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Optimizing Shipping Costs

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A Strategic Move for Business Success

In the ever-evolving landscape of e-commerce, shipping costs stand out as a critical factor influencing a company’s bottom line. Many businesses, albeit unknowingly, are bleeding dollars due to a seemingly innocuous but significant oversight – simply put, shipping in packages that are too big for their products. 

Unfortunately, it’s still a common practice – items loosely fitting in a box larger than required, creating a double whammy of increased shipping expenses and environmental waste.

One prevalent issue we see is the widespread use of standard-sized boxes for a myriad of products, regardless of their actual dimensions. Imagine shipping a small gadget in a box designed for a much larger item. It’s like driving an SUV car when a bicycle would suffice – a waste of resources and money.

A recent personal experience perfectly encapsulates this issue. A shipment of vitamins arrived, and upon opening the package, it became apparent that the retailer had definitely not optimized their packaging. The box was disproportionately large, filled mostly with air. It served as a stark reminder of how prevalent this practice is, even among established retailers.

The advent of custom packaging machines has garnered attention from major players like Amazon and Walmart. These machines revolutionize the packaging process by creating tailor-made boxes for each order. While such technology is a step in the right direction, the real game-changer lies in the holistic approach provided by logistics consultants.

Logistics and supply chain consultants bring a wealth of knowledge to the table. They conduct a Comprehensive Logistics Analysis, delving deep into a company’s shipping practices, identifying areas of improvement, and formulating strategies to optimize costs. One key revelation often involves the art of right-sizing packaging.

The benefits of right-sizing packaging are manifold. First and foremost, it can drastically slash shipping costs. By using appropriately sized boxes, companies can significantly reduce the dimensional weight and, subsequently, the expenses associated with shipping and at the same time reduces claims for damage in transit. This directly translates to a boost in the company’s profitability.

Additionally, right-sizing packaging contributes to sustainability efforts. It minimizes material waste and reduces the carbon footprint associated with transportation. As consumers increasingly prioritize eco-friendly practices, businesses that align with these values gain a competitive edge.

In conclusion, the shift towards right-sizing packaging is not just a trend; it’s a strategic imperative for businesses aiming to thrive in the competitive world of e-commerce. Embracing the expertise of logistics and supply chain consultants is the key to unlocking substantial savings and ensuring sustainable shipping practices. As technology evolves and custom packaging becomes more commonplace, the guidance of a seasoned logistics consultant remains invaluable – a beacon illuminating the path to efficiency, cost-effectiveness, and long-term success.

Have questions about Right-Sizing? Reach out to us today.  Our supply chain experts are always ready to help.

Evaluating The Future of Drones

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George Jetson, of cartoon fame, will be born this year and his son Elroy will be zipping to school in an autonomous pod in about 40 years. That’s still science fiction, but science fact is already pointing us to where drone technology can take us in the very near future. 

Automatic delivery of mail and small goods has been around for generations. Skyscrapers were designed around intra-office pneumatic tube mail delivery systems. Local bank drive-thrus still use pneumatic tubes. The FBI had “OBR III”, the Mailmobile, in the 80s, that could carry 800lbs of mail on a loop around the office that would take about 45 minutes to complete. Modern drone technology or UAV (Unmanned Aerial Vehicle), however, is opening new opportunities and is broadening what’s possible for the delivery and cargo industries.

Google, Amazon, and UPS are all working on UAV parcel delivery systems. The process is slow going as the real world is unpredictable and safety is a high priority. Your neighbourhood is not a controlled environment which makes adapting automated technology that much more difficult. There are kids on bikes, kites in the air, people working on power lines or on their roofs taking down holiday lights. All of the everyday happenings in a residential area have to be navigated by automated technology and we are not quite there yet. Additionally, local regulation needs to grow and adapt to developing technology. There are privacy issues, noise restrictions, and safety concerns with having unmanned vehicles so close to our homes. This produces a lag between what technology can accomplish and what the law can provide for. 

