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Parcel Market Trends

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The State of Shipping in 2019

By | News, Parcel Market Trends, Shipping Knowledge | No Comments

A Look Back: 2018 in Review for UPS & FedEx

Last year was busy for the national parcel carriers, not only in terms of packages delivered, but in terms of changes to pricing and their respective service guides as well.

After warning shippers with the announcement of their 2018 General Rate Increase (GRI), UPS instituted mid-year increases to select surcharges related to size and weight.  However, if shippers expected the annual announcement to cover the scope of the carrier’s pricing plans for the year, they’d have been surprised by the multiple, additional rate changes throughout the year, outside of the GRI:

  • In April, UPS changed their fuel surcharge tables, separating the international export table from the domestic air table and effectively raising the fuel surcharge for export.
  • In June, UPS introduced a Shipping Charge Correction Audit fee and increased the Over Max Limits charge by $150.
  • In July, UPS implemented the Additional Handling fee and the Large Package Surcharge increases they had forewarned shippers about in their GRI announcement.

Of course, with the national carriers often moving in lockstep, it wasn’t long before FedEx joined UPS in changing rates midyear. In September, FedEx increased their Additional Handling fee for heavy packages, increased the Unauthorized Charge and, like UPS, changed the construct of their fuel tables by separating the import and export tables from the domestic express table and updating both the domestic ground and express tables.

As in 2017, when the busy-season pricing was first introduced to customers, both carriers instituted “peak” surcharges related to size, additional handling requirements, and other incremental increases during the peak shipping season between Thanksgiving and Christmas.  Also mirroring 2017, UPS instituted a peak surcharge for residential shipping while FedEx did not. However, shippers can expect this disparity come to an end in 2019 and for FedEx to follow suit and implement the peak residential surcharge.

Both national carriers continued to place a premium on efficiency in 2018, in terms of space utilization and network efficiency, a that trend will continue going forward.  While neither made changes to their dimensional weight pricing criteria, UPS did institute a shipping charge correction audit fee which penalizes shippers for incurring what UPS believes is an unacceptable number of shipping charge corrections in a given week, most of which are triggered by dimensional weight. In fact, UPS doubled down on the fee late in the year, making it easier for much shippers to incur the penalty.  The audit fee is now assessed when the average shipping correction during an invoice week is more than $2.00.  When they first introduced the fee, the trigger amount was $5.00.

Regarding the sheer number of total packages delivered, 2018 was a huge year for the national carriers.  There’s little doubt that volumes were at a record high.  Heading into Q4 2018, UPS indicated their expectation to deliver more than 800 million packages during the peak holiday season compared to roughly 762 million in 2017.  Likewise, FedEx expected their peak volume to surpass their previous record number of packages, 400 million, also set in 2017.  Not to be outdone, USPS predicted delivery of 900 million packages during 2018’s peak season.

season, internal Shipware data indicates that both carriers, as they have in past years, experienced delays during the critical peak holiday shipping weeks.  A more thorough evaluation will be necessary once all of the data is in.

The 2019 FedEx & UPS General Rate Increases:

An exercise in elevating complexity to drive revenue

The close of each year is marked by both national carriers announcing their general rate increases for the new year. In November, FedEx Express and FedEx Ground announced a 4.9% average general rate increase while FedEx Freight announced a 5.9% average increase, both of which went into effect January 7, 2019. UPS’s announcement came almost a month later, on December 5th. Not only was the announcement atypically late in the year, but with a declared effective date of December 26, 2018, UPS gave shippers only three weeks’ notice of their average4.9% increase to UPS Ground, Air, International services, and Air Freight rates.

Outside of the actual percentage increases, the most important takeaway from each carriers’ announcement might be use of the word, “average.” Historically, there has been very little correlation between the carriers’ announced average increase and the actual increases by service level, zone, and weight. This year’s announcements are no different.The impact to each shipper’s parcel budget will deviate significantly from the announced average increase depending on their shipper profile. The majority of small shippers are taking the full increase, while large shippers typically negotiate terms that mitigate the general rate increase year over year.

Consistent with more recent rate increases, the days of FedEx and UPS mirroring each other are fading. Reviewing the increase by service and weight shows that the biggest impact to FedEx customers will be the 6% to 8% increases to 31+ pound Express services. Similarly, UPS customers are facing increases between 7.5% and 8% to 31+ pound 2-day rates. However, the largest impact, and disparity from the 4.9% average, is seen in SurePost, with rate increases of 5% to 9.3%.

rate increases

Dissecting the data reveals that the announced increases are indeed an average and will vary, along with their impact on shippers, by service and zone.  With FedEx, we are seeing hikes across the board, above the average 4.9%, for all Express services while Ground Commercial, Home Delivery, and SmartPost hover between 4.7 and 5.2%. Conversely, UPS is mainly increasing its SurePost <1 lb. service by 8.9% to 9.8% while keeping SurePost 1+ lb., Ground Commercial, Residential, and 3-day shipments closer to the 4.9% marker. Like FedEx, 2-day and 3-day shipment increases vary by zone, from 5.4% to 8.1%.

service rate increases

In addition to transportation rate increases, FedEx will increase surcharges and minimums in 2019. Notable changes are seen in the following two tables which show the zone 2, 1 lb. rate for each service:

fedex minimum net charge

This list rate is reduced by a specified dollar amount predetermined by the carrier to arrive at the minimum net charge. FedEx minimums increases range from 3.56% on Ground/Home Delivery and SmartPost to 5.4% on Priority Overnight Letters while UPS increases move anywhere between the 3.7% on Ground to the 10.08% on SurePost greater than 1lb.

ups minimum net charge

The table below highlights dollar and percentage increases to some of the more common surcharges. Note the outright number of surcharge increases, the variance in their amounts and, as noted before, the continuing trends of UPS and FedEx pricing moving farther apart, year after year, and the largest increases being reserved for those surcharges related to package size and dimensions.

fedex surcharge

If you examined last year’s GRIs, you’ll recognize that many of the same surcharges increased last year are once again being increased in 2019, such as FedEx’s Print Return Label Fee which has doubled, and UPS’s Third-Party Billing Fee, up 80% from last year. Take a closer look at the Additional Handling, Large Package, and Over Maximum Limits surcharges. Both carriers increased these accessorials in their 2018 general rate increases, again between June and September, and all three are receiving further increases in 2019. Additional Handling Weight has increased over 91% in 12 months!

ups surcharge

This information not only illustrates the many facets of the 2019 general rate increase but, on the broader level, the continuing efforts of UPS and FedEx to create an increasingly complex pricing environment year after year with varying increases.

When Shipware surveyed shippers, from small to large, at the 2018 PARCEL Forum, 63% of respondents felt that it’s harder to negotiate with the carriers today than it was a few years ago.Among those, 73% felt the difficulty is owed to increased pricing and agreement complexity. It’s also not lost on shippers that the carriers are focused on revenue: keeping margins high and capturing added costs to serve. Of those who believe today’s negotiating landscape is tougher, 82% also feel it’s partly due to this revenue-focused approach that we find in reoccurrences like large packages being assessed multiple increases. With many moving parts to every rate increase; with rates, minimums, and surcharges that no longer match, today’s environment is very confusing for many shippers. It is essential they stay informed and educated if they want to remain in control of their transportation costs.

Expectations for 2019 Mid-Year Increases:

Are Once-Per-Year Increases a Thing of the Past?

If 2018 introduced the new norm, shippers could see mid-year surcharge increases being assessed by both UPS and FedEx once again. Shipware expects increases in the same areas: Large/Oversize packages and Additional Handling. Essentially, the carriers are increasing these fees as a deterrent, forcing shippers to either optimize packaging or move large packages out of the small package network.

Last year, we saw the following UPS surcharges impacted: FuelShipping Charge Corrections, Additional Handling (>70lbs),Large Package Surcharge, andOver Maximum Limits. Regarding fuel, UPS split the fuel surcharge for domestic and international air so that we currently different fuel surcharges for export, import and domestic air. In June, they introduced an audit fee for shipping charge corrections which is the greater of $1 per adjusted package or 6% of the adjusted revenue for an invoice week. As mentioned before, this is now applied when the average shipping charge correction in an invoice week is more than $5, increased from $2 within the same calendar year. Again, the key word here is, “average.” We expect this audit fee to be fair game for an annual increase, similar to the Third-Party Billing Fee which has seen a YOY increases.

In addition, UPS changes for 2019 include applying fuel surcharges to more surcharges than ever before, including: Additional Handling, Over Maximum Limits, Signature, and Adult Signature Required. They are also instituting new fees. They will also charge a processing fee when Package Level Detail (PLD) is not provided to them prior to delivery.

