • Bottles that contain liquids should be upright. The inner packaging should be able to contain any potential leaks.

Full guidelines can be reviewed here, which include guidelines for unique items, such as those with insurance limitations, including artwork, photos, and musical instruments.

Understanding the FedEx Claims Process

Purchasing insurance is a safeguard that most hope they won’t need. But if a customer’s package goes missing or arrives with damage, you’ll need to cash in on that insurance you purchased. But how? FedEx provides a few different methods for filing a claim, including online or by email or fax to the FedEx claims department. Filing a claim online allows you to get updates on your claim easily via email. Fax or mail must be used when filing an international claim.

After submitting your claim, contact FedEx customer service to get a case number so you can reference it if you need to check on the claim in the future. If you’re making a claim for damage, ensure that all packing materials, including the box and packing contents, are kept handy as FedEx might ask to inspect the items.

Additionally, keep your eye on the calendar. FedEx Express requires that damaged or lost package claims be made within 60 days after the shipment is sent. For international packages, claims must be made within 21 days. FedEx Ground claims have a nine-month window from the delivery date; however, if the item is lost or missing, it must be reportedwithin 60 days. If you make the claim outside the designated time frame, FedEx won’t investigate the claim.

After you make a claim, resolution is fairly quick and usually completed within a week. Once a claim is approved, reimbursement for the declared value is sent.

Shipping with Greater Confidence

Most companies ship a large number of packages each year, and the majority of those packages will arrive on time and without damage. But in a small number of cases, something goes wrong during the shipping process — a package gets damaged or appears to simply vanish, leaving the customer unhappy and looking for resolution.

Taking care of the customer is the first goal, but afterward, a company needs to recover their financial loss. FedEx insurance is one tool that can help minimize these losses. Understanding what this type of insurance coverage offers and developing internal policies for handling these situations will create smoother experiences and minimize potential loss.

About Shipware

Shipware delivers volume parcel and less-than-truckload shippers intelligent and innovative distribution solutions and strategies. Whether you ship with FedEx, UPS, USPS or regional carriers, our contract negotiation and invoice audit services are guaranteed to reduce your parcel and LTL shipping costs by 10 to 30 percent, with no disruption to current operations. Our team of experts has over 200 combined years of carrier pricing experience. We have negotiated thousands of FedEx, UPS and LTL contracts – saving our clients an average of 19 percent of their annual shipping spend.

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Getting Started With UPS Shipping Insurance

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Shipping is a critical link to customer satisfaction. Once a customer purchases a product, they expect it to arrive on time and in good condition. And if a package goes missing or arrives damaged, the customer expects a fast resolution. The first step is calling the carrier and attempting to track down the package, but when that fails, making it right with the customer becomes the central focus, often leading to replacing the product and shipping it quickly.

After ensuring that the customer is happy, the company is left with the bill, and it’s at this point that shipping insurance comes into play.

The majority of carriers, including UPS, offer shipping insurance to bridge the gap when an unexpected event occurs. And with 5.1 billion packages circling the globe annually, shipping mishaps do occur, although they are rare. Understanding how to get started with UPS shipping insurance helps minimize loss and ensure that the process moves more smoothly. But what is UPS shipping insurance, and how does it work?

Shipping Insurance: Understanding the Basics

Shipping insurance is a service that offers financial reimbursement if a package is lost, stolen, or damaged during the transit process. Most carriers, including UPS, provide a basic level of insurance. However, if you’re shipping a high-value item, you may want to consider purchasing additional insurance.

UPS automatically covers most packages up to $100 for both domestic and international shipments. Additionally, UPS provides declared value coverage for an additional fee for packages that exceed this amount. There are limits on the amount of insurance that can be purchased, which is currently set at $50,000 per package or $100,000 per pallet.

Some types of domestic packages have higher limits, such as a maximum declared value of $70,000, depending on the contents of the package. There are also limitations on what qualifies for coverage, and we’ll discuss those shortly. The cost of the insurance has risen slightly each year, and current rates can be found on the UPS rate and service guide page.

Shipping insurance is a good option if you’re sending valuable goods or a one-of-a-kind item with UPS. Even if the cost of goods is minimal, the no-cost insurance that UPS provides can help with replacing the item in the event of loss.

Understanding Declared Value

When filling out a UPS shipping form, you’ll see a spot for the declared value of the item. Additionally, a UPS worker might ask you about the value of the item when you’re purchasing additional insurance for a package. So what is this referring to?

The declared value is the amount of money that you state the package is worth. This doesn’t take into account the packaging materials or the cost of shipping, but simply accounts for the value of the item. During the claims process, this is the amount that is considered when determining the payment for the claim. Supporting documentation may be required during the claims process, but when purchasing insurance, you simply need to state the value. According to UPS, the declared value is the lowest of the following amounts:

  • The cost of repairing or replacing the merchandise up to $100 if there is no value declared in excess of $100
  • The cost of repairing or replacing the merchandise up to the declared amount if the package had a declared value

The cost paid is the actual cost of the damaged or lost property, and the replacement cost includes the amount charged for repairing or replacing the item. Repair quotes are UPS’ responsibility; however, you may provide a third-party repair evaluation. If the third party says the item can’t be repaired, the actual or replacement value will be paid up to UPS’ maximum liability.