Cargo transportation by UAVs in a warehouse environment doesn’t face the same kinds of limitations. For example, regulations on private property are much less intrusive because the environment can be controlled more. There are less unpredictable elements in a warehouse facility. You can build policies and practices for worker safety making the adoption of UAVs much more flexible. Existing buildings can also be quickly retrofitted for the guidance hardware necessary to run UAVs. Audi, for example, is pioneering just-in-time drone delivery directly to the production line. This can streamline parts storage while ensuring steady workflow as the right part is delivered exactly when the worker needs it.

Perhaps the biggest impediment to the adoption and widespread use of UAVs in logistics is the cost. Standardised, turn-key UAV systems don’t exist yet. Building anything like that is a serious capital investment, and risk-averse companies will be slow to adopt unproven technologies. We also can’t ignore the human resource element here either. While, by definition, UAVs are unmanned, they will require a whole new job category of technicians to build, program, maintain and service a fleet of drones. Education and workforce training could also slow down the adoption of UAVs in all segments of society.

One day we will have ice cream truck drones zipping around the neighbourhood, but only after the logistics industry has perfected the technology first. 

Are you curious what other technology is on the horizon in logistics and supply chain? Contact us today to learn more.

Amazon Truck

Amazon Reports Staggering First Quarter Financial Results

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Amazon reported its best first quarter financial results ever with its earnings more than tripling the company’s results from the first quarter of 2020.  While comparing first quarter 2020 financial results with first quarter 2021 financial results is like comparing apples and oranges when it comes to on-line retail sales, Amazon’s financial results are still quite impressive as noted below.

  • Net income increased to $8.1 billion in the quarter ended March 31, or $15.79 per diluted share, compared with $2.5 billion, or $5.01 per diluted share in the first quarter of 2020.
  • Amazon’s profits in the year since the pandemic started have now exceeded $26 billion, more than the previous three years combined
  • Operating income increased to $8.9 billion, compared with $4.0 billion last year.
  • Net revenue increased 44% to $108.5 billion
  • Year-over-year net sales growth was 40% in North America, compared to 29% in the year-ago period, and 60% growth internationally, up from 18% last year
  • Amazon’s Web Services growth was pegged at 32%.
  • North American e-commerce sales in the quarter totaled $64.37 billion, up from $46.13 billion a year ago
  • Operating profit from North American sales totaled  $3.45 billion, up from $1.31 billion the year before
  • First-quarter international sales totaled $30.65 billion, up from $19.11 billion a year ago
  • Amazon posted operating profit of $1.25 billion from international sales, after reporting a loss of $398 million in the year-ago period.
  • Amazon’s cloud-computing business, AWS, remains a major profit center. It posted net sales of $13.5 billion in the quarter, up 32% from last year.  AWS operating profit was  $4.16 billion, up from $3.08 billion a year ago.

With the continuing growth of on-line sales we expect Amazon to continue to achieve these incredibly impressive financial results.  Amazon in fact expects their net sales in the second quarter to fall between $110.0 billion and $116.0 billion, or to grow between 24% and 30%, compared with the second quarter of 2020.

Not sure if there is a coincidence in timing here, but Amazon released its first-quarter earnings on the same day it revealed that it would spend $1 billion to increase the pay of its more than 500,000  U.S. operations employees.

Are you an Amazon partener company?  Contact us today to learn how we can help support your business.

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Amazon Coming to a Mall Near You?

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For years now, foot traffic at large shopping malls has been down drastically.  And, obviously the Covid-19 Pandemic has done nothing but exacerbate that situation. 

Many retailers have already filed for Chapter 11 Bankruptcy protection, including such giants as J.C. Penney, Sears, Lord and Taylor and Neiman Marcus, while Nordstrom’s has recently closed 16 of their stores.   

In an effort to take advantage of the empty mall space, Simon Property Group, the largest mall operator in the US, is in talks with Amazon to lease these empty retail locations as possible Amazon Distribution Hubs and Fulfillment Centers.  These discussions are extremely timely due to the continuing trend of declining mall traffic and the explosive growth of e-commerce.  Trends that are sure to continue into the future.

Amazon would surely benefit from any deal they are able to negotiate with Simon, or any other mall operators for that matter, as they’ve been seeking additional Distribution and Fulfillment sites near residential areas and these shopping malls are certainly right where Amazon needs them.