FedEx followed suit with their own mid-year hikes to larger packages, increasing their Additional Handling Charge Weight, Oversize Fee, and Unauthorized Package surcharges. Furthermore, the FedEx Express and FedEx Ground fuel surcharge tables were updated in September, translating into increases for most shippers and effectively eliminating the fuel cost advantage that they’ve held over UPS for years in what was a 75% addition to the Express fuel surcharge table and 1% to the Ground fuel surcharge table.  Like UPS, FedEx now has separate tables for export, import and domestic express.

The tables below illustrate the mid-year surcharge increases, ranging from 12.5% to 125%, and overall impact to shippers:

UPS

ups mid-year increase

FedEx

fedex mid-year increases

Going forward, it will be harder to pinpoint when increases will occur and how much they will demand of shippers. The days of surcharges increasing once a year as part of the general rate increase may be a thing of the past. Shippers need to be diligent and keep abreast of carrier updates regularly. Transportation spend will continue to increase year over year. The question now is: how many times per year?

When and How to Use SurePost and SmartPost in 2019:

aka Everybody Wants Free Shipping

With free shipping becoming more and more of a required checkout option for internet shoppers, companies are constantly looking to cut their transportation costs and minimize the loss incurred by making it available.  FedEx and UPS have adapted by partnering with the US Postal Service (USPS) to handle last mile deliveries on their behalf, thereby reducing their costs and allowing them to offer a less expensive service to their customers.  These services are called SmartPost and SurePost, respectively.

What are SurePost and SmartPost?

UPS defines SurePost as an economical ground service that delivers primarily to residences while FedEx defines SmartPost as efficient residential shipping for low-weight packages for both delivery and returns.

Getting a package to its final destination is the most expensive part of its journey and both services were created to help drive down the costs of this “last mile” of delivery.The USPS visits nearly every address in the United States on a daily basis. SurePost and SmartPost leverage this fact by using them for them for the final delivery, allowing UPS and FedEx to avoid delivering a package to a place already visited by the USPS.  One thing to note is that SurePost and SmartPost are contracted services, meaning they’re not available to shippers who have not addressed them in their UPS and FedEx agreements.

Services, Surcharges and Shipment Flows

With both SurePost and SmartPost calling on the USPS to execute final deliveries, both offer similar services with matching dimensional, weight and material restrictions, with SmartPost Returns being the differentiator, having no SurePost counterpart.

SurePost is broken down into four services:

  • SurePost 1 lb. or Greater (Might be referred to as Parcel Select, the USPS term)
  • SurePost less than 1 lb. (Parcel Select Lightweight)
  • SurePost Bound Printed Matter
  • SurePost Media

While SmartPost is broken down into five services:

  • SmartPost 1 lb. or Greater (Might be referred to as Parcel Select)
  • SmartPost less than 1 lb. (Parcel Select Lightweight)
  • SmartPost Bound Printed Matter
  • SmartPost Media
  • SmartPost Returns

SurePost 1 lb. or Greaterand SmartPost 1lb. or Greater are the most common services, respectively, for both UPS and FedEx. They allow packages as heavy as 70 pounds with combined length + girth (2*height + 2*width) of 130” or less as long as no dimension is longer than 60”.  SurePost less than 1 lb.and SmartPost less than 1lb. both have the same dimensional restriction as their analogous 1 lb. or Greater services, but the shipment must weigh less than 16 ounces.

SurePost Bound Printed Matter (BPM) and SmartPost BPM apply to books and other permanently-bound materials that weigh up to 15 pounds.  Both services have a 108” length + girth limit and a 60” maximum for any single dimension.  In order to use a BPM service, it must be specifically included in a SurePost or SmartPost agreement.

SurePost Mediaand SmartPost Media are for most forms of media (CDs, DVDs, etc.) and have a 70 pound maximum and a 108” length + girth limit.  Like BPM, Media is only available to shippers who specifically include it in their respective SurePost or SmartPost agreement.

As mentioned before, and noted in their definition of SmartPost, FedEx offers one additional service, SmartPost Returns. This is a solution that offers consumers a way to return packages through the USPS using the same restrictions as 1lb or Greater.  The caveat is that a shipper must have at least 20 returns per day in order to qualify for this service and it must be specifically included on an agreement. Returns packages may also be dropped off at any FedEx retail location.

When it comes to surcharges:

SurePost has a smaller set of surcharges than UPS Ground that can be added to a shipment:

  • Non-Machinable: A package with a dimension between 34” and 48”, any two dimensions between 17” and 30”, or weighing over 35 lbs.
  • Delivery Area Surcharge
  • Additional Handling: Package with its longest side greater than 48”, second-longest side greater than 30”, encased in metal or wood, or a cylindrical item not fully encased in corrugated
  • Peak Surcharge: An extra fee added to Additional Handling during UPS’s busiest time (between mid-November and Christmas)

SmartPost has a smaller set of surcharges than FedEx Home Delivery:

  • Non-Machinable: Package with a dimension between greater than 27”, any two dimensions greater than 17”, weighing over 35 lbs., or packaged in a cylindrical tube
  • Delivery Area Surcharge
  • Balloon: Item that weighs less than 20 lbs. but measures between 84” and 108” in length + girth
  • Oversize: Item measuring between 108” and 130” in length + girth
  • Package Relabel: Packages that require overlabel or hand keying will be assessed this fee
  • Third Party Billing Surcharge: Shipments billed to an account unrelated to the shipper

We know what SurePost and SmartPost are, their similar offerings, why they were created, and what surcharges can be applied. But, what does the flow of a shipment look like in practice?

A SurePost shipment typically goes as follows:

  1. UPS picks up the shipment as part of their regular pickup.
  2. UPS consolidates the SurePost shipments and delivers them via their ground network to a USPS Destination Delivery Unit (DDU).
  3. USPS then sorts the packages to their carrier routes and handle the delivery to the customer.

A SmartPost shipment typically goes as follows:

  1. FedEx picks up the shipment as part of their regular ground pickup.
  2. FedEx consolidates the SmartPost shipments and delivers them to one of their 25 SmartPost Hubs.
  3. The hubs sort the packages to the USPS destination close to the delivery point, not necessarily a DDU.
  4. USPS then sorts the packages to their carrier routes and handle the delivery to the customer.

Both SurePost and SmartPost use dimensional rating for their packages just like they do for their other services. This takes the volume of the package (L * W * H) and divides it by a DIM divisor (the standard is 139).  This dimensional weight is compared to the actual weight and the greater value is used for rating purposes.

As you can see, SurePost and SmartPost are very similar.  The package requirements are the same and the service offerings are almost identical, the distinction there being that FedEx offers a SmartPost Returns product that UPS does not.  There are a few more differences though.   FedEx uses separate SmartPost hubs instead of the regular ground network that UPS uses and, while every SmartPost package will be delivered by the USPS, UPS will deliver SurePost packages if it they are already delivering a regular ground package in the customer’s immediate area. As a result of these differences, the transit time for a SurePost shipment is generally about a day faster than SmartPost.

Additionally, the list rates are different between FedEx and UPS.  The 2019 list rates for SurePost and SmartPost are shown below.  FedEx’s rates match their ground rates for 1 to 9 pounds in most zones (with a slight difference in the 4 thru 9 pounds rates on zone 4, and 9 pounds rate on zone 3) whereas UPS’s rates are an average of 5.9% higher than their ground rates.  Both carriers’ rates increase by almost 30% at the 10 pound mark.  Shippers of heavier packages need to calculate if these rates are still beneficial.  With the lack of a residential surcharge, they typically will be despite the rate jump, but the savings opportunity is greatly reduced.

surepost smartpost rates

Just like all other services, SurePost and SmartPost have a minimum charge.  For UPS, it is the zone 2, 1 lb. rate or the zone 2, 1 lb. ounce rate. For FedEx, it is the zone 2, 1 lb. rate less $2.00 (less $3.00 for ounces).  Shippers should factor these minimum charges into their SurePost and SmartPost rate negotiations.  UPS is at a much higher starting point than FedEx, so an aggressive concession will be needed.

Now that we’ve defined what SurePost and SmartPost are, let’s look at why shippers should use these services and what to be aware of when considering SurePost or SmartPost.

For both carriers, the advantages include:

  • No residential surcharges. This saves $3.95 with both UPS and FedEx, assuming no reductions have been negotiated.
  • Lower delivery area surcharges that save up to $2.50 with UPS and $2.75 with FedEx (see the chart below).

surcharges

  • The ability to deliver to PO Boxes, which neither UPS nor FedEx can.
  • The ability to deliver to Military APO/FPO/DPO destinations.
  • The ability to deliver to US territories.
  • Full tracking and visibility just like regular UPS and FedEx shipments.
  • Delivery Monday through Saturday everywhere. Currently, FedEx Home Delivery is Tuesday through Saturday and UPS only delivers on Saturday to some locations.