The Fine Print of Shipping Insurance

Shipping a product to the customer includes many expenses, including the employees’ time, the packing materials, and the cost of shipping. Additionally, there is the actual cost of the product. UPS only pays the actual cost of the product should an unexpected shiping event occur. The cost of these other items are not included.

That’s why it’s a good idea to read the fine print to fully understand what’s covered and what isn’t when purchasing shipping insurance. For example, if you have purchased additional insurance, you don’t want to later learn that an item is excluded when making a claim. A number of items are excluded from the company’s insurance, such as coins, cash, or precious stones. Other carriers, such as Federal Express and the United States Postal Service, have similar exclusions.

UPS has other limitations based on the type of commodity that is shipped, which are outlined in the “liability limits” section of the UPS/Tariff Terms and Conditions. According to UPS’ website, common items and applicable restrictions include the following:

Checks: If a package containing a check is lost or damaged, UPS will not pay for the face value of the check. UPS’ liability for a package containing a check or checks is limited to the cost of stopping payment on and reissuing the check(s), not to exceed US$100 per package.

Phone Cards, Tickets, Gift Cards and Similar Cards: UPS’ liability for a package containing a phone card, ticket (such as an event or airplane ticket), gift certificate, gift card, coupon or other similar printed matter with an exchange value is limited to the cost of replacing the physical card(s), certificate(s) or printed matter, not to exceed US$100 per package. As with checks, UPS is not liable for the face value of any phone card, gift certificate, gift card, coupon or similar printed matter.

Media: UPS’ liability for loss or damage to a package containing documents, film, photographs (including negatives), slides, transparencies, videotapes, compact discs, laser discs, computer tapes and media of a similar nature is limited to the replacement cost of the media on which the content is recorded.

Pairs, Parts: In the event of loss or damage to a pair or set of articles, UPS’ liability is limited to the value of that part of the pair or set that is lost or damaged, and UPS shall not be liable for the value of the whole pair or set. In the event of loss or damage to any part of the property (including any part of a machine) that, when complete for sale or use, consists of several parts, UPS shall be liable only for the value of the part lost or damaged, not to exceed the declared value of the part lost or damaged. In no event shall UPS be liable for the value of the complete item.

Insurance limitations may also apply to the shipping location. Check with UPS to ensure that if you purchase additional shipping insurance, the area where you are  shipping to is covered, especially when shipping items internationally.

Packing Rules and Restrictions

One more thing to consider is insurance packaging. For example, let’s say that an employee improperly packages an item. When the item arrives at the customer’s address, it’s damaged. You replace the item and then open a claim with UPS. The carrier will likely request to see the shipping packaging, and upon review, may determine that you did not follow their requirements for packing the item, and are therefore not protected under the insurance program.

UPS uses a third-party vendor to manage this process for insurance claims that exceed $100, and the vendor adheres to the small package carrier standards, known as the ISTA 3-A packaging guidelines, to analyze the integrity of the packaging job.

For example, one requirement is that you “always use new or like-new packaging.” That means that if a low-quality box is used, damages might be excluded and not covered in the event of damage during transit.

What to Expect When Filing a Claim With UPS

A customer calls your business, angry because a package is late or has never arrived. A quick investigation with UPS determines that the package cannot be located. This is a rare event, but one that requires quick action. A replacement product is sent to the customer with an apology to ensure that they aren’t dissatisfied. But at this point, you’re left dealing with recovering the loss.

As soon as you suspect a package is lost or stolen, file a claim with UPS right away. UPS gives shippers up to nine months to file a claim; however, filing a claim quickly will ensure that you have all the documentation the carrier might request. For example, supporting documentation may be required, such as photos of the item, or information about the value and packing material in the case of damaged products.

The first step that occurs when filing a claim is the search for the package. If the package is not located, UPS sends a letter that authorizes the claim. At this point, documents are sent to the third-party company UPS uses to process claims. Once the carrier has the documentation, the process unfolds quickly. On average, UPS says the process is typically completed within five to 10 business days. For domestic shipments, claims must be filed within nine months after the delivery date of the package, and for international shipments, claims must be filed within 60 days.

It’s also important to note that replacement of a product may not be provided when an item can be repaired. For example, let’s say that you’re shipping a computer. The computer arrives damaged and not working, but upon further examination, it’s determined that the video card is broken. In this situation, the carrier wouldn’t pay to replace the entire computer, but instead to replace and repair the video card.

Shipping with Greater Peace of Mind

Although billions of packages are circling the globe each year, your chances of losing a package with UPS are rare. But when it does occur, the process is frustrating. First, the company must deal with the frustrated customer, making things right on their end. Then they must invest time in recovering what they can of the loss. It’s not an ideal situation, but by planning for a small number of packages to have this problem, processing the issues will be easier, and having the right insurance in place is key.  

Setting internal policies for handling lost packages is critical to making the process smoother. If a customer calls and says a package is lost, missing, or damaged, what will your company do? Making sure that everyone is following the same policy will streamline the process and mitigate the risk for additional customer aggravation.

