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USPS

USPS Jumps on Dimensional Weight Pricing Bandwagon

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The United States Postal Service is implementing a reduction in the Dimensional Weight Factor for several of its parcel shipping services which is scheduled to be implemented on June 23, 2019.  Anytime there is a reduction in the Dimensional Weight Divisor the result will be an increase in the cost to ship packages that are subject to that change. This new pricing change will affect Priority Mail, Priority Mail Express, as well as some other parcel services offered by the Postal Service.

The pricing change however will only affect packages that exceed one cubic foot.  So, shippers who have the ability to ship their products in packages of one cubic foot, (1728 cubic inches) or less would be wise to continue to ship in those packages to avoid this increase.  USPS will continue to charge based on actual weight for all packages shipped that are less than one cubic foot.

The change USPS will be implementing on June 23rd moves the Dimensional Weight Factor from the current divisor of 194 to a divisor of 166.  

Here is an example of how this pricing change will affect a Priority Mail Package whose actual weight is 5 pounds, where the package dimensions total 2340 cubic inches.  Remember this is just one example of how this pricing change will affect USPS parcel shippers.

Priority Mail

Actual package weight 5 lbs.

Package dimensions of – 15 x 13 x 12 = 2340 cubic inches

Dim factor of 194 chargeable weight 13 lbs. = $32.80

Dim factor of 166 chargeable weight 15 lbs. = $36.90

Chargeable weight increases by 16.6%

Net charges increase by 12.5%

The message here is that parcel shippers need to constantly evaluate all of the continual changes all parcel carriers implement throughout the year.  Shippers must fully understand the changing pricing structures of the parcel carriers they utilize and how these pricing changes will ultimately impact their businesses bottom line.  Ignoring these changes without performing on-going benchmarking and target pricing analyses for their businesses will only serve to lessen profit margins which no business can afford in these very competitive times.  A Parcel Audit is recommended to help save on shipping costs.

Walmart storefront

Is it Follow the Leader or Lead the Follower?

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Last week, Amazon announced it is working on plans to fundamentally change its Prime Two-Day shipping program into a One-Day shipping program.  For years now Amazon has been continually building and strengthening its fulfillment and logistics networks for precisely this reason.

Now today we have learned, (and not to be outdone), Wal-Mart is also moving in the same direction by offering Free One Day shipping on as many as 220,000 different items when Wal-Mart shoppers spend a minimum of $35.00.  Wal-Mart will be initially testing this new speedy delivery concept in Arizona and Nevada and then plan to roll it out into Southern California. From there it will obviously continue to grow in major areas of consumption.

Both companies have obviously been listening to their customers who are apparently obsessed with the need for faster and faster delivery.  Amazon believes it is so important to move in this direction that it has committed over $800 Million to make sure this works. Wal-Mart on the other hand believes it will actually save money because the items they plan to ship in this program will come in just one box.  Additionally the goods will come from a single warehouse that’s closest to Wal-Mart’s customers.

Interestingly, as both companies try to outdo one another, Wal-Mart’s e-commerce business currently is not profitable.  Wal-Mart is forecasting that it will lose even more money in 2019 than it actually lost in 2018. Can they really make up those loses by increasing volumes and expediting delivery times?  Apparently Wal-Mart thinks so.

Another contrasting factor is that Amazon’s Prime customers pay an annual fee currently pegged at $119, while Wal-Mart’s service will be available to most of its customers without any additional charges.  That is a huge difference in available funds to help make these programs financially successful.

Where all this ends up remains to be seen.  But one thing is for sure, we believe this is just the beginning of what will be an ongoing race between these two retail titans, as well as others who will be forced to join the game, for growth in on-line market share.  Each one committed to disrupting the disruptor. Hang on folks, more change is coming.

     

Truck

So, you think your shipment is insured?

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Most shippers believe that if they tender a shipment to a domestic freight carrier and that shipment is lost or totally damaged in transit, they would receive full compensation from the freight carrier for that loss.  In fact, many years ago domestic freight carriers were required to compensate shippers for the “full actual loss” for a shipment that was either lost or totally destroyed while in the carrier’s possession and carrier liability had been proven.  Well, that was then and this is now.

Domestic freight carriers for years now have been limiting their liability by publishing various limits of liability within their rules publications.  These liability limits vary from carrier to carrier and it is incumbent on all shippers to have a complete understanding of their carrier’s liability limitations so they can avoid the loss of significant dollars should a loss or damage occur to their freight while in transit.