Disadvantages include:

  • Slower transit time compared to the carriers’ ground service
  • Tracking confusion owed to the package switches carriers (sometimes UPS or FedEx will show the package as “delivered” when it has been handed off to the USPS)
  • Collect on delivery is not available
  • Package value is capped at $100 and no additional declared value is possible
  • Money-back guarantee does not apply because transit times are not defined
  • Hazardous materials cannot be shipped
  • Signature proof of delivery is not available
  • Appointment deliveries are not available

Having said all of that, shippers use SurePost and SmartPost as their “Free Shipping” option most of the time. The lack of residential surcharges, the lower delivery area surcharges and the ability to deliver to just about every location in the country allow them to minimize their losses on transportation. The trade-off of a slower transit time is acceptable for most customers.

Shippers that are interested in using these services need to ensure that their UPS and/or FedEx agreements have SurePost and/or SmartPost pricing on them. Discounts can and should be negotiated as well.  Once the services are included, the packages will be picked up as part of the normal process.

The USPS Announces Significant Changes:

A Brief Overview of the 2019 GRI

The 2019 USPS General Rate increase will take effect on January 27, 2019. The reported 5.9% average increase for Priority Mailis understated, as most shippers are using “Commercial Plus” pricing (which is being effectively eliminated) and will take an additional 3% increase.  Some lanes, including flat rate envelopes will see a 9% increase.

New Priority Mail dimensional policies will be implemented on June 23rdwherein the Post is dropping the balloon surcharge and decreasing the Dim divisor to 166 from 194.

The First Class Package Service (FCPS)will no longer be a flat rate and is instead switching to zone-based pricing. Inner zones will see a smaller 6.7% increase while outer zone shippers will see a 15% increase.  Where pricing used to have just 16 levels based upon the ounce, it will now rise incrementally every 4 ounces.

Parcel Selectis the core USPS class used by consolidators like UPS SurePost and FedEx SmartPost examined in the previous section.  There are many ways consolidators use the USPS for final mile delivery, with most using the DDU entry discount.  Rates for > 1 LB are going up 10% with the new 166 Dim, while the under-a-pound is increasing an average of 11.5% and willnotbe switching to zone-based pricing like the FCPS.

This is a major rate increase that was carefully planned by the USPS to minimize loss of volume, with the greatest increases being applied to shipping lanes with the least competition.  Zone 8 lightweight shippers would be well served to consider fulfilment or adding asecond distribution center to mitigate costs, as will > 1 lb. shippers with higher cubic volume (> 1728 cubic inches) since the Post will grandfather in the Dim exemption for zones 1-4.

How to Compete with Amazon:

Contending with Free Shipping, Shopping Cart Abandonment

Regardless of how we define the “Amazon Effect,” one thing is clear: there’s no denying the digitization of the marketplace has disrupted traditional business models and consumer expectations.  Consumers expect an almost entirely frictionless buying experience with near immediate results, including delivery.  With immediate access to virtually any product or service via their smart phone, tablet or computer, consumers no longer need to set aside time to run errands at brick and mortar stores.

How can the average shipper compete in this environment?  It’s difficult but they should begin by pursuing means to lower their parcel shipping costs(which allows them, theoretically, to charge less for shipping) or decrease transit times. Ideally, both.  There are many ways for shippers to accomplish these goals, some dependent on volume and spend and therefore within reach of only the largest shippers, and some not.

Two great ways to reduce cost and shorten delivery time are to increase the number of origin points or to move the origin point as close to the end user as possible.  A shorter delivery distance carries a lower rate (usually) and enables faster transit.  The largest shippers can open new, strategically placed distribution centers while smaller shippers can consider a direct-to-consumer strategy by having the manufacturer or wholesaler handle shipping or by fulfilling from stores rather than from a primary DC.  An omnichannel strategy, which includes shipping from all of the above, can be a great option for many shippers.

Carrier diversification is another strategy that can both reduce cost and decrease transit time. Shippers should consider using multiple carriers where it makes sense.  Understanding which carriers are a good fit and which are not is critical to this strategy. Many shippers can benefit from increased usage of USPS as Priority Mail can offer lower costs and faster transit times with 2-day delivery to most of the country. It’s also very important for shippers to understand the impact this strategy will have on the pricing they receive from their primary national carrier as a result of moving volume away from them.

Regional carriers should not be overlooked when trying to hit this lower cost/shorter transit goal. They can be a great option for certain shippers. Regional carriers such as OnTrac on the west coast, LaserShip in the east, UDS in the Midwest and LSO in the southwest can help large shippers offer one- and two-day transit to most population centers in these geographic regions.  The ROI on introducing regional carriers will vary, however, from shipper to shipper.  The largest shippers, who have favorable delivery density within the footprint of a certain regional carrier, should absolutely be exploring this option.

Packaging optimization can be a key cost-reduction strategy and can help shippers avoid significant, and often unexpected, dimensional weight fees.  A shipper’s ability to “right-size” their packaging is critical to reduce the amount of air they’re shipping.

All of the above should include an aggressive rate negotiation strategy with the national carriers. Every aspect of their pricing agreements are negotiable. Discounts, minimum charges, accessorial charges, dimensional weight pricing, etc. can all be negotiated in order to help lower costs.  Even the degree of impact the carriers’ annual GRIs have on a given shipper can be mitigated through contract negotiation.  Education and data are key here.  Shippers must be intimately familiar with their own shipping and package characteristics and should know how to use that information to their advantage during carrier negotiations. Shippers who have taken action to lower the carrier’s cost to serve them, such as adding additional origin points or optimizing their packaging, shouldn’t be afraid to ask for concessions in exchange.

Some shippers have decided that, if you can’t beat them you may as well join them.  These shippers, in order to get their product in front of more consumers and offer faster delivery (and, therefore, to compete with Amazon) believe that Fulfillment by Amazon (FBA) is worth the extra cost. How does FBA work?  Retailers send their product to Amazon to store it. Orders are placed either through Amazon, directly with the retailer, or through some other eCommerce platform.  Amazon picks, packs and ships the item then provides tracking, customer service and returns management.  But, all of this comes at a cost to the shipper.

In the coming years, what we think of as the “Amazon Effect” will likely include the impact of Amazon rolling out their own national delivery network, Amazon Shipping, in effort to compete directly with the national carriers.  At the time of writing of this article, Amazon had announced a plan to eliminate many of the fees associated with residential deliveries carried out by UPS and FedEx.  Although conventional wisdom says that Amazon Shipping is, at minimum, 5 to 7 years away from competing on a large scale, the national carriers stand up and take notice when announcements like this are made, and so should shippers.  Stay tuned for more on this topic.

Shipping in 2019: The Big Picture

2018 was another huge year for UPS, FedEx and the USPS.  Package volumes continue to rise, and the carriers are racing to keep up with the increased demand. Both UPS and FedEx instituted mid-year increases to surcharges related to size and weight, making it clear that large packages are not welcome in their network without collecting significant fees in turn. Both also changed their fuel surcharge tables, separating domestic express, import, export and ground into separate tables while increasing the surcharge percentage.  Peak surcharges were once again implemented in 2018 and we expect to see them in 2019 as well. FedEx and UPS differ in their peak surcharge strategies, so any changes for 2019’s peak season merit attention.

The 2019 rate increases were announced at 4.9% by both carriers.  Further analysis reveals that FedEx stayed close to 4.9% on their ground, home delivery and SmartPost rates whereas Express saw significantly higher increases, particularly in the higher zones.  UPS’s increase was a little higher for their ground residential and SurePost services while, like FedEx, Express saw significant increases in the higher zones. Remember, that 4.9% does not include accessorials! Both carriers increased their most assessed accessorials, ranging from 5% to 12%, so that needs to be considered in any rate increase calculation.

As we move into 2019, the specter of Amazon looms over everyone. Shippers are looking for ways to lower their transportation costs as customers expect free shipping with every online order.  Carrier diversification, regional carriers, package optimization and minimizing delivery distance are different ways shippers can lower their costs to appease expectations. Amazon is building out a delivery network and has already announced a plan to eliminate many of the fees associated with residential deliveries.  It remains to be seen how long their plan will take to scale but shippers and carriers will be closely following any developments.

should-i-invest-in-private-parcel-insurance-plan_shipware

Should You Use a Private Parcel Insurance Plan?

By | News, Parcel Market Trends, Shipping Knowledge

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.

http://www.shipware.com/consulting-webinar-1/

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

By | News, Parcel Market Trends, Shipping Knowledge

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.

