Business People Sitting in an Office Building Chatting

The Checklist Every Shipper Needs (Part 2)

Today we continue on our mission of highlighting and expanding upon the Checklist for Transportation Spend Management created by Transwide and Supply Chain Media.  The second item on their checklist is as follows:

“We source and negotiate freight rates and award contracts to the optimal carrier trading off between quality, speed and cost.”

So, what does this really mean and why is it so important?  Many shippers, in fact all shippers are in need of continually reducing their transportation spends.  The transportation industry is one of the only industries we know of that implements General Rate Increases year after year, while many of their shipper customers are usually selling their products at lower price points than they sold for the year prior.  That’s where a big disconnect obviously comes into play between shipper and carrier partners.

Shippers in need of reducing, (or at least controlling) their annual freight spends often merely seek out carriers with lower costs.  That process may be putting the cart before the horse, because what good is lowering shipping costs if the carrier(s) the shipper selects cannot meet the required service demands of the shipper’s particular business?  The answer obviously is— “no good at all!”

So there has to first be an internal analysis completed by all shippers to determine exactly what service levels the shipper requires from its freight carriers.  Secondly, the shipper needs to seek out ONLY those carriers that can fully meet those needs.  Secondly, there may be times when extended transit times in exchange for lower shipping costs may be appropriate.  If that is the case, the shipper should make sure their carriers can provide a multiple of delivery options to meet the shipper’s needs.  If they cannot, the shipper may want to engage a freight broker or 3PL, who has contracts with a large and diverse variety of freight carriers providing a varying delivery schedules.  The shipper would then have the ability to “rate shop” individual shipments to make sure they make the best “trade-off between quality, speed and cost” as the checklist points out.

One other item we wish to highlight in checklist item #2 that we find extremely valuable is the need to “award contracts” to the shipper’s carriers and/or freight brokers.  Unlike tariff and rate schedule publications, contract agreements bind both parties and neither party may make any changes to the contracts without the written consent of the other party.  So carriers and/or freight brokers cannot arbitrarily increase rates during the contract term without the written consent of the shipper.  On the other hand, the shipper cannot decide to pay the carrier in 90 days when the contract specifies payment requirements of 30 days.  These are just two simple examples of the benefits of transportation contracts.

One last critical word of advice.  If you’re a shipper and your company is not entering into contract agreements with its transportation and logistics service providers, you should take the time to explore the massive benefits contracts can bring to your company.  Also, don’t assume that your in-house council is completely familiar with transportation law and liability issues; seek the advice of transportation council to draft and monitor your transportation contracts.  You’ll be glad you did.

freight-carrier-contract-negotiations-meeting

The Checklist Every Shipper Needs

A recent White Paper published by Transwide and Supply Chain Media provided a checklist for shippers to use to ensure they have their transportation spend under control.  This is a very thought provoking list that every shipper, large or small should keep handy.  You can download it here.

We’re not sure the authors intended to put these checklist points into any specific order of importance however, we do believe the first point on the checklist is the most critical one for all shippers.  “We have the processes and capabilities to benchmark rates against a broader network than just our current providers on a daily basis.”  

In order to be sure a company is receiving the “Best Deal” from its transportation and logistics service providers it must have the ability to benchmark their current services and pricing against a much larger and broader group of equally qualified service providers.  The reality is that what may be a “Best Deal” for one company may be a terrible deal for another.

For example, some shippers are currently receiving discounts and incentives which are in the 90% range.  While that may seem like the “Best Deal” at least price wise, it probably isn’t.  Most of these discounts and incentives are being offered off of the carrier’s current, so-called List Rates.  In many cases the “List Rates” have been inflated and that’s precisely why these carriers can afford to offer these 90% discounts.  It’s what we call “The Retail Sell.”

What is the retail sell, you ask?  The retail sell is when you see a sale off of the “Original Selling Price” of an article typically in a retail store.  Those original costs are marked up, so they can be marked down to entice the buyer into thinking they got a great deal.  The reality is the best deal is not necessarily the deal with the largest discount, (as some logistics and financial executives falsely believe); it is ALWAYS the deal that ensures the shipper is receiving the most competitive rate “for the services being offered by the most capable service providers.”  Notice we didn’t say the “Lowest Rate” or “Cheapest Rate.”

