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Transportation Impact Quarterly Review January -March, 2015 /// NO.2/Q1

Increasing Fuel Surcharges

FedEx responded to lagging gas prices

Intentional Grounding Significant cost savings for companies willing to trade down.

You might be ready for regional shipping

Welcome Emerald Isle, the town Transportation Impact calls home, is located along the southernmost portion of North Carolina’s Outer Banks.

O

Local photographer Brad Styron captures Capt. Jack shrimp boat heading out for a night at sea. (bradstyronphotography.com)

ne of the most common questions I’m asked throughout my travels, whether by CEOs or whoever happens to sit next to me on a plane, is “Why Emerald Isle?”

to the community that we held in such high regard.

One of the most valuable lessons I’ve learned between then and now, is how important support can be for a growing business, and nowhere have we found more support than right here in the town of Emerald Isle. In addition to the beautiful beaches that are a short walk from our office’s front door, one of the biggest benefits to locating our business in this tight-knit town has been the many opportunities that Transportation Impact has had to show the community the same support it has shown us.

For those who don’t know, Emerald Isle, the town Transportation Impact calls home, is located along the southernmost portion of North Carolina’s Outer Banks.

Of course, it isn’t the first place you think of in relation to the country’s most popular locations for commerce. With a population of 3,784, our town is better known as one of the top vacation destinations on the East Coast, and for many of our employees, it has long been the place they call home.

Homegrown

When we started the company in 2008, my partner and I didn’t have to put much thought into kick-starting the business right here in our own backyard. After each of us left our 20+ year careers with UPS, we sought to create a company that was big on production and big on giving back

As our business has grown, our staff have been able to join dozens of great causes that we might not have had the opportunity to become so intimately involved with had we located someplace bigger.

While our efforts surely pale in comparison to large corporations, giving back to the community that has given so much to

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us is something we work at every day. The relationships we’ve built as a result are irreplaceable and are collectively among our company’s greatest accomplishments.

Island time During a time when so much is changing, when things are moving so quickly, I encourage you all to look for opportunities to set your clocks to what we call “Island Time.” It’s a phrase many in our area use as a reminder to make time to slow down and enjoy all the great things going on around us. We are a busy company, and the world is a busy place. But every now and then it’s important to remind ourselves to slow down and enjoy the ride.

Keith Byrd Co-Founder, Principal Partner Transportation Impact

Contents 6-9 Adding Fuel to the Fire FedEx responded to lagging gas prices by increasing its fuel surcharge.

Q-Tip The Bare Minimum

4-5

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Partner Spotlight

Intentional Grounding

By offering competitive, cost-effective solutions and superb customer service, OnTrac is leading the way in regional delivery to the West Coast.

A quick study of each carrier’s Ground transit maps can uncover significant cost savings for companies willing to trade down.

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

PRICE FLOOR Depending on your discount levels and package characteristics, the minimum charges within your FedEx or UPS carrier agreements can have significant impacts on your bottom line. Essentially, these charges represent a price floor that often prevents companies from realizing their full discounts on ground, air and accessorial charges.

Before you can determine whether your discounts are as good as they look on paper, it is imperative that you calculate the net impact of your incentives, inclusive of the minimum charge, to see how much of your price breaks will be reflected in the net charges.

Negotiating aggressive discounts is an important part of competitively positioning your business within your market. Realizing those incentives, however, could determine whether your company simply competes with other businesses or thrives within its space.

Transportation Impact.

ANALYZESTRATEGIZEREALIZE

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Partner Spotlight

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Stay OnTrac

The faster, more affordable alternative for regional package delivery.

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hippers know now, maybe more than ever, that they need options. The struggles to meet demand and stay competitive are as evident now as they have ever been, and as national carriers UPS and FedEx continue to closely align pricing for their respective

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services, decision makers are starting to look elsewhere.

Enter OnTrac: a leading regional overnight package delivery service to the West Coast and one of many in a growing trend of trusted regional carriers.

The story of regional carriers has long gone the way of the underdog.

The sheer size of the world’s two largest shipping companies has naturally made it a tough market for others to enter, much less prosper in.

But by covering a targeted area and placing a strong focus on customer service, shorter time in transit and competitive rates – three of the most significant pain points for

OnTrac There’s a sales rep in our customers’ neighborhood, period. Mark Magill, VP Business Development OnTrac took things a step farther late last year when it launched DirectPost, a partnership with the U.S. Postal Service to provide a service to rival FedEx SmartPost and UPS SurePost. Transit times for the latter services could take as long as a week, while OnTrac’s DirectPost offering aims to cut the time for deliveries down to two or three days for most packages, according to a November report by The Wall Street Journal. That’s just one day slower than OnTrac’s already speedy ground service.

OnTrac’s New DirectPost A mail product that combines the speed of OnTrac with the last-mile delivery of the USPS.

shippers – companies like OnTrac are chipping away at the market.

