What We Can Learn From Amazon: Challenging The Status Quo

Lately almost every week we hear news about Amazon and their growth in the logistics and transportation business; not necessarily as a user of those services, but rather as a new service provider of those services.  First we heard about Amazon Logistics Services which some claim just might be the “future of logistics” as claimed by Zvi Schreiber, the CEO of Freightos, a logistics startup company which brings international shipments on line for forwarders and shippers.  Then Amazon through their subsidiary company, Beijing Century Joyo Courier Services, filed for authority with the U.S. Government to operate as a Non-Vessel Owning Common Carrier.  What’s next?

Well next Amazon is planning to open a Parcel Locker Service across Europe.  These lockers would allow consumers to pick up their own orders and the service would provide additional delivery options that will help to reduce delivery costs for Amazon’s customers.  The locker concept however is not a new one for Amazon as it already operates these lockers in Britain and the United States.  This move is part of a larger initiative by Amazon to provide additional delivery options in an effort to help it reduce its own transportation and logistics freight bill.

Then just the other day we heard about Amazon’s efforts to expand what it calls “On-Demand” Delivery Services.  Amazon is apparently quietly seeking drivers for this service without making any public announcements about it.  It is the latest sign that Amazon, the world’s largest e-commerce business, is keenly interested in controlling its own deliveries.  It is obviously also looking to offer these services to the general shipping public as a new alternative as well.  This is now another arrow in Amazon’s quiver helping them to provide a variety of delivery service options, but perhaps more importantly, to help them reduce their annual transportation spend.  That spend, by the way is estimated to be northward of $5 Billion net spend annually.  Let’s also not forget about Amazon’s plans to lease its own fleet of jets and to use Drone technology to deliver packages to its customers at their front door.

Amazon is clearly challenging the status quo with these very aggressive delivery network plans.  And, as everyone knows when Jeff Bezos, Amazon’s CEO puts his mind to something it usually works out just the way he has planned.  So with all this news, a couple of questions come to mind, if your UPS, FedEx, DHL or any other domestic or international service provider for that matter, what are you going to do to maintain and grow your market share when Amazon is up and running at full speed?  What should their plans be to “step outside the box” before it’s too late?  We suspect we will be hearing some noise real soon from Amazon’s current transportation and logistics service providers about their “unique” plans for the future, at least we hope so.

All of these new innovations also got us to thinking about the folks that use these transportation and logistics services day in and day out.  What are they doing, or should they be doing to challenge their own status quo?

As a shipper, whether your company is a manufacturer, distributor, retailer or service company; whether you’re a small business a mid-sized business, or a mega business for that matter, each and every year you’re being challenged by your senior management to control your shipping costs while at the same time finding ways to enhance the delivery services you offer to your customers.  So, what if anything can you do?  We’re glad you asked as we have a few suggestions that might be helpful.

• For starters, if your company utilizes the same transportation service providers year after year perhaps it is time to “test the waters” to see if you really have the “best service/least cost” service provider on your team.   Don’t get us wrong, we are all for maintaining strong strategic alliances with all transportation and logistics service providers for the long term, however you must also be an educated consumer by speaking with your service partner’s competitors on a regular basis just to see what they may have to offer.

• Are you constantly analyzing alternate mode selection as an option for your company’s shipping needs?  In other words, can your parcel shipments be consolidated into LTL shipments?  Can your LTL shipments be consolidated into Truckload or volume LTL shipments?  Can your volume LTL shipments be consolidated into truckload shipments, perhaps with stop-offs for multiple deliveries?  And finally, what about using intermodal transportation in lieu of over the road shipping options?

• When was the last time you had your freight rates benchmarked by an independent, non-biased, third party to ensure you are in fact paying the least possible costs for the services being provided?  What, you’ve never had your rates benchmarked?  We suggest you do that at least every couple of years to make sure your company is not overpaying for freight.

• Does your company have contracts with its transportation and logistics service providers?  Why contracts?  The main reason is that contracts are bi-lateral agreements, which means neither the shipper nor the service provider can make changes to the agreement provisions without written agreement of both parties.  Under typical pricing agreements, (non-contracts) the service providers are free to change their rates whenever and as often as they care to.  Want a real life example?  Here’s one.  Now that fuel costs have dropped significantly, many carriers’ Fuel Surcharge tables do not provide for a Fuel Surcharge when the average price of a gallon of diesel fuel falls below $2.00 per gallon.  Some carriers have now changed their Fuel Surcharge tables to include a Fuel Surcharge for fuel costs which are below the $2.00 per gallon threshold, and they can do that without the shipper’s approval.

• Does your company have a comprehensive Parcel Carrier freight invoice audit program in place?  Does your company utilize a Third Party Audit firm to perform those audits? One that has the technology and know-how to track every package shipped both domestically and internationally to seek out credits for late delivered packages, as well as uncover all invoicing errors.  If this process is not outsourced and your company is auditing in-house, your company is not receiving the most comprehensive audit results available.

• Does your company utilize an independent Third Party Pre-Audit and Payment company to audit and pay its freight bills?  If you do, you have made a very wise business decision.  These firms typically charge a minimal fee for each invoice audited and processed for payment which is far below industry estimates of $7.00 to $15.00 per invoice to process these invoices through internal company accounts payable departments.  In addition these firms provide a tremendous amount of added value through their reporting capabilities, far in excess of what internal accounts payable departments can provide.

• Does your company also utilize a Post Audit firm to audit the initial auditor?  If not your company could be missing out on recovery of overcharges that might have been missed in the pre-audit process.  Post audit services are provided on a contingency fee basis so if the post audit firm does not uncover any overcharges there is absolutely no cost for the audit service.  Don’t pass up this opportunity to dot every “I” and cross every “T”.  One global manufacturing company we know found out that they had been duplicate paying the same invoices through different global corporate entities resulting in recoveries of over $9 Million in duplicate payments.  Now if that doesn’t support the need for post auditing services, nothing will.

These are just a few suggestions for shippers to think about as a way of “stepping outside the box” and looking for ways to “challenge the status quo.”  It should also serve as a challenge to every business to make sure they are continually looking at ways to improve their shipping processes and reducing their transportation and logistics costs which is a never ending challenge.  Got any additional thoughts you’d like to share, we’d love to hear them as well.