Q Review
OUTSTANDING employer 2014 Governor’s Award
N
orth Carolina Governor Pat McCrory recently named Transportation Impact the state’s “Outstanding Employer,” awarding the Emerald Isle-based parcel spend man-
agement firm the 2014 Governor’s Award for Excellence in Workforce Development. Founded in 2008, the company offers parcel audit and carrier contract negotiation solutions to companies with a minimum net spend of $200,000 on FedEx and/or UPS parcel shipping services. Transportation Impact ranked on the Inc. 5000 list of America’s fastest-growing private companies in 2013 and 2014.
For more information: visit www.transportationimpact.com
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NC
Contents
Welcome The trust you have placed in us has allowed our company to serve as a reminder to our state and our region that we are all in this together.
4-5 An International Impact From humble beginnings in Keith Byrd’s surf shop in Emerald Isle, North Carolina, Byrd and his partner Travis Burt founded Transportation Impact, a parcel auditing and carrier contract negotiation firm.
6-7 Partner Spotlight DigitalShipper offers a diverse product line of solutions to help companies manage their small package shipments and/ or LTL carriers from any location in the US.
8-9
Q Review Focus When it comes to reducing your transportation spend, a third party is sometimes a necessary component.
10-13
Dimensional Doomsday Parcel shippers scramble to prepare for DIM weight rules.
14-15
R
ecently, Transportation Impact, in conjunction with the NCEast Alliance, had the exciting opportunity to be featured in the “Industry Spotlight” section of US Airways magazine, which appeared on pages 138 and 139 of the June 2014 issue.
The NCEast Alliance is the lead economic development organization serving eastern North Carolina. The Alliance is a private, not-for-profit economic development agency serving more than one million residents within several small metropolitan and micropolitan areas from the fringe of the Research Triangle to the Atlantic Coast. The Alliance is working hard to help grow our state and regional economies through site building and research, as well as workforce development. Where we come from is important to us. Of course, where we have gone is, too, which is why I want to share this article (p. 4) with you. I hope it serves to illustrate that your partnership is invaluable, not only to our organization, but to our local economy as a whole. We take great pride in being located along the North Carolina coast and want to take this opportunity to thank you, and to let you know that your partnership is much bigger than business. At Transportation Impact, we strive to make a positive impact on the lives of those that have helped get us where we are today. We sincerely hope that we have done that for those in our community; and we sincerely hope that we have done that for you. Thank you for believing in Transportation Impact, and we look forward to growing our great partnership along the road ahead.
IN THE NEWS: USPS Could shifting volume to the Post Office be a viable option?
Keith Byrd Co-Founder, Principal Partner Transportation Impact
QREVIEW is a quarterly newsletter published by Transportation Impact. All content in this publication is under international copyright laws. No part of the content can be reproduced in any form without the prior written permission of Transportation Impact.
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Featured in US Airways Magazine June 2014
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Partner Spotlight
Digital Shipper By installing DigitalShipper’s software on a server behind the firewall, a company can provide rate shopping, pre-shipment rating and price quote visibility throughout all levels of the organization. STREAMLINE
The world, and everything in
it, moves pretty fast these days. We want our news instantly, our food fast and our Mondays to be over with as quickly as possible. As such, nearly every facet of today’s business landscape, specifically the ever-evolving supply chain space, requires companies to keep up or get out of the way. People pay a premium for prioritization, optimization and innovation; and with so much focus on the fastest route to the bottom line, time-tested traditions like partnership and value commonly become a casualty of the past.
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DigitalShipper
F
ortunately for shippers in every industry, however, DigitalShipper, a national sales and service leader of multi-carrier, enterprise-wide shipping execution solutions and supply chain industry veteran, remains solely focused on both, just as it has been for almost 25 years. Since 1991, the company has been helping businesses of all sizes automate and improve the efficiency of their shipping and distribution operations through the provision of complete, integrated and automated shipping solutions which streamline and drive excess costs out of companies’ small parcel and LTL/FTL shipping operations.