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

By | News, Parcel Market Trends

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.

holiday-shipping-tips-for-parcel-shippers_shipware

Top 7 Holiday Shipping Tips for Parcel Shippers

By | News, Parcel Market Trends, Shipping Knowledge

More shoppers are “clicking their way” through holiday shopping lists, loading up carrier trucks, and getting items delivered directly to their doorsteps. UPS estimates it shipped over 750 million packages in 2017. USPS had similar volumes, noting they shipped around 850 million packages during the holiday season. As a result, retailers are under intense pressure to not only deliver, but also deliver high volumes, and do it faster. It’s a tall order to fill.

The ease of online shopping has contributed to the high number of packages delivered during the holidays. What’s more, holiday shopping estimates are growing. In fact, worldwide holiday online sales reached $108 billion last year, up from $94 billion in 2016. More shoppers are opting out of brick-and-mortar shopping experiences and instead turning to their smartphones, tablets, laptops and even voice-activated services, such as Amazon Alexa. Many retailers wonder how they can do better with this increased pressure. Check out these holiday shipping tips for parcel shippers.

1. Get a List of Shipping Deadlines Early

Customers may be shopping for that perfect gift now, but not all of them are ready to place an order. Some procrastinate for days, until finally they must make a move. The goal of retailers should be getting these last-minute shoppers to order sooner – and it starts with understanding shipping deadlines.

What carrier does your retailer use? Or do you use multiple carriers – a mix of FedEx, UPS, and USPS? Regardless, each carrier publishes a list of delivery deadlines that helps communicate expectations to customers. Find strategic places to put “order by” dates on your website, such as the home page and banners on various pages. For example, you might say, “Order by December XX to get your gift by Christmas.” Giant retailer Amazon typically informs customers at checkout if their item will arrive in time for Christmas.

Determine the correct order-by dates by understanding critical cutoffs for each carrier. Check out this list of deadlines for major carriers, including UPS, FedEx and USPS.

FedEx

December 14th – Deadline for FedEx Ground shipments.

December 17th – Deadline for FedEx Home Delivery shipments.

December 19th – Deadline for FedEx Express Saver shipments.

December 20th – Deadline for FedEx 2Day and 2Day A.M. shipments.

December 21st – Deadline for FedEx Standard Overnight, Priority Overnight and First Overnight shipments.

December 25th – Deadline for FedEx SameDay shipments.

UPS

Monday, December 17th UPS 2nd Day Air packages picked up today are scheduled for delivery on Thursday, December 20th. UPS 3 Day Select packages picked up today are scheduled for delivery on Friday, December 21st.

Tuesday, December 18th – UPS 2nd Day Air packages picked up on this date are scheduled for delivery on Friday, December 21st. UPS 3 Day Select packages are scheduled for delivery on Monday, December 24th.

Thursday, December 20th – Mark this date on your calendar because it’s the last day to ship UPS 2nd Day Air packages for delivery on Monday, December 24th.

Friday, December 21 – This is the last day to ship UPS Next Day Air packages for delivery on Monday, December 24th. UPS Next Day Air service may also be available for delivery on Saturday, December 22nd. However, these packages must be processed and labeled for Saturday delivery, which is not available in all ZIP codes.

Saturday, December 22nd – Delivery of UPS Worldwide Express, UPS Next Day Air and UPS 2nd Day Air packages are processed and labeled for Saturday delivery.

Sunday, December 23rd – No UPS Pickup or delivery service is available. However, UPS Express Critical service is available.

Monday, December 24th – Pickup service is available only for Air and International Air packages if pre-arranged by Thursday, December 20th.

Tuesday, December 25th – This is a UPS holiday, and no UPS pickup or delivery service is available.

2. Evaluate Strategies for Shipping Faster

More efficient shipping strategies should also include areas such as fulfillment. The sooner you get items on trucks, the better. The key to accomplishing this is to react to orders with greater speed. Set a goal to get orders out the door within 12 hours of when they are placed.

Ideally, retailers should look at last year’s fulfillment processes. Are there areas for improvement? Do inefficiencies exist, and if so, are there ways to improve these areas prior to the holidays? Even if you get a late start on looking at this area, there are still steps you can take to drive improvement. Minor improvements in workflow efficiency can add up and produce better results. Strike the right balance between quick fulfillment and keeping accuracy high to drive faster shipping this holiday season.

3. Ensure That Stock Issues Don’t Slow Down Shipping

One area that slows down shipping is inadequate stock during the holidays. As a result, the retailer must wait until new stock comes in, which adds to shipping cost, either for the customer or for the retailer – both of which are bad. Even worse, the customer might decide to order from a completely different retailer, resulting in lost sales.

Solve this problem by getting a jump start on estimating stocking needs for the holidays using data from the previous year and sales forecasts for 2018. Innovative tools and technology can help you evaluate the previous holiday season and forecast adequate inventories to ensure that all items are ready to ship and no rush shipping charges are incurred due to supply issues.

4. Build Promotions to Reduce the Need for Last-Minute Shipping

Late orders put stress on carriers and retailers. It’s true that you can’t make customers order early, but you can entice them to get a jump start on shopping. As a result, more time is allowed for shipping and less money is spent on rush shipping.

One strategy for accomplishing this is to carefully redesign holiday promotions. In the past, some retailers held sales the last week before Christmas. This is a good strategy for capturing last-minute sales, but a bad strategy for increasing strain on shipping at the last minute. Consider holding big promotions in the middle of December instead of the week before Christmas, to encourage shoppers to place orders early and give shippers more time to deliver.

5. Look for Ways to Operate More Efficiently

The Amazon Effect has changed the way in which customers think about shipping. In the past, people expected to pay shipping costs and factored these expenses into their budgets. But with the introduction of free shipping and then Amazon Prime, expectations around shipping have changed, and this drives up costs for retailers.

Those that ship large volumes can leverage innovative technologies to manage those costs, which allow them to provide the free shipping that customers expect while managing costs internally. For example, invoice audit software allows retailers to see where they’re overspending on shipping and find more effective ways to manage those costs.

6. Package Safely

The holidays are filled with expectations, and one of those expectations is that a package will arrive on time and without damage. Carriers are moving a lot of packages, and even with their best efforts, there are times when packages get damaged. The culprit of these damages is often improper packaging materials, and if a carrier determines this was the cause, they may not replace the item. This puts increased pressure on retailers to package items for maximum protection around the holidays.

Proper packaging starts with strong boxes. Having a single crease in a box can diminish a box’s strength by as much as 70 percent. Most parcel shippers provide some level of internal packaging, even if the item isn’t delicate, but picking the right packaging is key. For example, each item should be surrounded by at least two inches of cushioning and placed two inches or more away from the walls of the box.

That way, if the box walls encounter damage, the item is still safe and undamaged inside. Using approved packing materials, such as packing peanuts and bubble cushion, is a good starting point. Make sure that a package doesn’t rattle and can’t be shifted around, to reduce risk of damage.

7. Factor in Shipping for Returns

The holiday season is a high-volume time for all retailers, but along with this spike in sales comes an increase in returns. What’s more, it’s critical to plan for the inefficiency and expenses associated with post-holiday returns. Even if you do everything right – provide great service and ship in time – the recipient may simply not like the gift, or need a different product.

Nobody is at fault, but your company still has to deal with shipping returns. The more that you can automate the process, the easier it will be. Provide pre-printed return labels and specific packing instructions to streamline the process. Select a fast and reasonably priced shipping option to minimize costs and meet demands, while keeping customers happy.

Shipping with Greater Efficiency

Shipping is a critical factor that lies between creating a positive customer experience and growing revenue in the future. Carriers are under intense pressure during the holidays, which is why it’s key to put processes in place that improve shipping speed while adding to the customer experience. This is critical because bad feelings associated with late shipments trickle down to retailers, even when they’re not at fault.

The result might be not only the loss of a customer, but also the negative reviews that customer might share about your retailer with others. In fact, 82 percent of consumers proactively seek referrals from peers before making a purchase, and when you have stories about bad holiday shipping experiences spreading within peer-to-peer comments, the outcome may be serious.

Retailers can improve relationships with customers this season by looking for weaknesses in their fulfillment and shipping process, and working to fix those inefficiencies. Do you offer free shipping? Great. Most customers demand it. But the strategies that you use to offer free shipping may kill your bottom line. Seek innovative technology that helps improve efficiency and free up valuable shipping dollars – minimizing rush orders and evolving the customer experience.

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.

how-retailers-can-compete-with-amazon-effect_shipware

How Retailers Can Compete With the Amazon Effect

By | eCommerce, News, Parcel Market Trends

Amazon started as a small, online bookseller, but it evolved to become a major disrupter in the retail space, changing the face of retail and shaking up online commerce. Customers no longer think about shopping in the same way, and their buying paths have shifted as they demand access to more channels, using the devices that they know and love.

Competing with a massive competitor such as Amazon can feel overwhelming, but when you understand the Amazon Effect and how to work with it – instead of against it – your business can make real gains. It all starts with customer experience, which is a key pillar to Amazon’s success.