Taking into account the value of the item that you’re shipping and UPS’ insurance maximums will help create better decisions and policies. Additionally, when you understand the fine print of UPS insurance coverage, such as the exclusion of coins and other items, you’ll know what to expect in these situations.

Many different factors play a role when you decide to purchase shipping insurance, but by keeping all these details in mind, you can mitigate risk and ensure that your item arrives at its destination with greater security.

About Shipware

Shipware delivers volume parcel and less-than-truckload shippers intelligent and innovative distribution solutions and strategies. Whether you ship with FedEx, UPS, USPS or regional carriers, our contract negotiation and invoice audit services are guaranteed to reduce your parcel and LTL shipping costs by 10 to 30 percent, with no disruption to current operations. Our team of experts has over 200 combined years of carrier pricing experience. We have negotiated thousands of FedEx, UPS and LTL contracts – saving our clients an average of 19 percent of their annual shipping spend.

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USPS Shipping Insurance: What Shippers Need to Know

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There are many questions that come up when deciding which carrier to use for your company’s shipping needs. Which is the most cost-effective? How quickly will the customer receive their package? And how dependable is the carrier? USPS is a popular option, with the carrier shipping 5.7 billion packages in 2017. The carrier has also become a popular option for other leading carriers, such as FedEx and UPS, to handle their “last leg” of delivery with greater efficiency.

One important consideration when shipping, however, is insurance. Should you purchase insurance, and if so, how much will it cost? Most packages that ship will arrive at their destination as expected, but when a package doesn’t arrive or arrives damaged, it’s helpful to have insurance in place. Here is a guide to understanding USPS shipping insurance, what you need to know, and what to expect if a package goes missing.

Why Purchase Shipping Insurance?

Shipping mishaps occur, even with the best carriers. According to one study, up to 11 percent of major-carrier packages are damaged in transit, with USPS having a damage rate of 10 percent.

Shipping is a key component of the customer experience, and if something goes awry, such as a missing package or damaged item, the first priority is always to take care of the customer. Doing this well positively affects reputation, ratings, and repeat orders. But after the dust settles, it’s critical to recover some of those costs. Shipping insurance is a tool that helps you accomplish this task.

Every carrier has a set of rules, processes and procedures, and by understanding those factors before purchasing insurance, you can better plan for these situations. A good starting point is understanding what type of insurance comes with your package and what you may need to pay extra for when shipping.

Understanding Shipping Insurance

USPS allows you to purchase shipping insurance up to $5,000 to protect against potential loss. The fee for purchasing insurance varies, based on the declared value of the package (more on this shortly). Some USPS services already have insurance included in the product pricing, so you don’t need to pay extra.

For example, USPS Priority Mail Express offers up to $100 of insurance, and priority mail shipments include up to $50. If the value exceeds this amount, you may want to purchase additional insurance. An insurance comparison guide is available at USPS’s site to help guide that decision.

Insurance is also available on some items sent internationally. For example, Global Express Guaranteed Insurance automatically covers up to $100 in loss or damage. If the value of the package exceeds this amount, USPS will allow you to purchase up to $2,499 in additional insurance.

The carrier also offers Priority Express International insurance, which includes up to $200 for merchandise at no cost for lost, damaged, or missing contents. Additional coverage may be available, but there may be restrictions for some countries.

When purchasing insurance, there are a few additional safeguards available that provide added protection, such as the following:

  • Signature confirmation. Adding signature confirmation allows you to track when an item was delivered and when an attempt was made to deliver it. This delivery method is available via USPS electronically or by email upon request.
  • Collect on delivery. COD allows customers to pay for the package upon receiving it. You also get insurance coverage up to $1,000 with this option based on the amount collected or the selected insurance coverage (whichever is higher).
  • Return receipt. This option allows you to get an electronic or hardcopy delivery record that shows the recipient’s signature.

Some USPS services do not offer insurance in the label price, including first-class mail, media mail, and parcel select. Additionally, when using a service that does include insurance, there are some limitations on what is covered.

Pricing for USPS Insurance

Pricing is an important consideration for purchasing insurance. The fee to purchase additional insurance is minimal; however, it’s important to consider the risks and costs when shipping large volumes of packages.

Pricing is based on the “declared value” of the package. This is basically what you state the contents are worth; if you need to file a claim, USPS will require proof of that value. Here is a quick summary of what to expect for pricing based on the stated value of the package. The pricing below is for service options that don’t offer no-cost insurance, so you’re footing the entire bill.

  • Value up to $50 is $1.65
  • $50.01 to $100 is $2.05
  • $100.01 to $200 is $2.45
  • $200.01 to $300 is $4.60
  • The price per additional $100 of insurance, valued over $300 up to $5,000, is $4.60 plus $0.90 per each $100 or fraction thereof

Some of USPS’s services, such as Express Mail, include the first $100 of coverage at no cost. Pricing for additional insurance includes the following:

  • The first $100 of value is included
  • Value over $100 up to $200 is $0.75
  • $200.01 to $500 is $2.10
  • $500.01 to $5,000 is $2.10 plus $1.35 per each $100 or fraction thereof

Purchasing insurance is a step in the right direction to protect your company from loss, and in most cases, you won’t need to use it. But in the rare case that you do need to use the insurance, it’s important to know what to expect and what documentation is required.