One such example is a limit of liability for “used machinery.”  One shipper we know shipped a large computerized fabric cutting machine back to the manufacturer for minor repairs.  The carrier unfortunately significantly damaged the machine while in transit. When the shipper filed their claim for the damage it was for several hundred thousands of dollars.  They were completely caught off guard when the carrier sent them a check for $120.00 claiming that shipments of “used machinery” were subject to a limited liability of $0.10 per pound.  The shipment weighed 1200 pounds so that’s how the carrier calculated the “whopping” claim payment.

That shipper certainly used poor judgement in tendering the shipment to a carrier who published the liability limitation, without seeking additional cargo insurance coverage.  In today’s fast-paced business climate, shippers are constantly seeking out the least cost carrier. And while that makes perfect sense, how diligent are those same shippers in researching the various carriers’ liability limits, just in case there is a loss or damage to their shipments.  Not very often we believe.

Of course shippers can obtain additional insurance coverage from the freight carriers for an additional fee, but knowing when to purchase that additional insurance is an important key to the carrier selection process.

On the other side of the coin, there are shippers that insure virtually all of their shipments with their freight carriers at great additional expense.  Well, if that shipper has limited claims for loss and damage, perhaps they should have opted to “self-insure” instead of paying a premium on every shipment they make.

Also, for the most part, paying freight carriers’ directly for additional insurance is typically the most expensive insurance costs a shipper will experience.  It may very well make sense for the shipper to obtain a separate cargo insurance policy from their business insurance company to cover them for any losses they may incur.  Companies must perform an insurance “sanity check” to make sure they make the most logical decision on what insurance provides the most comprehensive coverage for the least possible cost.

In addition to carriers limiting their liability, all carriers publish a list of items they will not pick up for transport.  These items are usually referred to as Prohibited or Restricted Articles and each and every freight carrier publishes their own distinct list of such restricted items.  

These items almost always include, US currency, precious metals, original works of art, live animals, hazardous materials, fireworks, household goods, etc., you get the picture.  It is incumbent on all shippers to know in advance if their carrier prohibits transporting particular products they intend to ship with that carrier.

To put this into perspective here is a real life example to chew on:  Recently a shipper of lighting fixtures advised us that they made a shipment to a customer by a certain freight carrier.  The carrier pickup up the shipment on the date specified, but then lost the entire shipment, (not sure how that happens, but apparently it did.)  The shipper immediately filed a claim for the loss of the shipment and the claim amount was in excess of $6,000.00.

The carrier replied to the claim by sending a letter of declination to the shipper claiming the shipper did not have “Prior Authorization” to make the shipment in the first place.  The carrier referred the shipper to a rule it published which states “the following items can be picked up but REQUIRE written approval by carrier prior to pick up.” The rule is very specific and states that written approval can only be given on a form authorized and signed by a member of the carrier’s regional operations management team.    

The carrier then proceeded to tell the shipper the lighting fixture covers it shipped to its customer for the fixtures the customer ordered were a “custom item, not typically maintained in inventory and with no other practical use or market value beyond the immediate intended use.”    Since the shipper did not obtain prior authorization to ship these goods, the carrier refused to pay the claim and the shipper was out $6,000.00.

The real concern here for any shipper thinking of using this specific carrier, is the carrier’s own definition of “custom Items.”  In our opinion, any item that is in any way customized, such as wearing apparel with company or team logos, any advertising material created for specific purposes, any food product which is labeled for a specific customer, any item that is cut to a specific size for a specific customer, (and the list goes on and on), can be considered a custom item and the carrier merely wipes it’s hands of any liability whatsoever and that should be a major concern for all shippers.

How well does your company vet it’s carriers to see if there are any similar liability restrictions that may come back to haunt them?  This should be a wake-up call for all shippers. Shippers must make sure they understand all liability limitations published by the carriers they utilize.  Shippers that utilize freight brokers and Third Party Logistics providers need to understand that each different carrier they utilize will have its own unique liability rules and regulations.  This is truly a “Caveat Emptor” scenario….translation, “Buyer Beware!”            

Walmart storefront

The High Cost of Carrying Inventory and What Wal-Mart is Doing About It

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The Wall Street Journal recently reported that Wal-Mart was applying what amounted to additional pressure on their major suppliers as a way to reduce Wal-Mart’s inventory carrying costs.  This new cost cutting effort on behalf of Wal-Mart will begin in May and will likely add pricing pressure to their suppliers.

Wal-Mart suppliers that ship full truckloads to Wal-Mart D.C’s are being asked to deliver those loads within a specified two-day delivery window, however just for 87% of the truckload orders.  The prior two-day deliver requirement was 85%.

Wal-Mart suppliers that ship partial truckloads will be required to have those shipments delivered on-time 70% of the time compared to the former 50% of the time.

Obviously these new delivery requirements could come at a significant cost to Wal-Mart’s suppliers.  First and foremost is the potential for the suppliers to utilize more expedited transportation services in order to assure delivery within the time limits set out by Wal-Mart.