So how does a shipper obtain the benchmarking information they need to perform these analyses?  Most shippers do not have the ability to benchmark their rates against many other competing transportation and logistics service providers.  The good news however is that there are firms who specialize in these services and monitor the markets closely on a daily basis.  Transportation and logistics prices change on a daily basis.  Shippers need to continually monitor their expenditures on a consistent basis to make sure their company receives the best combination of service and cost.  Yes, these two characteristics, service and cost must be considered before entering into any long-term service agreements.

We urge all shippers to seek advice from the transportation and logistics consulting firms who specialize in benchmarking rates for all transportation modes and all levels of service.  In some cases shippers may even benefit by changing modes of transportation, such as consolidating and moving parcel shipments to LTL; moving LTL shipments into partial truckload shipments, etc.  So having an expert help you assess, benchmark and “Target Price” your business to make sure your company receives the “Best Deal” today and into the future will pay huge dividends.

We complement Transwide and Supply Chain Media for publishing this Checklist and we will continue to comment item by item in our future posts.

 

Global Supply Chain Management Consulting - Boxes and Globe

Freight Costs Rising While Sales Stay Flat?

Sound familiar?

We recently received a call from the CFO of a company who was perplexed by the fact that his company’s sales have been flat the first half of 2017, however his freight costs have been on the rise.  His question to us was, “how is that possible”?  Well, having been in business for over forty years, we’ve “seen this movie before.”

One would assume that there is a correlation between sales dollars and freight dollars, however the rise or fall in either one of these categories typically has no relevance to the other category.  A company could sell the same dollar amount of product year over year, or even more product but where they ship and how they ship those products will have a significant impact on their freight costs.  Let’s also not forget that each and every year, all freight carriers implement General Rate Increases which average 5% per year.  There are so many variables associated with transportation costs you simply cannot make a valid argument that merely because your sales are flat, your freight costs should also remain flat.

So, faced with a request from the CFO for an answer, we took a deep dive into their shipping statistics comparing the first 6 months of 2017 with the freight costs for the first 6 months of 2016.  Our “Big Data Analysis” looked separately at the company’s actual shipping activity for small package shipments as well as their costs for Less Truckload shipments.  Here are some of the highlights from this company’s shipping analysis and the story these highlights told.

  • Domestic Small Package Shipment Analysis:
  1. The company’s average weight per package increased year over year from 17.5 lbs. per package to 18.7 lbs. per package, an increase of 4.7%
  2. The company’s average cost per package increased from $8.68 in 2016 to $9.32 per package in 2017, an increase of 5.5%.  As mentioned previously, part of this increase was attributed to the parcel carriers 2017 General Rate Increase, and part if the increase was attributed to the higher weights per package shipped in 2017 vs. 2016
  3. One major factor that affected this company’s 2017 domestic parcel freight costs was a 47.5% increase in dimensionally rated packages over the prior year.  When we reviewed these statistics with the company, they confirmed a major sales push for a specific product line where the boxes were larger than many of their other standard products
  4. Also affecting increased Ground freight costs was an approximate 0.5% increase in domestic fuel surcharges in 2017 vs. 2016.  Air Express Fuel Surcharges increased 2% on average in 2017 vs. 2016
  • International Small Package Shipment Analysis:
  1. International Fuel surcharges for import shipments increased 3-5% on average depending on the country of origin.  This represented a 178.8% increase based on the countries the company imports from
  2. The average weight per shipment for international packages overall, (import and export), increased from 36 lbs. to 41 lbs., an increase of 13.8%
  3. The average cost for all international packages, (import and export), increased from $185.18 in 2016 to $206.25 in 2017, an increase of11.3%
  4. The number of international packages shipped increased 31.1% in 2017 vs. 2016
  5. Overall international shipment weights increased from 8254 in 2016 to 12322 in 2017, an increase of 48.7%
  6. Overall international shipment costs increased 41.6% from 2016 to 2017
  • LTL Shipment Analysis:
  1. Overall LTL freight costs increased $83,992.30 in 2017 vs 2016
  2. Fuel surcharges increased an additional $25,951.09 in 2017 vs. 2016
  3. Interestingly the company’s average weight per shipment decreased in 2017 vs 2016 from 2,128 to 1,461, a decrease of 11.8%, which also equates to a higher cost per CWT
  4. The main reason however for the large increase in LTL shipping costs was the fact that this company initially enjoyed a 2011 base rate level with their primary LTL freight carrier, before applying any discounts.  However, early in 2017, the carrier changed the base rates to a 2016 base rate level, but only increased the shipper’s discount by 0.5%, hardly enough to compensate for what we projected to be an overall increase of 35% by moving the base rate levels from 2011 to 2016
  5. To add insult to injury, the LTL carrier also increased their Fuel Surcharge 4.2% in 2017 vs. 2016

So what can we glean form this analysis?  It is clear that many factors affect freight costs and they are not necessarily reflected by total sales dollars any company achieves.  All shippers must have the ability to analyze their freight costs year over year.  Unfortunately, as you can see from the example above this company had no idea that they would experience such large increases in freight costs, but more importantly, they had no way internally to track these costs year over year.