Filing a Claim With USPS

Filing a claim with USPS is easy and can be accomplished online. The online claim process allows you to upload files with any supporting documentation and includes the following steps:

  1. Visit the USPS website. Once there, sign into the online claims site using your USPS username and password. If you don’t have an account, you can create it online.
  2. Enter details about the package. The site will request details, such as the tracking label, number, shipping date, address information, and other claim details.
  3. Select the reason for filing a claim. For example, is the package missing or stolen, or are the contents of the package missing upon arrival? Clarify what happened to the package and the reason for the claim.
  4. Upload a proof of value. When you purchase insurance, you declare the value, but when you file a claim, you’ll need to show proof, such as a relevant receipt or invoice.
  5. Upload evidence of insurance. Make sure to keep your receipt that shows the purchase of insurance, because you may be required to upload the purchase evidence. It’s also important to note that USPS does not keep a record of who purchases insurance, so they have no way to look this information up.

Additionally, if the item was damaged, it’s important to keep the damaged item, packaging and any other package contents until the claim is resolved. USPS says the following:

“If a claim is filed because some or all of the contents are missing or damaged, the addressees must retain the mailing container, including any damaged articles, all packaging and any contents receipted. Upon written request by the USPS, the addressee must make this proof available to the local post office for inspection, retention and disposition in accordance with the claims decision. Failure to do so will result in denial of the claim.”

Once a decision is made on the claim, getting payment is quick. Typically, payment is sent within seven to 10 business days from a claim decision.

Additional Considerations

On a package basis, the cost of insurance is minimal, but when you’re a company sending a large volume of packages, the costs add up fast. As a result, it’s important to know any special considerations for insurance so you can prepare for those ahead of time. Here are a few factors to consider when deciding if purchasing extra insurance is right for your situation.

The payout may be subject to depreciation. USPS will only pay out on the depreciated value of the item. “If your lost or damaged items were purchased used, or you no longer have the purchase receipt, your claim may be denied.”

Photos of damaged items may be required. If the item was damaged, photos may be required during the claims process. Ask the customer to take photos of the item right away to ensure that you can recover from the loss.

Packing items are important. As highlighted before, packing matters. If USPS determines the item was improperly packed and that contributed to the damage, this may affect payment of the claim. Ask the customer to keep packing materials and take photos until the claim is resolved.

Claims should be made quickly. Unlike UPS, which gives you nine months to make a claim, USPS gives you 60 days. Additionally, you can’t file sooner than a predetermined number of days. For example, for Priority Mail Express, you can’t file sooner than seven days after the item is lost, damaged or stolen. If the customer has a problem, start collecting the required information and documents immediately and file once the claim period opens.

Fragile items may be excluded. According to USPS DMM 609, “Filing Indemnity Claims for Loss or Damage,” USPS is exempt from paying insurance claims if the “fragile nature of the article prevented its safe carriage into the mail, regardless of packaging.” If you’re shipping fragile items, check if they are excluded from coverage.

Once a customer signs for a package, they have officially accepted it as being in satisfactory condition. If the package requires a signature, ask the customer to inspect it carefully for damage before signing. Once the customer has signed for the package, it makes recovery more difficult because the customer is essentially accepting the package in its current condition.

Keep the original insurance slip. USPS doesn’t keep computer records of post-office-purchased insurance, so if the slip is lost, it’s challenging to prove that coverage was purchased.

Shipping multiple items is efficient, but this has implications. A customer might purchase several items from your company, and to maximize efficiency, you might ship those items together. But keep in mind that if you’re getting $100 in coverage, it will include the entire package, so the insurance may not go as far. You may want to purchase additional insurance or break up shipments for insurance purposes.

Moving Forward with Greater Security

The most important consideration in any transaction is the customer experience. How can you keep the customer happy? If an item is lost or stolen, you might have a basic process for getting that item replaced, but on the back end, you must recover a portion of those expenses.

Insurance is a valuable tool for filling the gap. And in many situations, the no-cost USPS insurance is enough to offset any potential losses. But it’s important to have a process in place to handle any issues that come up. For example, do team members know what to request from customers so you have everything that is required to file a claim?

Establishing policies helps create consistency, not only in the customer experience, but also when gathering the proper documentation to ensure maximum recovery. As a result, you’ll leave the customer happy, while ensuring that your company continues to thrive and minimize loss in the future.

About Shipware

Shipware delivers volume parcel and less-than-truckload shippers intelligent and innovative distribution solutions and strategies. Whether you ship with FedEx, UPS, USPS or regional carriers, our contract negotiation and invoice audit services are guaranteed to reduce your parcel and LTL shipping costs by 10 to 30 percent, with no disruption to current operations. Our team of experts has over 200 combined years of carrier pricing experience. We have negotiated thousands of FedEx, UPS and LTL contracts – saving our clients an average of 19 percent of their annual shipping spend.