Secondly, and perhaps with an even higher cost to the supplier, will be Wal-Mart’s penalties assessed to their suppliers if those shipments do not arrive in the timeframe set by the giant retailer.

As one example of this, Wal-Mart has announced a change in the way it penalizes suppliers shipping partial loads.  Wal-Mart is calling this their effort to get the suppliers goods on Wal-Mart’s shelves in a timely manner. This new penalty will cost those suppliers that fail to meet these new delivery guidelines a 3% “fine” (AKA chargeback), for the cost of goods sold for each case that does not meet Wal-Mart’s “On-Time, In Full (OTIF) requirement.

Wal-Mart’s Senior Vice President of Transportation and Supply Chain, Tracy Rosser told Mike Regan, Chief Relationship Officer of TranzAct in a recent on-line interview that “it’s very easy to look at it and say this could be a burden on my business however there’s a huge opportunity for suppliers to increase their sales.”

This is but one example of many we have seen and will continue to see where large retailers are constantly streamlining their supply chain operations.  These efforts are directed to not only improve inventory turns and obviously increase sales, but also to pass more of their supply chain costs on their to suppliers’ back.         

Many retail suppliers continue to believe their operations have always been operating at peak performance and therefore really don’t need to be continually tweaked to meet these continually demanding changes.  Those suppliers are in for a big surprise because their sales will plummet and their operating costs will continue to rise and that is a truly deadly combination.

Success concept

Three Key Principles to Achieving Logistics and Supply Chain Success

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Today’s logistics and supply chain leaders are constantly implementing strategies to manage their daily challenges to ensure their businesses succeed.  We believe there are three core principles that must be adhered to in order to ensure that success is in fact achieved, and here they are:

  • Constant and Never Ending Improvement – Unlike creating a work of art, to be successful in business a company can never be “finished” with their logistics and supply chain improvement processes.  It is a constant work in progress. There must be ongoing and creative initiatives to continually seek out and implement improvements throughout the logistics and supply chain areas of the business.  Improve today and continue improving tomorrow and every day thereafter. It is never a one and done process.

If attitude dictates altitude then all members of the logistics and supply chain teams must truly buy into the process to achieve success.  They must feel it and do what is necessary to not only achieve success today, but more importantly, to work towards continually improving every aspect of their operations.  

  • Create a Plan with Capable Teams to Implement Those Plans – Having a plan of action will always make teams work harder and help them stay focused on their core missions and competencies.  There must also be total cooperation and buy in collectively from all teams. Teams must also learn to work collaboratively. Remember, it’s all about the “Yes.”  Yes, we can be successful if we make this operational change; yes, we can be successful if we implement these new business strategies; yes, we can be successful if we on-board this new 3PL business partner or implement this new software application.  

Teams must be relentless in their goal in achieving success by building high performance teams and encouraging everyone on those teams to be the best at what they do.

  • Continually Challenge the Status Quo – By challenging the status quo, logistics and supply chain teams will ensure they are in fact the “best they can be.”  Logistics and supply chain teams must continually strive to be creative, persistent, entrepreneurial, and always profit minded.  They must focus on key business drivers and never forget that they are in fact in the sales game; selling to their customers, continually selling to management and selling to each member of the various teams.

The logistics and supply chain teams must not be afraid to take risks, they must be willing to positively communicate ideas; they must not be afraid to challenge one another and, they must become change agents so they can create an amazing future for the business.      

We’re sure there are additional principles to achieving business success in the areas of logistics and supply chain management and we’d love to hear about your team’s experiences.

Business People Sitting in an Office Building Chatting

The True Cost of Going It Alone

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We recently had conversations with a large retail business to do some consulting work with an annual freight spend in excess of $100 Million.  Obviously that is a significant freight spend and one that should immediately command a great deal of respect from a freight carrier partner.  Against our best recommendations, the retailer decided to “go it alone” instead of working with us or another logistics expert.  They had some very talented and highly trained people in their logistics department and in their global procurement department as well and felt like they were well-equipped to handle the negotiations.

The reality is that due to the complexity of freight carrier pricing elements, which are  varied and include such items as application of varying base rates, discounts, incentives, carrier rules, regulations, additional surcharges, etc, requires a good deal of understanding before entering into any carrier negotiations.  These pricing elements are further complicated by complex and diverse freight carrier pricing agreements and contractual provisions offered by the freight carrier community.  Make no mistake, these complications are purposeful.  It’s simply impossible for an in-house logistics expert to have the knowledge and expertise to benchmark and specifically target price rates and examine these complicated and confusing terms without outside competitive analyses.