How does it work? Actually, very easily. By installing DigitalShipper’s software behind its firewall, a company can provide rate shopping,
pre-rating and price quote visibility throughout all levels of the organization with the flip of a switch. The software is designed to help streamline the shipping process, from start to finish, by automating as many manual processes as possible. Simply put, it enables any user within an organization to identify the best carrier and the best price. Additional enhancements include the implementation of the software’s automation rules, set depending on a shipper’s specific needs, which rate international, hazardous and LTL shipments – common pain points for most shippers – in seconds. DigitalShipper’s software is built on the most current .net technology, and web services are included in the one-time cost of the software. Customers have full access to DigitialShipper’s API – the same API the company uses to perform its freight calculations – enabling users to rate packages in real time
from places like their websites, giving end customers shipping options and actual costs. That functionality is especially beneficial in a world of e-commerce, where companies have to compete to cover shipping costs in the face of free and discounted shipping offers from countless competitors. In an age that demands companies keep up with the pace, DigitalShipper’s portfolio of shipping execution software enables shippers to keep up with the times without sacrificing the traditional cornerstones of value and partnership.
For more information about the ways in which DigitalShipper can reduce your company’s costs, contact Jim Roma, Business Development, at (651) 348-4080 or via email at jroma@digitalshipper.com.
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Even
Michael Jordan Had an Agent In an industry where competition is so thin, the consumer faces a steep disadvantage. So if MJ needed an agent in a 30-team market, he would have more than likely needed an army if the NBA were a 2-team league.
When it comes to reducing your transportation spend, a third party is sometimes a necessary component.
u
nless you’re among the most avid of sports fans, you’ve probably never heard of David Falk. Listed among the “100 Most Powerful People in Sports” for 12 straight years from 1990 to 2001 by The Sporting News, Falk is best known for his representation of Michael Jordan throughout Jordan’s entire career. Jordan’s fame and fortune are well documented, but depending on who you ask, you’re likely to get very different stories about his agent. Players loved Falk because he could negotiate deals that owners and companies seeking endorsements said couldn’t be
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done. Those owners and companies? Well, I’m sure they would portray him in a different light. Sound familiar? In the current climate of ever-increasing parcel costs, it’s as important as ever to obtain savings for your company by any means necessary. Increases in accessorial charges, pricing and fuel surcharges typically represent companies’ biggest concerns, forcing them to get outside the box and proactively find solutions to combat rising costs. Let’s face it, you know your business, and the carriers know their business. The difference is that the carriers probably know a lot more about your side than you
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Players loved Falk because he could negotiate deals that owners and companies seeking endorsements said couldn’t be done.
know about theirs. Why? Because they have thousands of customers like you that depend on them for their shipping needs. That’s a very large data pool.
Rate increases So when UPS and FedEx customarily announce similar rate increases each year, it’s important to understand that the averages they advertise fail to accurately portray the true effect that the changes might have on any given company’s bottom line. Remember the three biggest concerns – about accessorial, pricing and fuel increases? Hidden among these increases are a plethora of minimums, tiers
QREVIeW FOCUS and additional surcharges that are all designed to make the carriers money.
It’s working FedEx and UPS have been near record highs on Wall Street all year. Of course, this is great news for shareholders. Google “United Parcel Service” or “FedEx,” and the returns will be littered with stock market blog and finance
concern . . . is that we want to make sure we’re getting an appropriate price for the value of service we’re providing.” Of course, companies that ship lightweight goods in larger boxes (think lampshades, pillows, etc.) likely question the world’s largest shipping leaders’ interpretation of “fair,” considering those companies are now faced with oncoming cost increases that
news results pertaining to dividends, profit forecasts and, depending on when you search, 52-week highs.
could price some of them out of the market entirely.
Each carrier’s recent dimensional weight pricing changes likely will keep moving the needle in favor of investors. Spokespeople from each company said the move was about fair compensation, according to a report by The Wall Street Journal.
In an industry where competition is so thin, the consumer faces a steep disadvantage. So if MJ needed an agent in a 30-team market, he would have more than likely needed an army if the NBA were a 2-team league.