Sad to say, but many companies are in the same boat.  So if you do not have the resources in house to perform these analysis, have no fear, there are third party consultants that not only have the expertise to perform “Big Data Analytics” but also have the ability to assist these companies in their negotiations with their freight carriers to ensure they ALWAYS receive the best deal possible!

Breaking: FedEx Implements Holiday Surcharges but not like UPS!

What a Copy Cat, right?  FedEx implements surcharge for holiday season–but not in the way UPS did.

Well it didn’t take long and as we projected, FedEx will also implement a Holiday Season Surcharge to become effective from November 20, 2017 through December 24, 2017.  FedEx’ surcharge however is somewhat different than the one UPS announced back in June.

FedEx’ surcharges will apply on the following type shipments.

  • Additional Handling – a $3.00 per package surcharge will apply
  • Oversize Goods – a $25.00 per package surcharge will apply
  • Unauthorized Shipments – a $300.00 per package surcharge will apply

Unlike UPS, FedEx will not assess these peak shipping season surcharges for all shipments during the peak holiday season, but only when the above shipment types apply.

Stay tuned to this blog for more info on this surcharge and other breaking logistics industry news!

For media inquiries, please contact Christina@adducomm.com to interview a logistics expert

 

 

ICC - UPS Rate Increase - 2016 - Square

An Early Holiday Present from UPS!

UPS’ New Peak Surcharges and What it Means for You

Actually, the holiday present is for UPS and not for UPS’ customers.  We’ve all heard the rumblings for months and now we know what UPS has been planning regarding the imposition of new surcharges UPS calls “New Peak Charge.”

It’s been obvious for years that UPS’ shipping volumes spike significantly during peak holiday shipping periods.  During those peak shipping periods, UPS, (and FedEx for that matter), continuously flex their systems by adding additional equipment capacity and additional labor to handle the large volumes of additional packages in an effort to ensure on-time delivery of those holiday packages.  Now, UPS is planning to pass part of the cost, or all of those costs, (no one is really sure), on the backs of many of their most loyal customers.

The official word from UPS according to Alan Gershenson, UPS Chief Commercial Officer is that the additional charges are required to allow UPS to “continue to provide best-in-class value to customers while offsetting some of the additional expenses incurred during significant volume surges.”  “We’re focused on helping our customers achieve success during some of their most important selling seasons.”  “Our goal is to help every customer obtain the delivery capacity they need, combined with predictable and timely service they count on from UPS.”  Certainly sounds logical to us; who wouldn’t want those assurances?  However, it’s not the assurances their loyal customers will question, it’s the cost of those assurances that we’re sure is going to irk UPS’ customers.

While we agree with the philosophical aspect of these new surcharges, there may be a large price for UPS to pay.  For one thing, we haven’t heard from FedEx yet as to whether they will implement similar surcharges.  So, will UPS see a dilution of these peak season packages moving to FedEx?  And if so, how successful will FedEx be in delivering these packages on time during the peak holiday season?  After all, their systems are also severely challenged during these heavy shipping periods.  We’re fairly certain that USPS will not implement a similar peak season surcharge, so how many holiday packages will shift to USPS during the peak holiday shipping season; and how many of those packages will remain in the USPS system long after the peak season is over?  Only time will tell.

UPS has announced that they will also be adding additional peak season surcharges for residential delivered packages originating within the 48 contiguous states to destinations within Alaska, Hawaii or Puerto Rico.  These surcharges are due to be published on or before August 1, 2017 according to UPS.

Here is an overview of the new peak season surcharges for each package addressed to a location that is a home, including a business operating out of a home.  Surcharges apply to packages with origin and destination within the 48 contiguous states and packages with Alaska and Hawaii origin.