Companies lose an estimated $300 billion annually due to poor customer experiences. Amazon has made millions of dollars creating personalized experiences and providing everything from suggested product recommendations to the ability to order via voice-activated personal assistants. Retailers can overcome the Amazon Effect and achieve great success, but they need to know where to start. Check out these powerful ways that retailers can compete with the Amazon effect.

Reaching Customers with Greater Impact

Customers are no longer shopping using the same old channels. They are ordering products while waiting in line for coffee, on the commuter train and at their kids’ sports practices. At times, they also still crack open that laptop and place an order. The Amazon Effect has created an environment in which customers expect a seamless omnichannel experience. In short, whether they’re shopping online from a desktop or on their smartphone at the local coffee shop, the customer wants that experience to be integrated and seamless.

Take, for example, cosmetic company Sephora. Consumers can shop, see their favorites list and past purchases, scan items in the store and see other options available online, watch tutorial videos, and find a store near them. The company’s approach to omnichannel has nurtured 11 million members who spend 15 times more money on Sephora than the average user does. Even if the niche your retailer serves is very different from this example, the message is clear: When you allow customers an integrated experience, giving them the option to view and interface with all potential channels, it increases loyalty and drives sales.

The key to creating a strong omnichannel experience is understanding customer behaviors and preferences and then creating an omnichannel experience that reflects those preferences. It’s likely that your company already collects large amounts of customer data. Having that data is the first step, but more importantly, you must gather insights to use that data and create stronger relationships with customers. The omnichannel experience can’t be clunky and disjointed, but instead must embrace digital retailing and the expectations set by customers in the wake of the Amazon Effect.

Zeroing In on Price

Planning a new purchase often begins in the same place for many shoppers: Amazon. In fact, Bloomberg reports that more than 50 percent of online shoppers start a product search with Amazon. Customers aren’t only checking for lowest prices, a category in which Amazon has built a reputation, but are also checking customer reviews, product options and more.

What are other customers saying about the products? Does it have bad reviews? Is the price competitive? Amazon is constantly updating prices several thousand times a day to stay competitive, and if your company doesn’t have some strategy in place to combat this phenomenon, it can be a problem.

Old-school methods around pricing won’t cut it in a post-Amazon Effect environment. Savvy retailers are combatting this challenge by using technology to keep pricing competitive. For example, they might use real-time analytics that allow for rapid price changes, similar to Amazon’s approach. Other retailers are using different approaches, such as allowing customers to name their price or take advantage of dynamic and personalized coupon offers.

When too many first-class seats are available, Hawaiian Airlines allows customers to name their price (with a price floor set) to get the seats. Although retail is different from an airline service, the name-your-price strategy, especially when inventories are high, can be an effective one.

Cart-level pricing is also used, where customers can take advantage of special offers and products at the cart level to drive additional sales. The bottom line around pricing and the Amazon effect is that customers expect retailers to be competitive. When loyalty is weak, they will quickly pick another retailer if pricing is more competitive or the experience is superior. The name of the game is being reactive and making moves fast. Create strategies to make this possible and stay one step ahead of competitors – and your customers’ demands.

Targeting the Demand for Ease

One of the major symptoms of the Amazon effect is expectations around simplicity during the purchase process. A few decades ago, the shopping process was labor-intensive. A customer would have an item in mind, pick a store or two, and start shopping, which was time-consuming, especially if the item was not found. Since online shopping wasn’t available, the customer might compare sale ads, but comparison shopping was difficult. What’s more, free shipping wasn’t common and the customer didn’t balk at paying shipping costs; shipping costs were expected.

Shopping is now a process that includes expectations of near-instant gratification. Amazon has one-click shopping, making it possible to complete transactions in a matter of seconds. Customers can shop multiple stores from a variety of devices – smartphones, tablets and laptops – faster and easier. The result of the Amazon Effect is that ease is now expected across all experiences. Customers expect to run into fewer barriers during the process, and if those barriers do occur, the tolerance is minimal, which can result in lost sales.

One way to compete against the Amazon Effect is to create experiences that eliminate friction in the buying process, as the Amazon one-click purchase process has done. For example, a mobile-first experience, responsive design and a variety of payment options, including digital options such as Apple Pay, leverage the critical factor of speed.

Magnifying the Transformation of Shipping

Amazon has transformed expectations around shipping, and the majority of retailers have felt the effects. Nearly 90 percent of respondents in a recent survey “somewhat agree” or “strongly agree” that Amazon has changed consumers’ expectations for order delivery.

It all began when Amazon started offering free shipping on orders that cost more than $25. Many retailers, such as Target and Walmart, have since created similar shipping offers. But what took shipping expectations up a notch was the introduction of Prime shipping, which offers unlimited two-day shipping free to customers with membership. In fact, Amazon “Prime Day” in 2017 produced sales of more than $1 billion, showing that not only do customers enjoy fast shipping, but it drives them to spend more.

In fact, more than 90 percent of respondents say that shoppers are “significantly less likely” or “somewhat less likely” to purchase without free shipping. Furthermore, 45 percent of customers – nearly half of all shoppers – admit to abandoning their carts due to shipping costs that are tacked on at the end of the transaction.

As a result, many retailers are being forced to offer free shipping to customers in order to compete in the marketplace, and that trickles down directly to their bottom line. Retailers are using a variety of strategies to handle the pressure of changing shipping expectations. One such strategy is “backing in” shipping costs to the product price. And while this offers a straightforward solution, it doesn’t always help retailers compete under pricing pressure. Higher pricing makes it difficult to stand out in a fiercely competitive environment.

Another alternative that retailers use is opting for shipping options that are less expensive. Major carriers, such as UPS and FedEx, developed shipping options that target the “last mile” of shipping, which is the most expensive part of the route. The U.S. Postal Service was already visiting most addresses in the United States, and partnering with the USPS to complete the last leg of delivery achieves savings that are passed on to the retailer.

There is a tradeoff, however, and that’s speed. These options are typically slower than what a more traditional service affords, but if expectations are set upfront and the customer accepts the tradeoff, it’s a worthwhile savings option.

Competing Through Products and Personalization

Technology has advanced, and retailers have gotten better at personalization – to the point where customers demand it. For example, Amazon does this through personalized recommendations based on previous purchases and on what others with similar interests buy. What’s more, customers who receive personalization from retailers spend more. In fact, 75 percent of consumers are more likely to purchase from a retailer that recognizes them by name, recommends options based on past purchases, or knows their purchase history. Additionally 59 percent of customers say that personalization influences their shopping decisions.

This demand for personalization is only expected to amplify in the future. Over the next five years, it’s said that $800 billion will shift in the retail, financial services, and health care markets from those that can’t deliver good experiences to the 15 percent that get personalization right.

As a result, retailers that want to compete with the Amazon Effect must provide experiences that are personalized and make customers feel special. Customers want to receive relevant offers and information at the precise moment of relevance. In fact, more than 78 percent of consumers will engage with offers only if those offers have been personalized to their previous engagement with the retailer.

Data is critical in this equation, as retailers need to have a variety of products that more closely match a customer’s needs at that relevant moment in time. Doing this correctly can create brand loyalty that gives you an advantage over the competition.

Creating Greater Synergy with the Amazon Effect

While it’s impossible to reverse the Amazon Effect and the consequences it’s had on the retail space, it is possible to use this trend to your advantage. Working against the current of this effect is more difficult than working with it. If you examine what it has uncovered, you’ll learn important details about how to best reach your customers and drive greater results.

For example, Amazon taught retailers not only that free shipping is a major hot button for customers, but also that when you combine free shipping with fast delivery (i.e., Prime shipping), it drives massive amounts of revenue.

A key piece of the puzzle in managing the Amazon Effect in the future is having the right technology in place that empowers quick decisions. Speed is the secret ingredient to meeting your customers’ demands at the exact moment of relevance, yet many retailers aren’t capitalizing on this yet. Furthermore, although 89 percent of respondents reported that Amazon has changed customers’ expectations for order delivery, more than half of those respondents have not adjusted their technology spending on order fulfillment and delivery. Only 40 percent of retailers have either somewhat or significantly increased investment in this area, which means that many have an opportunity for improvement.

Create a seamless omnichannel experience, maximize shipping efficiency, minimize related costs and look for ways to create more personalized experiences, and your company will be equipped to compete with the Amazon Effect and thrive 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, the USPS or regional carriers, our contract audit and negotiation services are guaranteed to reduce your parcel and LTL shipping costs by 10 to 30 percent, with no disruption in current operations. Our team of experts has more than 200 years combined of carrier pricing experience. We have negotiated thousands of FedEx, UPS and LTL contracts – saving our clients an average of 19 percent.