USPS Board of Governors Postpones New Dim Policy Implementation While Releasing FY 2018 Results

By | Contract Negotiation, Invoice Auditing, News | No Comments

Background: The announced 2019 USPS rate changes included some dramatic adjustments to USPS Shipping options, including the switch to zone-based pricing for First Class Packages and the structure change relating to dimensional charges.

Currently, large packages are only “Dimmed” when their volume exceeds 1 cubic foot AND they’re destined for outer zones 5-8.  The current Dim factor is 194 (higher dim factors result in lower billed weight).  The Dim Divisor for affected packages was scheduled for a reduction from 194 to 166 for all zones on January 27, 2019. Balloon pricing for zones L-4 was also targeted for elimination.

Postponement:

The USPS Board of Governors met on November 14th and announced that USPS will postpone the implementation of dimensional weight pricing for Priority Mail, Priority Mail Express and non-Lightweight Parcel Select packages until June 23, 2019.

This gives the industry an additional five months to make the operational and software changes necessary to adjust to the new pricing regime.

All other announced price changes for Mailing Services and Shipping Services, including zoned-based pricing for First-Class Package Services (FCPS), will take effect on January 27th as originally announced.

USPS Reports Fiscal Year 2018 (October 1, 2017 – September 30, 2018) Results:

  • Overall revenue increase of $1.0 billion
  • Shipping and package revenue up $2.0 billion, 6.8% increase in volume
  • Overall volume decline of 3.2 billion pieces
  • Net loss of $3.9 billion (due to $6.9 billion in mandated prefunding of healthcare and pension)
  • Includes $1.8 billion in debt reduction
  • Renews urgent need to advance legislative and regulatory reforms, as well as aggressive postal management actions to generate new revenue and control costs

In the meantime, feel free to reach out to me with questions or to ask for help.  Wishing you great shipping success.

Gordon Glazer, CMDSM, CMDSS, MDP, MDC is a Senior Consultant, USPS Specialist at Shipware LLC, an innovative parcel audit and consulting firm that helps volume parcel shippers reduce shipping costs 10%-30%. Gordon is a postal industry veteran with 32 years’ experience and is a sought-after speaker and industry thought leader. He welcomes your questions and comments, and can be reached at 858-724-0457 or gordon@shipware.com.

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The Amazon Effect & Consumer Expectations: A Guide

By | Contract Negotiation, Invoice Auditing, News

Amazon emerged as a small online bookstore, and transformed into an e-commerce giant with 300 million users and a net income topping $177 billion. Each order placed on Amazon has contributed to what is called the “Amazon Effect,” which describes the shift in customer habits and expectations due to Amazon’s popularity.

The Amazon Effect started when the company began offering free shipping on orders of $25 or more. The popularity of this program was significant, so in 2005, the company upped the ante and created Amazon Prime, a membership program that would allow customers to get unlimited free two-day shipping for an annual fee. But the Amazon Effect doesn’t stop at shipping — it has caused widespread changes and influences to customers’ buying habits.

Post-Amazon Effect customers want more than a good buying experience. They want to go from “need” to “purchased” with a single click and to have items arrive to their doors as fast as possible. Understanding the Amazon Effect and its impact on customer expectations can help retailers of all sizes compete and generate more revenue. But how have expectations changed, and what’s in store for the future?

The Demand for Instant Gratification has Increased

In the past, customers figured that shipping costs were the price you had to pay for shopping online, but today paying for shipping is a huge hurdle for buyers — one that could result in significant loss of sales.

The channels in which people shop are also changing. With the advent of the smartphone in 2007 and the tablet shortly after, customers aren’t just shopping during brick-and-mortar stores’ hours — they are ordering around the clock. This creates expectations for an “on demand” experience in which customers get their needs fulfilled quickly. What’s more, customers expect retailers to understand those needs in greater depth. In fact, 76 percent of consumers report that they expect organizations to understand individual needs, which gives rise to the demand for personalization.

Advancements in technology are another factor that play a pivotal role in today’s retail environment, and studies show that customers are becoming more and more inpatient. In fact, 41 percent of respondents report that technology has made them more impatient than they were only five years ago. Customers want to order products with ease and receive those products quickly and with no charge for shipping, with 62 percent of online shoppers ranking free shipping as the most important perk that a company can offer.

Customers also demand less friction in the buying cycle. A customer may have visited several stores to find the right item in the past, but the Amazon Effect has changed that.

Customers can now view products within seconds, check prices, read reviews, and use “one click” buying features to quickly purchase products and have them shipped to their homes. This creates less friction in the buying process and generates large amounts of revenue for retailers.

The majority of customers (81 percent) expect improved response times from the companies with which they do business. When a customer has a problem with shipping or the product, he or she expects the company to harmonize that experience quickly.

The Price-Obsessed Customer has Emerged

The majority of customers today (79 percent) report shopping online. This doesn’t mean that customers aren’t still visiting brick-and-mortar stores, but most are either shopping online occasionally or, in some cases, more frequently. Regardless, there has been a huge spike in online orders since 2000, when only 22 percent of buyers reported shopping online.

What’s more, mobile shopping is the fastest-growing segment in e-commerce, worth $3.2 trillion in 2017, which is a jump over the $1.5 trillion reported in 2013.