The mall operators would surely benefit from the strong finances of Amazon to ensure rents are paid and to help relieve some of the financial pain these mall operators have been experiencing over the past few years; even if they had to accept lower rents per square foot from Amazon compared to their former tenants.  Other mall tenants, such as food shops would also benefit from the added work force Amazon would employ there.  

Amazon is also considering opening up their new grocery store chain in several formally occupied J.C. Penney locations, continuing their efforts to ensure “that no grass grows under their feet.”  

So are these plans logical for both players or not? We certainly think so, but we’d love to hear your thoughts on the subject as well.

Interested in more news on Amazon?  Check out these stories:

The FexEx/Amazon Divorce

Amazon Grows Prime Air Fleet

Faster Shipping = Higher Costs! Here’s what to do.

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Recent financial reports from Amazon attributed a downturn in profits as a direct result of the company’s heavy investment into speeding up delivery times to their customers.  Amazon’s third quarter profits fell 26% from a year ago to $2.1 Billion. This was Amazon’s first profit decline since 2017 and second reporting quarter in a row where the company missed analyst’s expectations.

Amazon reported that their world-wide shipping costs increased 46% to $9.6 Billion from the previous year.  The additional costs were related to its growth of its one-day shipping program for Prime members. Amazon projects that their fourth quarter expenditures in this area alone will almost double from their second quarter expenditures, to a figure of $1.5 Billion.  

Adding to these costs was the growth in hiring with their current employment at approximately 750,000 workers.  The hiring growth is necessary based on the need to have inventory placed closer to their ultimate customers so Amazon can in fact meet their one-day delivery commitments.  More Fulfillment centers and more employees in those fulfillment centers filling orders add to the cost of expedited shipping for sure. 

We have been reporting for some time now that offering “free shipping” and “faster shipping” services to customers creates significant cost drivers that Retailers, Brands or Consumer Products companies must continually keep their eye on.  They must ensure these costs do not spiral out of control, which is easier said than done. Yes, we certainly do understand that overall customer sentiment is to demand “free AND faster shipping” and that these trends are a direct result of “The Amazon Effect.”  But by following the leader, (in this case Amazon), do Retailers, Brands or Consumer Products companies have the wherewithal to truly control their logistics costs while they try to compete head on with “the Big Guys”, (let’s not forget about Wal-Mart and Target)!    

Well, the answer to that question depends on whether or not these companies have implemented a comprehensive Data Science approach to analyzing and ultimately controlling their transportation and logistics costs.  For companies to be truly successful they must first gain a complete understanding of how their costs are calculated by the freight carriers.  

It’s necessary to create an ongoing and comprehensive analysis of their “actual” shipment activity and “actual” costs associated with that shipping activity.  This process also requires a comprehensive invoice audit process for all transportation and logistics related invoices to ensure 100% invoice payment accuracy in accordance with all carrier contracts and pricing agreements.  

There is no way a company can truly manage the risk of overspending on transportation and logistics without these processes firmly in place.  And very often Retailers, Brands or Consumer Products companies do not have the expertise in house to be totally successful at these tasks.  

There are many examples of shippers being lulled into a false sense of security believing their transportation and logistics costs are completely under control and match their pricing agreements to a tee; here are just two of those examples.

  • A shipper negotiated revised rates with their primary parcel carrier and was assured by that parcel carrier that their new contract would reduce their parcel shipping costs in excess of $300K annually.  Before signing the actual contract, the company had their invoice auditor perform a financial audit to determine if the “New” rates they had just negotiated would in fact save the company that same amount of money the carrier was claiming they would.  Well the value of the financial audit turned out to be “PRICELESS!” The financial audit results indicated that the shipper would not be saving anywhere near the $300K annually and in fact would actually be paying more than their current contract rates.

So how could this possibly happen?  It was just that the parcel carrier offered incentives that were not completely geared to the shipper’s actual shipping services.  In other words, the carrier offered larger discounts on services the shipper rarely used. The carrier did not offer additional incentives on many of the surcharges the shipper was responsible for paying.  And finally, they offered the shipper additional financial considerations if the shipper upgraded certain technologies, which the shipper never had any interest in doing and therefore never actually took advantage of.  