“Our focus is on being fairly compensated for the value we provide to our customers,” a UPS spokesman said. FedEx echoed nearly verbatim, saying the “primary
So what’s a customer to do?
There is, of course, one primary difference that some customers will point out when entertaining the thought of bringing in a third party – the delicacy of the carrier relationship.
Well, if you thought Chicago Bulls owner Jerry Reinsdorf was happy to see Falk walk through his door, think again. But unlike the hypothetical line drawn by UPS and FedEx, Reinsdorf wouldn’t dare say, “I’m sorry, Michael, but I refuse to do business with people who use a third party.” If you think about it, it’s almost comical. In today’s
world, third parties are everywhere you turn; business as we know it couldn’t exist without them. Rest assured that both UPS and FedEx use third parties to preserve profitability by keeping operating costs down. It’s no secret that UPS and FedEx have earned strong profits with their SurePost and SmartPost services, respectively; interesting, considering those services rely on what? You guessed it . . . a third party. The United States Postal Service doesn’t answer your phone call, doesn’t process your claim (other third parties are in place for issues like
those), but they do deliver your package! Despite the glaring imbalance between what each carrier demands from its customers, yet implements in its own business model, the biggest hurdle we face when working with current and potential clients is the fear of damaging that relationship. Often, a company has been working with UPS and/or FedEx, and their reps, for some time, and is fearful of messing up a good thing. Any business person knows this is good practice. But within the current competitive landscape, does the cost outweigh the perceived consequence? At the end of the day, business is business, and you shouldn’t be afraid that asking for additional discounts will ruin the relationship between your company and its carrier. Your carrier certainly isn’t afraid to ask for – no, demand – increases to be “fairly compensated” or to get “an appropriate price” is it? And I’m sure that if you asked Michael Jordan how he figured out what to ask for during his contract negotiations, his answer would be pretty simple. He hired an expert.
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Determine your DIM impact Visit transportationimpact.com/dim for a free customized impact analysis.
Parcel news
DIMENSIONAL DOOMSDAY What you need to know, from the Ground up.
To date, any ground package smaller than three cubic feet (5,184 cubic inches) will be charged based on the actual weight of the shipment.
E
arlier this year, FedEx turned the shipping industry on its head by announcing it would apply dimensional weight pricing to all ground shipments, effective January 1, 2015. Several weeks later, UPS mirrored those changes, putting its into effect on December 29.
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UPS® DIM weight pricing becomes effective December 29, 2014, and FedEx® will follow on January 1, 2015.
The news subsequently sent shippers scurrying through their parcel supply chains working to determine how much their respective costs will increase. While most now have a better understanding, it remains to be seen how much companies will actually be impacted by the changes.
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Dimensional Doomsday Each carrier implemented dimensional pricing models, which derive a “billable” weight for packages based on cubic-inch measurements divided by a published rate factor of 166, to compensate for capacity issues presented by large, lightweight packages. To date, any ground package smaller than three cubic feet (5,184 cubic inches) will be charged based on the actual weight of the shipment. Packages that measure above that threshold will be billed based on the greater of the dimensional and actual weights. In 2015, however, that will change for FedEx and UPS customers, likely resulting in significant cost increases for businesses that ship lightweight items – like pillows, lamp shades or shoes – in larger boxes. FedEx stands to gain about $350 million in additional revenue following the move, and Kevin Sterling, a BB&T Capital Markets analyst, said he projects the shift will boost FedEx’s annual operating income by $180 million, according to The Detroit News. Because UPS possesses a larger ground network than FedEx, those numbers could be even more mouth-watering for UPS and its investors. Then, of course, there are the customers . . . While analysts in every industry delve into dissecting billions of aggregate numbers in an effort to determine what the overall impact would be on their companies, a Ph.D. in rocket science is not necessary to ascertain that prices certainly are not coming down.
What’s the worst that could happen?
get to brainstorming.
A 346 percent cost increase, that’s what.
Illustration 1 shows a breakdown of similar worst-case scenarios across all zones.