Customers aren’t only shopping at their desktops or laptops at home, but they’re also shopping on the go — during their commutes, standing in line for coffee, and while watching their child’s sports practices. While doing all this shopping, they are empowered to view competitors’ prices within a few simple clicks.

Amazon has empowered customers, changing expectations to the point where not only do they expect free shipping, but they also expect lower prices. With a few simple clicks, they can move through the shopping process faster than ever. And this new consumer, one who is price-sensitive and empowered with the tools to shop competitively faster, frequently starts his or her search for a product with Amazon.

In fact, nearly half of all product searches start with Amazon. Customers think of a product they want, visit the company’s website, check reviews, and make a fast purchase decision. Amazon has actually surpassed the popularity of Google when it comes to product searches.

Amazon is constantly working behind the scenes to deliver competitive pricing, using technology that updates various prices thousands of times a day. Competing with Amazon requires retailers to contend with customers who are constantly comparing prices online and making snap decisions. In addition, it’s not only pricing that is influenced by the Amazon Effect, but it’s also customers’ expectations about the information they receive regarding products and services.

Customers Want More Product Information

The Amazon Effect has influenced customers’ expectations regarding how they shop and how they expect to receive information. Even customers who shop at brick-and-mortar stores are still using Amazon to justify their purchases.

Here is an example of a common scenario today: A customer enters a brick-and-mortar retailer to find a new computer. The salesperson makes a recommendation based on the customer’s needs and budget. The salesperson steps away, giving the customer time to consider the offering, and in an instant, the customer grabs his or her own smartphone and jumps online. The destination is Amazon. Once reaching Amazon’s site, the customer checks prices and reads reviews to learn what other customers like and dislike about the product.

The majority of customers (70 percent) report that they look at product reviews before making a purchase. What’s more, product reviews are 12x more trusted than product descriptions from manufacturers.

In an effort to keep up with the Amazon Effect, many retailers have created their own place for customers to leave product reviews online, giving customers an additional resource to check when making buying decisions. Customers want product information. And they aren’t simply looking at product details. They also want information about other buyers’ experiences with these products, including detailed photos, size dimensions, and more.

The Demand for Personalization is Rising

The Amazon Effect has changed expectations around personalization. Pre-Amazon, customers might be delighted if brick-and-mortar salespeople remembered their names, preferences, and details that made them feel known. But Amazon took this personalized shopping experience and expanded it at scale.

The early days of Amazon included the “people who bought this item also bought …” notice while people were online in order to entice someone to consider additional products. This “endless aisle” feature was a powerful tool in helping customers view similar products online, but it also made the experience feel more personalized.

Amazon is leading the efforts in personalization in e-commerce shopping, and although the “people who purchased” widget is still there, it’s taking a deeper dive into serving up personalized options, and these expansions trickle down to all retailers. Customers don’t just appreciate personalization — they demand it.

Studies show that 86 percent of consumers say that personalization plays a major role in their purchasing decisions. Online shoppers are 45 percent more likely to shop on a website that makes personalized recommendations. What’s more, 56 percent of online shoppers report being more likely to return to sites that offer these recommendations.

Amazon uses technology to get to know their customers, leveraging their purchase history, items they’ve looked at and items they’ve rated, and then pools all that data with the profiles of customers with similar interests. Customers don’t just enjoy personalization during the buying process, it’s proven to generate more sales. Amazon found that 35 percent of all their sales are generated by the recommendation engine.

Personalization also builds loyalty with customers as they begin to feel truly known by a retailer. As a result, they crave these personalized experiences with retailers due to the Amazon Effect, and those companies that don’t deliver it won’t enjoy the benefits of building relationships that are lasting and foster loyalty.

The Speed of Innovation Continues to Shape Expectations

The Amazon Effect is built on the speed of innovation. Amazon brought customers free shipping, but they also brought them fast shipping. Receiving a package in two days pre-Amazon would have come with a big price tag. And shipping items that were light, such as a ball of yarn or a tube of lipstick, was unrealistic due to shipping prices. But Amazon has changed all of this, shipping many items at no cost to the consumer. These capabilities are built from the company’s innovation and technology resources.

Once customers adjust to the new innovation, it transforms into something that is expected. Retailers are then left to figure out strategies to keep up. Founder Jeff Bezos said:

“We’ve had three big ideas at Amazon that we’ve stuck with for 18 years, and they’re the reason we’re successful: Put the customer first. Invent. And be patient.”

Wise retailers are keeping an eye on Amazon’s new innovations. Each one has the ability to transform the Amazon Effect yet again. For example, the company recently introduced Amazon Key, which is an in-house and in-car delivery service. It allows customers to receive shipments inside their homes or cars by purchasing a kit that provides key access and comes equipped with a video camera (the video camera allows the customer to watch their item being delivered remotely).

In addition, Amazon has also created “Prime Air,” which is a delivery system that is designed to get items to customers within 30 minutes of their order. The items are delivered via drone and, by 2020, Amazon forecasts the company will have over 450,000 drones in its fleet and be operating this delivery model worldwide.