The financial audit provided “Big Data Mining” capabilities the shipper did not have access to in house.  The auditor tracked every package the shipper made by service type, zone, actual shipment weight, (billed weight if different), along with applying any required surcharges and compared the current and proposed new incentives and Viola, the proposed savings immediately disappeared.

  • In another case, a shipper’s weekly shipping volume fluctuated throughout the year and sometimes moved them into a position where they no longer qualified for any carrier discounts.  The contract they negotiated did not take into account the peaks and valleys this particular shipper’s business dealt with. Only after the shipper engaged their Third Party Auditor to perform a financial audit of their actual shipping activity, did the company find out they were constantly losing ground when their shipping volumes dropped to certain levels. And most importantly, the shipper had no idea their shipments were not being discounted during those shipping season downturns.

So, what actually is a financial audit; it is an audit that goes much further than a service audit where Third Party Auditors are merely auditing parcel invoices for late delivery refunds.  While a service audit is an extremely valuable audit, it must be coupled with a financial audit that compares the shipper’s actual shipping activity with the actual rates charged and matches those costs to the shipper’s contract or pricing agreement to ensure 100% accuracy; all this while at the same time providing insight into areas where costs just might be raging out of control without the shippers’ knowledge.  

So, when companies are pressured to offer “faster shipping” or “free shipping” services or both for that matter to its customers, having a comprehensive financial audit in place will keep a watchful eye on the shipper’s freight spend.  It will trigger alarms if the costs are exceeding shippers’ budgets which they continually rely on to assure profitability.  

If your company is not receiving the ongoing value of a service audit combined with a financial audit it may be time to make a change.   

 

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The FedEx/Amazon Divorce – What it Really Means

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In the past three months there have been substantial changes in the business relationship between the corporate titans and sometimes competitors, Amazon and FedEx.

In June, FedEx decided to non-renew their Domestic Express delivery contract with Amazon and now earlier this month, FedEx made the strategic decision to non-renew its Ground delivery contract with Amazon.

One of the obvious factors for FedEx making this decision to split with its long-time customer is that Amazon has been working hard to carve out local delivery areas in dense population markets that are principally handled with their own logistics assets.

Amazon, by strengthening their hold on these dense population delivery areas has obviously reduced their cost to serve these communities through continued consolidation of deliveries.  FedEx obviously believes it can accomplish the same task by consolidating packages however from multiple e-tailers into these dense population areas and no longer rely on Amazon to control what packages they get and don’t get.

Amazon currently utilizes 20,000 Mercedes Sprinter vans, (and more of them are on the way), which are used for Prime customer delivery service direct to the customer’s door, combined with 44 Amazon aircraft making roughly 670 flights per week and a large volume of Amazon trucks, tractors and trailers.  Amazon is clearly building a more hybrid transportation and logistics network where they can connect their own warehouses and fulfillment centers and their own planes/trucks/vans to their top markets served.

Before non-renewing the Express and Ground contracts, FedEx delivered roughly 10% of Amazon’s total package volume which FedEx said represented approximately 1.3% of their annual revenue.  Compare that volume moved with parcel giant UPS which handles anywhere from 20%-25% of Amazon’s packages per year and by some estimates accounts for 5%-8% of UPS’ total annual revenue.  

We don’t see a time where Amazon is going to move all of its packages completely with its own logistics assets, however.  They will certainly need to continue relying on UPS, USPS and other third party delivery solutions, such as regional parcel carriers to manage their significant growth and to sustain their delivery commitments to customers.

In 2015 Amazon reported it spent $11.1 Billion on transportation and logistics costs overall and in 2017 that figure increased to $27.7 Billion.  In the next 3-5 years that cost will be significantly higher and represent an unhealthy percentage of its overall revenue. Amazon felt it needed to invest in its own logistics assets in order to better manage and control costs with its Prime experience. 

FedEx is now focused on the broader ecommerce market which is growing significantly as opposed to doing everything to meet and please Amazon’s needs.  If Amazon was to truly compete with FedEx and UPS in any real manner the investment in time and financial assets for Amazon would be enormous. Fact remains that 5 years ago this discussion would be pure fiction and in 2019 Amazon has shown FedEx, UPS and other carriers how quickly and efficiently it can transform and evolve its delivery ecosystem.