Yes . . . Three. Hundred. Forty. Six. According to The Wall Street Journal, analysts think more than 30% of total shipments will be affected, and many weigh less than five pounds.
A Zone 8, 1-pound shipment spaciously arranged in a 12x12x36-inch box – which represents the current dimensional weight pricing threshold for each carrier – would cost $7.71 for the remainder of 2014. Next year, however, the price for that same package will soar to $34.41.
Zone
So, when determining how the FedEx and UPS pricing changes will impact your company’s bottom line, there are several key ques-
2
3
4
1 lb.
$ 6.24
$ 6.68
$ 6.87
$
32 lbs.
$ 12.69
$ 14.92
$ 16.50
$ 19.62
% Change
103%
123%
140%
5
7.17 174%
Prices reflect 2014 published rates. Rates subject to change in 2015.
Specifically, dimensional weight is calculated by multiplying the dimensions of a package, length by width by height, then dividing the product by 166. A package’s billable weight is the greater of the dimensional and actual weights. So, if you apply that formula to the current threshold, you’re left with a money-hungry 32-pound package. If that package only happens to contain, for example, a desk calendar, then it might be in a FedEx or UPS customer’s best interest to find a smaller box, or consider the financial benefit of encouraging their own customers to cozy up to their email calendars. Of course, this apocalyptic example doesn’t exactly reflect the most feasible shipment, but it does make very clear the fact that shippers of large, lightweight goods had better
6 $
7
8
7.49
$ 7.59
$
$ 24.81
$ 28.79
$ 34.41
231%
279%
7.71 346%
Illustration 1
tions you should consider as you work to determine how the change will affect your business:
What role would a potential 2015 General Rate Increase (GRI) play in the announced increase? It is important to consider that the rates contained within each carrier’s service guide likely will be at least a few percentage points higher by the time any dimensional weight changes are tossed in. Near the end of each calendar year, typically in between late October and early December, FedEx and UPS usually announce average published rate increases for most or all of their service offerings and service charges. While price changes for air and service charges are relatively straightforward, it is
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Dimensional Doomsday standard procedure for each carrier to refer to average cost hikes related to their respective ground service-level charges, which masks the fact that the price for the most common shipments increases at a disproportionate rate to relatively uncommon shipments, which plays in favor of the carrier.
How will contractual discounts factor into the equation?
Should I turn to regional carriers?
High-volume shippers typically receive service-level discounts based on volume and package characteristics, meaning they pay less than published rates in exchange for the amount of business they provide to the carriers. When performing any type of financial impact analysis, it is important to factor these in when determining the true net effect of any dimensional weight pricing changes you have coming your way. For example, if your company currently receives a 20 percent discount on 1- to 5-pound
Zone
Since the unveiling of the news, “regional carriers,” “USPS” and “Amazon” have shifted from mere companies to industry buzzwords in and of themselves. Regional carriers hang their hats on charging fewer accessorials and offering later pull times to customers, so it is only natural that shippers ask themselves whether shifting volume to these carriers would help them in the long run. And while that makes sense, it is important
3
4
5
6.95
$ 7.61
$ 8.31
$ 8.57
$
20% Discount
$ 1.39
$ 1.52
$ 1.66
Net Rate
$ 5.56
$ 6.09
10 lbs.*
$ 8.54
25% Discount Net Rate
3 lbs.*
% Change
2
7
8
9.01
$ 9.22
$ 9.84
$ 1.71
$ 1.80
$ 1.84
$ 1.97
$ 6.65
$ 6.86
$
$
$
$ 8.75
$ 9.86
$ 10.53
$ 11.18
$ 12.44
$ 13.73
$ 2.14
$ 2.19
$ 2.47
$ 2.63
$ 2.80
$ 3.11
$ 3.43
$ 6.41
$ 6.56
$
7.40
$
7.90
$ 8.39
$ 9.33
$ 10.30
8%
11%
15%
$
15%
*Prices reflect 2014 published rates. Rates subject to change in 2015.