The Amazon Effect is constantly changing customer expectations and retailers should stay apprised of the current effects but also anticipate those in the future, so they can create strategies for keeping up and staying competitive.

Finding the Way Forward

Amazon has come a long way from an online bookstore competing in a market that was heavily saturated with many different options. The company has expanded into nearly every corner of the world with product variety, offering customers everything from groceries to clothing in a single click. The company’s earnings continue to grow, with revenue doubling from 2015 to 2017.

Amazon’s work in raising the bar on the customer experience has created a gap between what customers expect and what some retailers deliver. The key to success is learning more about the expectations of your customers and working to close that gap. It’s through this data and insight that you can begin competing with the Amazon Effect. Once you accomplish this, you can create experiences that involve less friction and deliver results that delight customers and grow revenue.

About Shipware

Shipware delivers volume parcel and less-than-truckload shippers intelligent and innovative distribution solutions and strategies. Whether you ship with FedEx, UPS, USPS or regional carriers, our invoice audit and negotiation services are guaranteed to reduce your parcel and LTL shipping costs by 10 to 30 percent, with no disruption of current operations. Our team of experts has more than 200 years of carrier pricing experience. We have negotiated thousands of FedEx, UPS and LTL contracts – saving our clients an average of 19 percent.

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What the Amazon Effect Means for the Shipping Industry

By | Contract Negotiation, Invoice Auditing, News

Decades ago, the idea of receiving an item that you ordered minutes ago within the hour was unthinkable. The logistics seemed impossible. Even receiving an item within a couple of days without having to pay any shipping fees appeared incredible. But today there is nothing incredible about either of these situations and, they have, in fact, become the “new normal.”

Amazon has innovated the market, changing the way that customers think about choice, convenience, and price. Customers have become conditioned to the low-cost, two-day, one-day, and even same-day shipping. They have access to a rapidly expanding menu of products that are available online, including everything from appliances to packs of chewing gum.

The Amazon Effect is a force to be reckoned with for retailers. All of the customers shopping through Amazon bring the same expectations to your doorstep. And if you don’t measure up, dissatisfaction trickles down to your bottom line.

A big piece of customer satisfaction involves shipping. Customers want packages to arrive faster and don’t want to pay a cent on shipping. But how is this affecting the shipping industry, and what effect is that having on retailers? A true understanding requires a closer look at the Amazon Effect and the underlying pressures it creates for retailers and shippers alike.

What is the Amazon Effect?

In 1994, founder Jeff Bezos started Amazon, originally as an online bookstore. But it quickly diversified into other offerings, such as DVDs, music, video games, electronics, and even clothing. The company now has roughly 269,000 employees and has transformed the way that people shop.

Amazon introduced buyers to an entirely frictionless experience. Shopping for an item or group of items is no longer a time-consuming chore requiring an afternoon of visiting various stores and making trips that may yield no success. This is likely why more than half of customers start the buying process with Amazon. In fact, Amazon leads over Google as a starting point for online shopping.

The moment customers think of a product, they can move through the shopping experience within minutes, with the product delivered to their home within a matter of days rather than weeks. And in some cases, delivery is the same day.

The Amazon Effect, however, has widespread impacts, and one major area where this is true is shipping. A retail study found that nine out of 10 consumers say free shipping is the #1 incentive to shop online. What’s more, in addition to free shipping, 69 percent of consumers listed one-day delivery as an incentive to shop online more.

Nearly half (49 percent) said that same-day shipping would make them more likely to shop online, while only 9 percent reported using same-day shipping during the past year. Demand for faster and free shipping started with Amazon, but now all retailers are seeing the effects.  

When Amazon started as a bookseller, the first offering of free shipping was no-cost shipping on purchases of $25 or more. In 2005, the company created Amazon Prime, which offered free two-day shipping on all orders for consumers who paid an annual membership. Now customers not only received free shipping, but they got their orders faster too. As customers became conditioned to fast, free shipping, expectations spilled over to other retailers. Why pay for shipping when you can get it free on Amazon? The result is a shipping industry that operates under a new set of expectations and intense pressure.

Shipping Sizes and Weight

Once the Amazon Effect took hold, shippers experienced higher volumes of packages to ship. Fewer people were visiting brick-and-mortar stores; instead, they were opting to shop online and get packages delivered easily to their doorsteps. The volume of packages being delivered to homes quickly skyrocketed. The U.S. Department of Transportation projects that by 2040, U.S. annual freight volume will increase by 45 percent to 29 billion tons. The pressure put on shippers increased as more packages began shipping directly from retailers to customers.

At the inception of online shipping, customers were picky about what they would ship. After all, they were footing the bill. Shipping a ball of yarn or a package of pencils was unthinkable, let alone affordable. A tube of lipstick was purchased at the local grocery store or cosmetics store, not sent through mail. The cost of shipping simply didn’t make sense. But this all changed with the expectation of free shipping. If the company is paying the shipping bill, why not buy the small stuff online? Free shipping was offered on many items online, including the small stuff.

Does a customer need a spatula for cooking? The customer won’t hesitate to purchase it online. School supplies that were previously purchased from the local office supply store are now purchased online, without any consideration for shipping, because it’s free.  