2018-holiday-shipping-deadlines

2018 Holiday Shipping Deadlines: A Guide

By | News, Parcel Market Trends, Shipping Knowledge

Last year was a record-breaking holiday season for retailers, as they posted their best holiday season since 2011. Total retail sales in the U.S. climbed 5.5 percent in November and December, aided by a 17.8 percent increase in retail e-commerce sales. What’s more, customer confidence in the U.S. economy is at its highest since 2000. Customers are shopping more and spending more at brick-and-mortar locations and online. Fueled by growth in mobile shopping and the advent of voice-activated assistants such as Alexa, customers are experiencing an unprecedented ease in the holiday shopping experience.

The stakes during the holidays have never been higher for retailers. This season accounts for as much as 30 percent of annual sales. The time frame for achieving these maximum profits spans only several weeks, leaving retailers to constantly look for better and more powerful strategies to capture a greater piece of the revenue pie. A key strategy for accomplishing these goals is mastering shipping.

Unlike other times of the year, shoppers are under intense deadlines during the holidays. Not having that perfect gift in time to give a friend or family member creates bad feelings toward the retailer – feelings that are difficult to repair. So what are the 2018 holiday shipping deadlines, and how can you be better prepared this season?

FedEx Holiday Shipping Dates

FedEx is a popular carrier choice during the holiday season, especially when retailers need packages to arrive fast. Shipping deadlines will depend largely on what service is selected and how urgently that parcel needs to be delivered.

See below for general guidelines to help select the best option for getting packages to their destination on time:

  • December 14 – Deadline for FedEx Ground shipments.
  • December 17 – Deadline for FedEx Home Delivery shipments.
  • December 19 – Deadline for FedEx Express Saver shipments.
  • December 20 – Deadline for FedEx 2Day and 2Day A.M. shipments.
  • December 21 – Deadline for FedEx Standard Overnight, Priority Overnight and First Overnight shipments.
  • December 25 – Deadline for FedEx SameDay shipments.

One unique option that FedEx offers is same-day shipping on Christmas Day. The FedEx SameDay option is available 24 hours a day, 365 days a year for urgent, last-minute requests. The expense is high, so this option is good for special situations.

For example, let’s say you shipped an item and for some reason the customer didn’t receive it. The details on why can be sorted out later, but in the meantime, the customer doesn’t have the product. And if it doesn’t arrive before Christmas, the mistake will be unfixable in the mind of the customer. Same-day shipments are good for this type of urgent situation.

It’s important to note that FedEx doesn’t charge holiday surcharges on shipping; however, other surcharges may apply. For example, if extra handling is required, the shipping cost may increase by $3.20. See the full list of additional surcharges here.

Additionally, certain FedEx guarantees, such as those that apply to FedEx Ground, Express, and Freight, may not be available during peak holiday season. Check with your local FedEx carrier if you’re concerned about guarantees during this busy time of year.

UPS Holiday Shipping Dates

UPS is another common choice of retailers who want reliability and good tracking features. This carrier provides a variety of service options during the holidays, and by knowing shipping deadlines, retailers can better manage costs and expectations. Be sure to mark the following dates on your calendar. Even better, include “order by” dates on your website to encourage customers to order early and set expectations.

  • Monday, December 17 – UPS 2nd Day Air packages picked up today are scheduled for delivery on Thursday, December 20. UPS 3 Day Select packages picked up today are scheduled for delivery on Friday, December 21.
  • Tuesday, December 18 – UPS 2nd Day Air packages picked up on this date are scheduled for delivery on Friday, December 21. UPS 3 Day Select packages are scheduled for delivery on Monday, December 24.
  • Thursday, December 20 – Mark this date on your calendar because it’s the last day to ship UPS 2nd Day Air packages for delivery on Monday, December 24.
  • Friday, December 21 – This is the last day to ship UPS Next Day Air packages for delivery on Monday, December 24. UPS Next Day Air service may also be available for delivery on Saturday, December 22. However, packages must be processed and labeled for Saturday delivery, which is not available for all zip codes.
  • Saturday, December 22 – Delivery of UPS Worldwide Express, UPS Next Day Air and UPS 2nd Day Air packages are processed and labeled for Saturday delivery.
  • Sunday, December 23 – No UPS pickup or delivery service is available. However, UPS Express Critical service is available.
  • Monday, December 24 – Pickup service is available only for air and international air packages if pre-arranged by Thursday, December 20.
  • Tuesday, December 25 – UPS is closed for the holiday, and no UPS pickup or delivery service is available.

If you want to better understand timing and costs, you can also refer to this UPS tool, which helps to determine exact turnaround times based on specific shipping details. It’s also important to note that, unlike the other carriers, UPS charges peak season surcharges during the holidays. These fees are in effect from November 19 to December 28.

You can find the exact surcharges based on geographic locations and shipping details here. On a per-package basis, the charge is minimal. However, for large-volume shippers, these costs may quickly add up, especially in cases of “free shipping” offers. Consider potential costs to determine which shipping option is best for your customer and your bottom line.

USPS Holiday Shipping Dates

The United States Postal Service has gotten much better in terms of services offered and reliability in recent years. What’s more, it’s very cost effective for smaller packages. In an age when “the Amazon Effect” is driving up the cost of shipping for retailers, low-cost and efficient shipping methods are key to staying competitive.

  • December 14: USPS Retail Ground 2018 Cutoff
  • December 20: First-Class Mail Cutoff (including Alaska and Hawaii)
  • December 20: Priority Mail Cutoff (including Alaska and Hawaii)
  • December 22: Priority Mail Express Cutoff (including Alaska and Hawaii)

USPS does not currently charge holiday surcharges. Additionally, the carrier does not use dimensional weight pricing for packages, which is a common pricing model with other carriers. As a result, costs may be lower because there are no extra fees for residential delivery or fuel, which creates a cost-effective solution for the holidays.

Tying It All Together: Which Shipping Option Is Best?

The first step to a successful holiday season is marking those shipping deadlines on your calendar and informing your customers about them. Doing so lets them know that they must order soon to get packages delivered on time, and receiving orders early helps your business prevent the last-minute rush that’s common with the holidays.

In addition to knowing your shipping dates, it’s also important to weigh the pros and cons of each carrier. Many retailers don’t use one single shipper; instead, they rely on a couple of them, depending on the shipping situation. See below for a quick summary of the pros and cons of each to select the right one for your shipping needs during the holiday seasons.

USPS

The major benefit of shipping with USPS is that it’s a low-cost option for small packages. USPS charges for weight only, which is beneficial if a customer’s package is small. If you’re shipping packages that weigh less than 13 ounces, USPS is often the best option. It’s reliable and ships to P.O. boxes, which other carriers do not. However, some retailers complain about the tracking system, finding that it has flaws.

UPS

The benefit of UPS is that it delivers secure and fast delivery with a high level of reliability. For example, it offers guaranteed express shipping, which is good for those last-minute packages that need delivery ASAP. USPS is often the best choice for smaller packages, but UPS is often a good choice for large shipments. Additionally, UPS is known for its user-friendly tracking options.

UPS, however, does not deliver to P.O. boxes and does not provide Saturday delivery as part of its basic services. If you need weekend delivery, there is an extra fee for that service. In contrast, USPS provides Saturday delivery at no extra cost.

FedEx

FedEx and UPS are pretty similar; however, there are some differences. Similar to UPS, FedEx is known for its fast delivery and user-friendly tracking system. FedEx Delivery Manager can hold packages at a FedEx office or schedule delivery for a specific time. The carrier also offers Saturday delivery as part of its basic service. This is an important feature when every day counts, and on a weekend, it can get packages to customers much sooner. For example, an item might ship midweek and arrive on Monday with UPS, but with FedEx, it could arrive the Saturday before.

The drawback to FedEx is that shipping costs may be higher, depending on the specific details of the shipment. Additionally, there is no free package pickup service. FedEx also has fewer offices worldwide than UPS – 1,900 FedEx offices compared with over 5,000 UPS stores.

Finding the right shipping solution, whether it’s UPS, USPS or FedEx, isn’t a straightforward choice and depends on many variables. During the holiday season, delivery time is one of the largest variables. How quickly does the customer need the package? Are you footing the bill, or is the customer paying extra for expedited delivery? Understanding shipping deadlines and the pros and cons of each carrier option assists with making the decision that keeps your customers happy.

Additionally, innovative technology is helping retailers to minimize costs while maximizing efficiency. For example, invoice audit software identifies where you’re overspending and helps create efficiencies and savings in shipping. The software uses all the data that you collect and turns it into actionable insights – empowering you to make critical cost-saving decisions during the holidays.

Planning for a More Successful Holiday Season

The holidays are coming fast, and customers are working their way through holiday shopping lists right now. Finding the perfect gift is no easy task, and once a customer places an order, the stakes of delivering that item on time are high.