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to look at the big picture. Hypothetically, such a seismic shift in the costs related to ground parcel networks offers regionals a window of opportunity to partner with major carriers to create network and/or service agreements with regional carriers – similar to what we saw with the introduction of FedEx SmartPost and UPS SurePost services. As grumblings over ever-increasing shipping costs grow, companies are (and should be) taking a harder look at the pros and cons of incorporating regionals into their parcel supply chains. Still, the only way for those regionals to shift the landscape, so to speak, is not to become competitors, but rather allies to FedEx and/or UPS. That would mean that, while regional carriers might provide short-term relief, the potential exists for partnerships, the likes of which FedEx and UPS have demonstrated their willingness to form, which may lessen the financial impact at an undetermined point in the future.
ground shipments, and 25 percent off of 6 to 10 pounds, those discounts need to be included in your analysis. If you have an 18x12x7 (1,512 cubic inches) shipment that weighs three pounds, it will get billed at 10 pounds if and when the change goes into effect. Make sure you subtract your respective discounts from the published rates for each shipment to ensure that you arrive at a true net change (Illustration 2).
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6
7.21
16%
7.38
26%
7.87
31%
Illustration 2
Dimensional Doomsday
It would seem logical that Amazon engineers are brainstorming a simpler, more shipper-friendly cost structure that would surpass necessary density-to-profitability ratios.
What about Amazon? Rumblings (and even some evidence to support the notion) abound that Amazon is hard at work developing a logistics service to rival FedEx and UPS. Amazon’s growth, combined with UPS’s (Amazon’s primary parcel carrier) poor service performance last Christmas all but confirm that Amazon’s brass is following the changing landscape of the parcel shipping industry closely. And given the uproar generated by the dimension-based pricing models, it would seem logical that Amazon engineers are brainstorming a simpler, more shipper-friendly cost structure that would surpass necessary density-to-profitability ratios. Of course, what Amazon has in the works is of little solace to companies looking to dodge steep price increases within six months, but staying abreast of the company’s shipping-related announcements will put savvy businesses in prime position to take advantage if and when the opportunity arises.
Can a third-party parcel consultant help stop the bleeding? A good parcel consultant can begin by helping you measure the net impact of dimensional weight increases related specifically to your business and its unique package characteristics and shipping trends. Before you can stop the bleeding, it is important to know two things: if you are even bleeding (i.e., will these cost increases actually impact your business), and if so, where is the cut; that is, which areas of your carrier agreement are driving costs up and profitability down? Third-party companies have made their mark in the industry by helping companies break aggregate, complex shipping data into discernible reports from which educated and effective decisions can be made. Often, companies assume that because the bulk of their shipments do not fall into a certain bucket (ground shipments subject to dimensional pricing in this case),
the impact will be minimal. Those assumptions can be costly. Since most parcel consultants are paid on a performance-based model, they are willing to thoroughly analyze your data at no cost, and in a fraction of the time that most companies could on their own. Therefore, the only real way to know whether hiring outside help is right for your company is to request a demonstration of their service portfolio and an explanation of their qualifications and business model. Companies that fail to prepare, as they say, are preparing to fail. Shipping is a numbers game. So while the news should come as no surprise, the net effect of the resulting cost increases could, even for companies that think they are well prepared.
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In the news
USPS leveraging lightweights to contend with heavyweights
I
t is early July, and the future is unclear.
The opposition is firmly entrenched on either side and possesses resources so far outnumbering its own that winning is improbable and even survival is uncertain. Then, with its back against the wall, the underdog, desperate to seize an opportunity, sees its chance. It had to start somewhere. No, this is not the American Revolution. It is the United States Postal Service. And on July 1, it fired a shot that, while not heard around
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the world, certainly piqued interest in shipping circles everywhere. Under increasing pressure to perform in the face of imposing competition from the world’s two largest parcel shipping companies, the future for the USPS has at times seemed bleak. But the timing of the announced dimensional weight pricing changes by FedEx and UPS could not have provided a better platform for the proposed USPS cost cuts to absorb the spotlight. Now, for the first time in years, shifting volume to the Post Office could again be a viable option.