In addition to pricing and contract anomalies, a shipper needs to ensure they know exactly what will be thrown at them during the negotiation session(s).  Without complete knowledge of what to expect in the negotiation, the company might just have to fold their tent and accept what the other side has offered because they will be absolutely powerless.  They are putting their company at risk of losing ground each and every time they enter into these negotiations.

Just two short years ago, the logistics department of this retailer made the decision to change their primary carrier and give the lion’s share of their business to their former carrier’s top competitor. That change did in fact result in savings, but an important point here is that the shipper never really knew if they “left money on the table” because they went into the negotiations without any comprehensive competitive pricing data available to them. While they had a talented logistics team, they did not have the ability to provide the new carrier with any comprehensive shipment data.  So, they merely accepted the new price offerings the carrier had offered and signed a two year contract. Those negotiations did however provide a reasonable savings.

Also, two years ago the company for the first time hired a very qualified freight invoice audit company who in addition to auditing all of their freight invoices for billing errors, had the ability to dive deep into the company’s actual shipping transactions and with its strong data mining capabilities, provide the shipper with some very comprehensive information regarding its actual shipping characteristics which is vital in these negotiation sessions.  In addition, the audit firm had the ability to provide comprehensive competitive pricing analyses to show the retailer exactly what rates the shipper was in fact “entitled” to due to its large shipping volumes, freight shipping characteristics and extremely prompt freight payment capabilities.  All this information was now available to them before this new round of negotiations even started.  The information would be invaluable in the shipper’s on-going pricing and contract negotiations, only if it were used.

Now two years later, the logistics department began discussions with that current primary service provider to see what, if any additional savings they could achieve by extending their current business arrangement for an additional two or perhaps better, three years.

Over the span of several months, the freight carrier had been repeatedly requested to provide small tweaks to their numerous back and forth pricing offerings and provided the shipper with what in the end, amounted to inconsequential savings.  Then the carrier, who was clearly in the driver’s seat, dropped the hammer on the shipper.  They had had enough of the consistent tweaking requests and ultimately provided the shipper with what they termed was their “final offer.”

The carrier gave the shipper an “offer it couldn’t refuse” to take what they had offered or find another carrier to handle their shipments.  While changing carriers was certainly an option for the shipper it would have meant months of searching out and qualifying additional competitive carriers.  Secondly, the carrier knew the shipper did not have an appetite for changing carriers in the first instance by tipping their hand to that point early on in the negotiation process.

To make matters worse, the carrier added insult to injury by publishing a penalty provision in their new contract that if the shipper stopped using the carrier at any point in the next three years, the shipper would have to pay steep penalties for taking such action.  Now, it was even more evident that the carrier and not the shipper, was in fact in the driver’s seat.  The shipper who was totally unprepared for the negotiation process in the first place was totally intimidated and decided to sign the contract and say no more.

It’s worth repeating, that the shipper failed to fully understand the need to enter this negotiation from a position of strength; they certainly did not.  They had no idea once they started the negotiations as to what a successful negotiation should really look like.  They failed to utilize the resources it had available to them, that being the comprehensive shipment data and the Target Pricing and Benchmarkinganalyses the shipper’s audit company had provided.

The so called “experts” in the logistics department felt they knew what they were doing and didn’t need any expert advice. .  Had the shipper properly done its homework, it would have known from the comprehensive shipment data and benchmarking analyses it had in its possession what rates it should accept to ensure the lowest rates for the services offered.  More importantly, the carrier would have clearly understood that the competitive pricing information the shipper had was in fact pricing the carrier and shipper could both live with.

They also should have let the carrier know early on in the negotiation process that it did not have a lock on their business.  Once a carrier knows it has a lock on the business and there are no apparent competitors, it’s time to “take your ball and go home.”

Perhaps the shipper should have thought twice, or even three times about going it alone, because after the contract was ultimately signed, the revised Target Pricing and Benchmark Analysis revealed that the shipper did in fact leave money on the table to the tune of over $5 Million annually.   The procurement department at this point was at a loss as to what the next steps could be, if any.  It ultimately decided its hands were tied behind their back and it was not in their best interest to challenge the freight carrier, after all, the damage had already been done.

Our goal should always be to evaluate what expertise may be lacking in certain areas of our business and decide what resources we need to engage and, when best to engage those resources to ensure we overcome any internal shortcomings which will always guarantee a positive outcome!

Many companies today are taking the approach of focusing on their core competencies with their in-house staff and outsourcing all other areas of the business to the best available SME’s, Subject Matter Experts.  This is a smart business decision and one that over time usually pays huge dividends.

Clearly the first step is to admit to ourselves and to corporate management when we are faced with a challenge that, if we go it alone, we will be working at a distinct disadvantage and the actual outcome may not be a positive one for the business.