Amplifying this challenge is the fact that retailers are under intense pressure from the Amazon Effect, where the bar is set higher and free shipping is the norm. Customers want items fast, but they also demand free shipping. Retailers are rushing to fulfill order requests, get them to destinations faster, and do it all while managing shipping costs.

Understanding deadlines, knowing costs and constantly looking for ways to improve those costs, such as by using innovative technology, allows you to take control of the process and overdeliver at a time when the reward for doing so is very high.

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 is Parcel Auditing?

By | Invoice Auditing, News, Parcel Market Trends

The rise of e-commerce and changes in consumer trends are driving massive increases in parcel shipping volume worldwide. Between 2015 and 2017, global parcel shipping volume increased by nearly 50%. Over $95 billion was spent on parcel shipments in 2016 in US markets alone.

On an average day, FedEx can expect to ship over 14 million parcels to 220 different countries and territories, while UPS delivers another 19 million per day. That’s nearly 9.5 Billion shipments annually, between only two common carriers. Amazingly, almost all of these deliveries are covered by the carrier’s service guarantees. These guarantees are detailed in each carrier’s Service Guide. They ensure that a package will be delivered on time, without so much of 60 seconds delay for express services and one day ground services, or the costs and fees will be refunded in full. The companies are contractually obligated to repay expenses for undelivered services.

Parcel Shipping Today: By The Numbers

Today’s parcel carriers pride themselves on their rates of on-time deliveries, and shipping companies pay for these guarantees at the time of shipment, not the time of delivery. Mistakes happen, and, in reality, between 1 and 7 percent of all FedEx and UPS shipments are delivered late. A late delivery usually results in a violation of the Service Guide that the carrier has with the shipping company. Therefore, the shippers of each package are entitled to refunds on their shipping charges. That could amount to a savings of up to 7% of a company’s shipping costs per month! That is why parcel auditing should be an essential part of any company’s operations.

So, how does a company discover a service violation after delivery and recover the refund they deserve? To put it simply, most do not. While carriers will honor valid requests for refunds, it is the responsibility of the shipper, not the carrier, to review shipping invoices for errors and then submit these errors to the carrier as proof of a violation of the service guide. The carriers are contractually obligated to refund costs paid for service failures.

What is Parcel Auditing?

One thing that a smart business should not neglect is the last stage of the traditional shipping lifecycle. Parcel auditing is, quite simply, reviewing all of a company’s shipping bills and invoices to locate instances of overcharging and service failures due to late delivery. A business could see 5% decreases in shipping costs on these refunds alone. Parcel auditing would be considered a best practice and should always be done.

A proper auditing process will leverage software technology for a thorough audit of every charge, a refund request, and carrier credit issued. Every shipment should be reviewed for errors or violations of service standards. Carriers will issue refunds on service failures and overcharges, some of them including:

  • Late Deliveries: The parcel was delivered past its guaranteed delivery time and date.
  • Non-Shipments: The parcel was entered into the carrier system and billed, but never shipped from the shipping company.
  • Incorrect Saturday Charge: The parcel was supposed to be picked up on a Saturday, but was not.
  • Duplicate Charges: A parcel was billed more than one time.
  • Incorrect Address Corrections: The carrier charges fees for an address correction that was not necessary or was initially correct.
  • Incorrect Dimensional Weight Charges: The carrier used the wrong dimensions or applied an incorrect DIM factor.
  • Incorrect Rate: The carrier did not apply the correct discount which is stipulated in the shipper’s carrier agreement.

When a company finds a valid problem, the tracking number for that delivery and a request for refund must be submitted to the parcel carrier. When the carrier approves the refund request, the cost of shipment is credited to the shipping company’s account. If all service failures and overcharges are credited, that could mean a significant reduction in overall shipping costs.

In addition to saving shipping costs up-front, completing a parcel audit on all shipments allows a company to better understand where the carriers are failing to deliver on time. A manual audit is a costly, intrusive process that interrupts regular workflow and often results in a net loss due to labor cost versus what is actually recovered. But in modern shipping, effective audit technology can break down carrier invoices  into clear, essential performance indicators. Data collected through a parcel auditing processes will allow companies to better evaluate shipping costs, and to make much more informed decisions regarding carrier choice and shipping options.

Manual Parcel Auditing

Traditionally, parcel auditing would not be done at all. If an employee were tasked to each shipping invoice line-by-line, it would be challenging to identify all billing errors and oversights are certain to occur. As the volume of individual small package shipments increases so too does the number of invoices to review, as well as the complexity of various fees charged on top of base shipping costs. At a certain point, the number of work hours needed to process the information will cost more than the savings gained.

For an internal auditor working for the company to be cost-effective, they need to handle thousands of pages of paperwork, documents, and spreadsheets from various carriers and shipments. They would need to discover enough opportunities for refunds to not only reduce the costs of shipping for the company but to cover the additional expenses of hiring employees to do the labor-intensive auditing work. Due to the sheer number of shipments on invoices, human auditors can hardly expect to review 100% of the invoices hoping to find billing errors and service failures. This results in less than optimal returns on costs, as human auditors will not be able to analyze 100% of a company’s shipping bills. Not only does this effectively lead to fewer refunds, but it also results in limited information about the nature of all the billing errors and service failures. This is no longer cost-effective.

Software Assisted Auditing

As worldwide shipping volume increases and e-commerce drives small-parcel delivery growth, companies must recognize the need for innovative software and technology to optimize their operations and maximize profit while reducing costs. Parcel auditing software enables shippers to review their invoices electronically and compile data that a human auditor would not be able to analyze alone. This increased efficiency leads to increased refunds, as well as a reduction in tedious, labor-intensive analysis work.

It reduces the effect of human error. As the number of opportunities for refunds grows, so does the cost of shipping decrease. The company is also equipped with better data and information to analyze and optimize shipping methods that will reduce costs and maintain a competitive edge in the market. While returns increase and data is more readily available for analysis, additional labor is still required to implement new technology.

Outsourcing Parcel Auditing

What does a parcel audit company do? Basically, they do all of the work for you! They are equipped with a dedicated staff as well as the proprietary software and analytical expertise to recover the refunds you are entitled to.  

There are billing errors, overcharges, mistakes, and late delivered packages on every invoice. If a company can get back any amount of money spent on shipping, that means lower overall shipping costs. Small parcel auditing is the most effective way to receive money back efficiently, but it is clear that carriers do not want to make it easy for businesses to identify and receive the refunds to which they are entitled. But most companies do not have the resources to audit these deliveries themselves. Human auditors can scan through invoices, but this is expensive and prone to error. Large volume shippers should consider the benefits of outsourcing parcel auditing to professional parcel auditing companies.

An effective audit firm will have state-of-the-art software and a recovery team dedicated to identifying and recovering refunds from parcel carriers due to billing errors, service failures, and service guide violations, and, just as valuable, analyzing and reporting on massive amounts of data collected from these errors.

All of this is addressed, typically without any upfront costs whatsoever. In return for a percentage of the refunds, the parcel auditing company does all of the work. In contrast to other methods of reviewing parcel invoices, there is no risk involved in hiring a professional parcel auditing company. A qualified firm will identify and recover all shipping charges that would have otherwise been unnecessarily paid to the carrier. They provide the leverage needed for companies to hold their parcel carriers accountable for unmet service standards and ensure that the relationship between the shipper and the carrier is transparent.

Which Type of Parcel Auditing Should I Use?

Parcel auditing should be a regular part of every company’s operating procedure. However, the company will need to carefully consider the different options available to them.

Will the benefits of performing audits in-house outweigh the costs of hiring or training employees to undertake the auditing? Does the organization have the time and resources?

Is the company willing to part with a percentage of the refunds recovered if a parcel auditing company does all the work for them? Would the company be able to produce the number of audits and quality of analysis that a professional parcel auditing company provides?

Parcel auditing reduces shipping costs and proper reporting improves the quantity and quality of business intelligence, which should empower the shipper to make additional cost savings decisions. These benefits can provide  a competitive advantage to any company. The rapid growth of global e-commerce and development of shipping technologies, has created an increasingly complex web of fees, agreements, and guarantees. Specialized companies have filled the niche of parcel auditing to provide vital cost-saving services to small and large shipping companies alike.

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Mastering the Art of Parcel Contract Negotiation

By | Contract Negotiation, News, Parcel Market Trends

For anyone operating in the rapidly expanding world of e-commerce, shipping and transportation play a vital role in the overall scheme of your business and can, to a large degree, determine success or failure. You need your products shipped from the manufacturer to your warehouse or distribution center and you need to be able to deliver those products to your customers and expect them to arrive in a timely manner. This co-dependent relationship is significant, especially when you consider the fact that shipping accounts for up to 45% of a retailer’s operational budget.