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For the first time in years, shifting volume to the Post Office could again be a viable option.
USPS mine what the true impact of diverting volume to the USPS would be. A current FedEx or UPS customer that qualifies for USPS Commercial Plus pricing and receives an average discount on its FedEx and/or UPS ground volume likely would achieve more substantial savings on residential shipments as opposed to commercial ones, since USPS residential shipments are not subjected to residential surcharges.
The USPS is leaving customers a perfectly sensible option to help mitigate these increases via its Commercial Base pricing model, which contains proposed cuts that can be attained simply by using Click-N-Ship, PC Postage products, permit imprints, or digital mailing systems
That is because its brass decided to buck the trend of rising prices and make a play for market share when it slashed prices in key areas of its Commercial Plus Price Sheet. While the rate structure still must receive approval from the Postal Regulatory Commission, the proposed prices demand that shippers take the USPS seriously, lest they spend nearly 50 percent more on certain packages.
USPS Commercial Plus USPS Commercial Plus pricing charges commercial and residential packages equally, while FedEx and UPS each tack on a $2.90 surcharge for the latter. Commercial Plus requires a minimum volume threshold of 50,000 packages per year, and any shippers
that wish to divert volume could reap heavy benefits if the pricing model is approved and thus goes into effect on September 7. The most significant and consistent price changes occur with shallow-zone (2 through 4) USPS shipments that weigh up to 15 pounds; specifically, residential shipments. USPS Commercial Plus rates for packages in this range would be cheaper than FedEx and UPS published rates by an average of 27 percent for commercial shipments and about 45 percent for residential ones. The announcement is part of a move not only to become a stronger player in the lightweight parcel market, but also to shift its current customers toward a more efficient supply chain. Proposed retail rates
would actually increase by an average of 1.7 percent over where they stand now. However, the USPS is leaving customers a perfectly sensible option to help mitigate these increases via its Commercial Base pricing model, which contains proposed cuts that can be attained simply by using Click-N-Ship, PC Postage products, permit imprints, or digital mailing systems (meters) that generate an IBI (Information Based Indicia) and submit data electronically, according to a release on the USPS website. Still the buzz is almost solely about the Postal Service’s push to attract short-zone shipments on the premise of lower rates. As such, when comparing to FedEx and UPS rates, it is important to factor in commercial and residential ground discounts to deter-
Another factor that could skew the numbers in a positive way for the customer is fuel surcharge. FedEx and UPS charge a percentage-based fee for fuel, depending on the market, whereas the USPS has no such add-on for commercial or residential ground shipments. All things considered, the proposed Postal Service rates do indeed have strong potential to significantly help cost-conscious companies save money. While it is important to weigh the pros and cons relative to your own company’s business rules and best practices and to analyze your own unique data to determine the true net savings potential, there is little doubt that the latest move by the USPS is bold. Whether it proves to be revolutionary? Well, that remains to be seen.
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Industry Events
Trade
shows On the road again with Transportation Impact
1) CSCMP Annual Global Conference
5) AFP Annual Conference
September 21-24, 2014 San Antonio Convention Center, San Antonio, TX www.cscmp.org/agc/annual-global-conference-2014
November 2-5, 2014 Walter E. Washington Convention Center, Washington, D.C. an14.afponline.org
2) PARCEL Forum
6) CFO Summit XXIX
September 29 – October 1, 2014 Gaylord Texan, Dallas, TX www.parcelforum.com
November 13-15, 2014 Red Rock Resort & Spa, Las Vegas, NV www.cfosummits.com
3) SCOPE Fall
7) Supply Chain and Logistics Summit North America
October 5-7, 2014 Red Rock Resort & Spa, Las Vegas, NV www.scopefall.com
December 8-10, 2014 Hyatt Regency, Dallas TX www.supplychain.us.com
4) Logistics & Supply Chain Forum November 2-4, 2014 The Four Seasons Resort, Scottsdale, AZ www.logisticsforum.com
www.transportationimpact.com /// info@transportationimpact.com /// 252.764-2885