Using the Parcel Carriers “Cost to Serve” Pricing to Your Advantage

By September 27, 2013 News
costtoserve

Just about every day, a shipper asks me what FedEx or UPS incentive they should be achieving for their specific spend level. But it doesn’t work that way.

While overall volume and revenue certainly play a role in pricing, the discounts you get from UPS and FedEx are largely based on their understanding of your distribution footprint and package characteristics, which are directly tied to the carriers’ “cost to serve” pricing model.

Package profiles that are relatively easy to handle are priced more competitively than those in which the carrier is likely to incur additional costs. Revenue management teams at FedEx and UPS have become quite adept at understanding just how much it costs the carriers to move a customer’s packages through its networks.

While a shipper might not be able to make dramatic changes to its package characteristics, there are several ways to lower your cost profile in order to obtain deeper discounts from FedEx and UPS.

Start by asking your carrier rep what changes you can make. In addition, here are several suggestions:

  • Limit the use of 800 Call Center – The majority of Call Center inquiries are to track packages. Minimize the use of this high cost center by using online and carrier-provided software tools for package tracking.
  • Reduce claims – Ensure proper packaging to minimize damage claims.
  • Consider service guarantee waivers – Do you file for late delivery credits? Quantify how much you’re actually getting back on an annual basis. It’s probably not much. Some shippers find it advantageous to secure deeper incentives upfront in lieu of the service guarantee.
  • Use third party automation – How much is your “free” shipping system costing you? The more automation deployed throughout your organization, the higher the cost to serve. Plus, most of the carrier provided systems do not allow a shipper to rate shop with other carriers. The carriers also offer online tools to process shipments.
  • Throw away handwritten airbills – Ensure that all packages are processed through some type of automation so that all shipping labels are “smart” labels. These labels allow for faster and more accurate routing of packages throughout the carrier network, minimize the chance of mis-delivery due to illegible addresses, eliminate the need for manual entry, and make carrier invoicing much more efficient.
  • Work with your carrier to better understand those packages that spike your cost profile, and consider giving those to an alternative carrier. Alternatively, there may be ways you can alter package dimensions or other characteristics to reduce your cost profile.
  • If you’re predominantly a residential shipper, consider the use of FedEx SmartPost or UPS SurePost. These products are designed for low value, lightweight, residential packages. In addition, encourage your customers to sign up for UPS My Choice, a service being used by more than 2.5 million customers empowering the recipient greater flexibility to schedule delivery, receive shipment alerts, reroute packages authorize delivery online and more.
  • Work with your carriers’ local, district and regional hub operations to identify efficient and lower cost options including hub bypass, onsite containerization, staging, sweeps, trailer drops, etc. Proactively communicate heavy package volumes or other out of the ordinary operational needs for better equipment and personnel planning.

By focusing on lowering your carrier’s operating costs, you’ll be doing yourself a favor by reducing your cost profile to get improved pricing, and very likely improve the efficiency of your operation at the same time. Good luck!

Shipware

Author Shipware

More posts by Shipware