This shift created issues for shippers and how they needed to charge for services. Charging by weight no longer made sense to carriers. With the Amazon Effect in full swing, they needed to change their pricing model. Many carriers started charging for actual weight and dimensional weight, which takes into account the width and height of each box, which is now an industry-wide practice.

The result is that shipping costs aren’t necessarily low just because an item is light. This has forced retailers to rethink how they’re shipping items. Amazon, for example, often packages items together in the same order rather than shipping them separately, allowing the company to minimize costs and expenses.

New Delivery Methods

The Amazon Effect has created intense pressure to offer customers free shipping, but retailers are challenged with striking the right balance between a positive customer experience and their own company’s costs. Some carriers, such as UPS and FedEx, created services to help retailers manage costs, such as SurePost and SmartPost.

These services target the most expensive part of delivery, which is the “last mile.” This last mile can encompass a few busy city blocks or a hundred miles of rural road. Regardless, delivering a package directly to a home is expensive. Large, heavy trucks, manned by employees and subject to gas price fluctuations, create extra expense. The carriers developed these services to reduce the cost for this last mile of delivery by partnering with USPS.

The USPS visits most addresses in the United States daily. By leveraging this partnership, carriers drive down costs. For example, UPS or FedEx might drop off packages at the local post office or USPS distribution center, and those packages are then transferred to the appropriate USPS truck and delivered to the recipient’s mailbox.

These types of services are more cost-effective, easing the pressure of free shipping expectations; however, they can also affect delivery time. In most cases, SurePost and SmartPost will be slower than the carrier’s normal delivery time, but that might be an acceptable tradeoff for free shipping, depending on customer expectations. Additionally, the USPS delivers on Saturdays and this provides an additional delivery date to assist with speeding up delivery.

New delivery methods continue to evolve to meet the demands created by the Amazon Effect. The problem with the Amazon Effect for competitors, though, is that it’s not a static target, but instead, it’s constantly changing.

For example, Amazon recently introduced Amazon Key, which is an in-home and in-car delivery service that allows authorized shippers to gain access to Amazon Prime customers’ homes, post office boxes or the trunks of their cars at specific times. The purpose of the service is to reduce risk for theft. On higher-ticket purchases, customers may become worried when packages are left on the doorstep, especially if they know they will be away or have planned vacations.

Amazon Key requires customers to purchase a kit that Amazon installs. The customer receives a notification through the Amazon Key app that advises of the four-hour delivery window. A camera is included with the kit, which allows customers to watch deliveries in real time. Retailers that wish to compete should keep their eye on not only what the Amazon Effect looks like today, but also what it could look like in the future.

The Rise of Drones

One additional way that the Amazon Effect is changing shipping is by paving the way for the future of drone carriers. The company launched “Prime Air,” which is a delivery system designed to get packages to customers in 30 minutes or less using unmanned aerial vehicles. Last year, Amazon reported that its fleet of Boeing 767 cargo jets was up to 32 freighters. But Amazon isn’t the only one investing heavily in this shipping option – UPS is investing in drones as well.

Commercial drones travel up to 100 mph and have the ability to deliver small goods, typically weighing under 5 lbs. Each trip costs as little as $1 per shipment, which could create huge savings. In addition, faster shipments could translate into higher revenues because 86 percent of abandoned carts online are the result of expensive shipping costs. UPS estimates that cutting off just one mile on the routes of each of the company’s delivery drivers would result in $50 million in savings.

By 2020, Amazon estimates that it will have more than 450,000 drones in its fleet, operating with delivery worldwide. The introduction of drones could shake up the shipping environment even further – putting additional pressure on retailers to make faster deliveries, and forcing them to figure out how to accomplish this while keeping costs low. Drones might provide an interesting shipping option for retailers, with potential impacts to overall shipping costs.

Understanding the Future of Shipping

The shipping industry of the future will no doubt look different than it does today. Drones could be handling smaller packages, transforming logistics and potentially driving down costs for retailers. And there will likely be shipping options that haven’t even been thought of yet that could affect shipping costs and logistics. But as retailers look into the future, they shouldn’t just aim to keep up — they should aim to get ahead.

The way to accomplish this is by investing in technology that helps make shipping more efficient and — equally important — cost-effective. For example, technology that helps audit invoices assists with identifying where money is overspent and reducing costs. With intense pressure to meet evolving customer needs, savings are critical to keeping earnings stable and healthy.

The Amazon Effect and its influence on shipping processes will continue to alter how retailers strategize and operate. Customer expectations will continue to evolve, and these expectations will continue to influence the decisions that retailers make about shipping. Striking the right balance between meeting expectations and managing costs will ensure that your operation runs efficiently today and in the future.

About Shipware

Shipware delivers volume parcel and less-than-truckload shippers intelligent and innovative distribution solutions and strategies. Whether you ship with FedEx, UPS, USPS or regional carriers, our invoice audit and negotiation services are guaranteed to reduce your parcel and LTL shipping costs by 10 to 30 percent, with no disruption of current operations. Our team of experts has more than 200 years of carrier pricing experience. We have negotiated thousands of FedEx, UPS and LTL contracts – saving our clients an average of 19 percent.