Because of this, accepting the status quo relative to carrier mix simply because it’s easier than considering a change or because they have the lowest rate might end up hurting your bottom line in the long run. If you own a business or are in position where you’re responsible for shipping and logistics, then it may behoove you to re-examine your current parcel pricing and carrier selection criteria to ensure that it is what’s best for your company

Parcel contract optimization and negotiation can be a tricky subject to efficiently handle. Doing your due diligence in order to better understand parcel carriers and the language they use in their pricing agreements will help you come to the negotiating table with more leverage and a more robust set of bargaining tools at your disposal. Below, we will discuss at length how you can master the art of parcel contract negotiation.

Tips for Renegotiating A Parcel Contract

Perhaps you are satisfied with your parcel carrier, the service they provide to you and the agreed upon pricing terms.   But, then again, maybe you’re not. Whether you are or not, it is crucial that you are fully aware of what was agreed to when you signed your current agreement. Unless you have language in your parcel agreement or in a subsequent addendum to that agreement that locks you into an agreed upon set of terms for a period of time and prohibits you from terminating the agreement prematurely, you can re-negotiate with your carrier at any time. Remember, everything in that prior agreement is negotiable.

Delving Into The Parcel Contract

Assuming that you already have an existing parcel contract and desire to re-negotiate, the first step should be to go through every aspect of your agreement with a fine-toothed comb. If you do not understand the language, enlist the help of someone who does. Get feedback or opinions from contacts in the industry with whom you feel comfortable to discuss such details. When delving into the contract, create a checklist so that you can see whether your carrier is complying with the terms of the agreement and is living up to their end of the bargain.

Do your best to understand carrier fees that are often hidden within the invoice. Referred to as Value Added Services, Optional-service fees or surcharges, these are simply additional charges that a carrier adds on top of the transportation fee which can be as high as 50% of the agreed upon base rate. These additional charges include residential delivery charges, Delivery Area Surcharges, Additional Handling Charges, and weekly pick up fees as well as a long list of others.   If you see that you are getting hit particularly hard with fees by your carrier, you can renegotiate with the carrier to either provide discounting (or deeper discounting) on some fees or, in some cases, get them to drop the fee altogether.  

Explore Alternative Carriers

Shippers should avoid becoming too reliant on their current carrier or carrier rep. Carrier reps want to earn larger commissions and you want to reduce your company’s shipping costs; these two goals do not generally align. Carrier reps receive compensation for selling to you at the highest possible margin. Depending on your rep to go to bat for you internally during contract renegotiation could be a mistake.

Another mistake many shippers make when negotiating is failing to bring alternative carriers to the table. The idea is similar to that of salary or wage negotiation.  If there is no threat of you taking your skills elsewhere, where is the incentive for your boss to give you a raise? The same concept applies to negotiation shipping contracts. If there is no threat of you moving your volume to another carrier, what is your current carrier’s motivation to lower their costs? As a matter of fact, shippers that regularly utilize multiple carriers often achieve better pricing.

Carriers regularly classify pricing requests into one of three customer categories:

  1. Retention: The current carrier keeps the vast majority of the available business.
  2. Penetration: The carrier already has the majority of the business but has the chance to gain more volume.
  3. Conversion: A new customer where the carrier has little to no presence.

Conversion customers, those who are prepared to move their volume from one carrier to another, are given the largest discounts as means of enticing them to move their business. Often loyalty goes unrewarded or unnoticed, so it behooves you to unsettle your current carrier and make them work to retain your business.

If you do not wish to use one of the big two private parcel companies, FedEx or UPS, or if you wish to gain leverage when negotiating with either, it would be wise to at least consider alternative carriers. The US Postal service is a viable option, primarily if you regularly ship lightweight, non-urgent parcels to residential addresses or if you’re paying dimensional weight pricing with your current carrier. USPS shipping and package services, in fact, saw 4% growth last year with parcel return and select parcel growth nearly hitting 20% YOY.

There are a host of regional carriers like, OnTrac, Spee-Dee Delivery, Pitt-Ohio Ground, LaserShip, Dicom, Lone Star Overnight and others who offer excellent parcel delivery options, often at lower rates and faster transit time than the national carriers. Another option is a parcel consolidator such as DHL e-Commerce, Blue Package, or Newgistics, l. If the majority of your shipping is done within the geographic footprint of a regional carrier or if your package characteristics and product type fit the consolidator mold it may make sense to consider one of these options. Even if you do end up selecting one of the national carriers, using benchmarks and rate quotes from smaller carriers can give you added leverage when pursuing UPS or FedEx for contract renegotiations.

Even if you do end up selecting one of the big guys, using benchmarks and rate quotes from smaller carriers can give you a ton of leverage when pursuing UPS or FedEx contract negotiations. Lowering the cost profile of your business via, pickup consolidation, package tender material improvements, online self-tracking services, automated tender, package optimization and changes to pick up schedules and delivery routes. By doing this, you can save yourself and the carrier money.

Stepping Into The Arena

Once you have exhaustively researched your company’s shipping goals, needs, and current costs, you are now prepared to enter into your carrier contract negotiation. That said, it would also be wise to consider your temperament and how aggressively you intend to approach the discussions.

Many view negotiating as a boxing match of sorts, a contest of wills where each side exchanges blows until one gives in. However, this is not a wise approach to parcel contract negotiations. Remember, this is not a fist fight.  Rather, it should a cordial exchange where two parties meet with the goal of crafting an agreement that can provide mutual benefit.

The way you approach negotiations can have far-reaching impacts on your future working relationship with your carrier. You must be able to deal with uncertainty, especially in such a volatile supply-demand industry where the scales in the balance of power between shipper and carrier are continually tipping one way and then another. Knowing that this pendulum can and likely will swing each way, it is vital that you keep in mind that there is benefit here for both parties.

If you approach the bargaining table with a chip on your shoulder and make unreasonable demands, odds are that the discussion will not result in the desired outcome. While your primary goal should always be what’s in the best interest of your company’s bottom line, negotiation requires a give and take; it necessitates concessions being made by either side. Remember, cost is not the only consideration during contract discussions There are other factors to consider such as the viability of your working relationship with your carrier rep and satisfactory pickup and delivery times.

Value Proposition

While you should approach carrier contract negotiations with an open and flexible attitude, be wary when the carrier attempts to divert your attention from the matter at hand (the agreement) and toward their “value proposition.”. A good carrier sales rep will want you to focus on the things that they can do for you from a service perspective that other carriers can’t.  The goal is to show you how they add “value” beyond the rates.

The carriers absolutely provide a valuable service, one that your business cannot live without. It is absolutely critical to understand the level of customer service you can expect from a given carrier, how their technology may or may not integrate with yours and the degree of collaboration that they may offer relative to efficiency improvements.  But it is important to remember that these things are largely independent of pricing and that if you are willing to do your homework, maintain a firm negotiating position and understand carrier negotiating tactics, you can take steps to land a great parcel contract deal.

Shop Around

Similar to the advice above, after your meeting, it is wise to treat parcel contracts like you would any other purchase. Odds are, you did not walk onto a car lot, select one and buy it on the spot. Rather, you did your research online about what is the best type of car for you, you spoke with friends who had that car or brand and got their input. After doing that, you likely looked at blue book prices, at online vendors and then went around town to either used or new car lots.

The same should go for your parcel contracts. Reach out to any and every carrier who might be able to help you. Do not settle for a carrier just because you are busy, or it would check something off your long list. Prepare an RFP (request for proposal) and share it with other carriers. Compare the prices and services being offered with those received by other businesses similar to yours. Reach out to associates in the business and ask them who they use and why they chose them. Again, being cautious and approaching this process in a calculated manner will aid you and your company.

Make Time For Carrier Meetings

The bond you create with your carrier does not form immediately.  Like any relationship, it takes time and effort to nurture it so that it grows and develops. Make time to meet with your carrier rep and allow them the opportunity to demonstrate additional value. All too often shippers only reach out to reps when there is an issue or when they need something. One-sided relationships such as this do not prosper in the long run, nor does it give your rep any incentive to help you cut costs. There is plenty of value to be found in scheduling routine meetings where they can help you leverage technologies, value-added services, and best practices, to make your operation run even smoother and more efficiently.   

We all want to get the best deal possible on any product or service on which we spend our hard-earned money. When it comes to parcel contract negotiation, the sentiment is the same. To prepare yourself for negotiations or re-negotiations do your research. Come into the negotiations knowing what you ship, when you ship it, and how much you ship. Understand, to the best of your availability, carrier contracts and pricing agreements as well as the impact of hidden fees and surcharges.  Research alternative carriers and be prepared to bring them to the negotiating table. Speak to colleagues and associates in your space prior to beginning carrier conversations and seek their input. Proper preparation can result in a big win for you and your company.

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