UPS Ground, Including Ground with Freight Pricing

November 19th through December 2nd, 2017 – $0.27 per package

December 17th through December 23rd, 2017 – $0.27 per package

UPS Next Day Air Early, UPS Next Day Air, UPS Next Day Air Saver

December 17th through December 23rd, 2017 – $0.81 per package

UPS 2nd Day Air AM, UPS 2nd Day Air, UPS 3 Day Select

December 17th through December 23rd, 2017 – $0.97 per package

Peak Surcharge Applied to Large Packages for ALL Service Levels to ALL Domestic Destinations

A Peak Surcharge will apply to packages with length plus girth (2X width + 2X height combined over 130 inches.

November 19th through December 23rd, 2017 – $24.00 per package

Note:  This surcharge is not restricted to residential deliveries

Peak Surcharge Applied to Over Maximum Limits Packages for ALL Service Levels to ALL Domestic Destinations

A Peak Surcharge will apply to packages with an actual weight of more than 150 lbs. or packages that exceed 108 inches in length, or that exceed 165 inches in length plus girth combined.

November 19th through December 23rd 2017 – $249.00 per package

To give you a sense of the magnitude of these new Peak Surcharges for Large Packages and Over Maximum Limit Packages, the following is an example of an actual shipment of carpet under UPS’ current pricing for a large carpet retailer.  We added the “new” costs that will apply once these new Peak Surcharges become applicable.

Dim final final

In the example above, a shipment of one roll of carpet was tendered to UPS as an 11 pound package for a residential delivery. This shipper thankfully has a negotiated Dimensional Weight Divisor of 194.  After UPS received the shipment, a shipping charge correction was issued, because while the shipment’s actual weight was only 11 pounds, under UPS’ Dimensional Weight Pricing provisions, the weight was changed to 321 pounds, changing the shipment charge from $8.91 to an additional $91.12, plus the current $70.00 Large Package Surcharge and $150.00 for Over Maximum Size packages.

Once the new Peak Surcharges become applicable this shipment will also be subject to a Peak Residential Surcharge of $.027; a Peak Large Package Surcharge of $24.00 and a Peak Over Maximum Size Surcharge of $249.00, making the new charges 83% higher than the current shipment cost.  Just think of the impact these new surcharges will have on all businesses that ship Large Packages and Over Maximum Packages.  UPS is counting on these packages shifting to their UPS Freight trucking division and getting them out of the parcel operations all together and these additional fees will certainly make that a reality.

But wait, that’s not all, UPS’ customers who import goods into the US will also be dealing with Peak Surcharges as detailed below.

United States Import Peak Surcharges

Packages imported to the US in designated international lanes will be subject to a Peak Surcharge during specified Peak Periods.  UPS advises they will provide the applicable lanes, Peak Surcharges and Peak Periods which will be published on the UPS website on or before September 1, 2017.  UPS also advises that these import surcharges will be “updated from time to time as applicable lanes, peak periods and/or Peak Surcharges change.”

The message for UPS shippers in so far as imports are concerned is that these Peak Season Surcharges will apparently be changing on a regular basis causing havoc for shippers trying to budget their import freight costs.

Overall UPS’ message to their shipper customers in establishing these new Peak Surcharges is that UPS is no longer willing to bear all of the costs for increased peak shipping volumes.  One question we have is, with the assessment of these additional fees, does UPS expect to be more successful in delivering holiday merchandise on time, or is this just a way of improving their revenues.  We’ll let you be the judge!

UPS’ shipper customers need to understand it’s time to thoroughly analyze the financial impact these surcharges will have on their freight budgets.  We’re sure many shippers are not going to take these increases sitting down.  What impact will these surcharges have on their customer order and delivery commitments of holiday merchandise?  How much product will now be diverted to retail store deliveries for customer pick up to avoid residential deliveries, something UPS would obviously be happy to see as a new and emerging trend.  If you’re a retailer and you haven’t thought about these Peak Surcharge issues yet, it’s time to put your thinking cap on and decide what options are available to mitigate these additional costs.

 

 

 

ICC Featured in Material Handling & Logistics

Check out ICC’s feature article on the Top 3 Mistakes LTL Shippers Make

Click here to read the article: Three Big Mistakes LTL Shippers Make

© ICC Logistics Services, Inc. All Rights Reserved.
960 South Broadway, Suite 110, Hicksville, NY 11801 (T)516-822-1183 (F)516-822-1126
Parcel shipping experts especially convenient to New York,including Long Island (Nassau County, Suffolk County), NYC, New Jersey (NJ), Pennsylvania (PA), North Carolina (NC), South Carolina (SC), Georgia (GA), Florida (FL), Virginia (VA), Connecticut (CT), Delaware (DE).