“When you’re in a service industry, your service levels are all-important,” explains Mark Magill, vice president of business development. “Without that, you don’t have a business, basically. A lot of companies are saying, ‘We finally need a West Coast (distribution center).’

For example, if a customer has a DC in Reno, we can deliver next day at ground rates from the Canadian border . . . all the way down to the Mexican border.

“An express service over a huge area like that, but at ground rates, is very compelling for people looking to improve their customer experience.”

OnTrac expects the service to be a boon for retailers shipping products within its 8-state West Coast network, especially those that offer free shipping to their customers.

E-retailers, fulfillment and direct mail companies that ship a minimum of 500 small, lightweight packages per day can access thousands of postal facilities throughout OnTrac’s network through the service, according to the company’s website.

Of course, quick, cost-effective deliveries don’t offset the importance of attentive customer service.

As competitiveness within the overall economic landscape continues to increase, companies are looking to vendors to help them carry the burden. OnTrac has the advantage in these situations, too, Magill says, because the size of their market segment promotes a more intimate partnership and thus a more capable understanding of a customer’s needs.

“What’s considered a large customer for OnTrac would not be considered a large customer for FedEx and UPS,” he said. “So our customers are going to get that account representation, where they have a local sales rep in the area, who they can contact, who can just drive right over.

“There’s a sales rep in our customers’ neighborhood, period.”

For large accounts, Magill said that OnTrac even will assign a special account representative whose job is to walk customers through OnTrac’s Blue Ribbon implementation process, which Magill equates to a “pilot’s checklist,” ensuring things get done the customer’s way, from setup all the way through execution.

The company’s strong focus on service led to another significant launch: same-day service to Los Angeles, San Francisco, Phoenix and Seattle, the four major metropolitan areas within its network.

For large customers, the story doesn’t end there.

“We even do Saturday and Sunday pickups during peak season, and deliver on Saturday and Sunday as well,” Magill said.

“We do what it takes to go the extra mile to make sure our customers have the experience they’re looking for.”

More info — ontrac.com

ANALYZESTRATEGIZEREALIZE

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Parcel news

Adding Fuel to the

FIRE

Barely a week in, 2015 may well have proven itself as the most interesting year in the history of parcel shipping (What a triumph!). During the home stretch of 2014, tryptophan wasn’t the only source of heartburn for shippers across the country.

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ising costs in the face of poor prior-year holiday performance forced businesses of all types and sizes to trim the fat from various facets of their operations. Though many struggled to prepare for dimen-

For FedEx shippers in particular, there’s a part of the equation that they either didn’t have time to prepare for, or may not even have known took place.

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/// QREVIEW · January-March, 2015 · NO.2/Q1 ///

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sional pricing changes that piled onto FedEx and UPS general rate increases that have long been the norm, at least they knew what was coming.

The mere calculation of the bottom-line impact of the dimensional weight pricing changes, difficult in itself, was only part of the problem. The trickle-down effect of those rate hikes, shippers knew, would require the exploration of more efficient packaging, regional carriers, tech upgrades: a gamut of 2015 initiatives that surely hung like an albatross

Adding Fuel to the Fire from the necks of businesses already facing a revolutionary shift in consumer behavior, and thus increased competition.

Famous for its marketing tactics, FedEx’s reported justification fails to pass the sniff test in one important regard.

The silver lining in it all was the general uptick in consumer confidence in the American economy, significantly fueled by, well, fuel. With gas no longer syphoning bank accounts, businesses everywhere were the beneficiaries.

The savviest of shippers could have a hard time sifting through invoices in search of optimization opportunities.

Shoppers showed their appreciation by spending.

It was, as closely as it could be, a win-win-win. Consumers had more disposable income, businesses had more product to replenish, and the carriers had more volume whipping through their feeders and onto their package cars and planes.

Are efforts paying off?

But as has been the case for billions of years, time marched on, and the calendar turned. As of January 6, reality – and higher prices – took hold, and shippers have now had a little more than a month to determine how much their efforts during the latter part of the previous year paid off.

For FedEx shippers in particular, there’s a part of the equation that they either didn’t have time to prepare for, or may not even have known took place. During its quarterly earnings call on December 23, FedEx quietly notified the world that its fuel surcharges would increase. Those chang-

es became effective February 2, and now more closely parallel UPS’s charges for fuel.

The move was compensation, FedEx said, for the decline in the cost of fuel and thus the decline in revenue from the fuel surcharge.

Famous for its marketing tactics, FedEx’s reported justification fails to pass the sniff test in one important regard. Sure, as gas prices fell, so too would FedEx’s top-line revenue associated with fuel. At the same time, though, costs could also decline in proportion with the fall in revenue, making it conceivable that FedEx would not end up on the losing end despite being a little lighter in the wallet.

Moreover, the general consensus of economists is that oil

won’t be this cheap forever, and probably not even very much longer. The president himself was forthcoming in admitting that this trend cannot be sustained. The general assumption of just about everyone on earth is that oil prices will soon begin to rise.

As they do, the percentage increases (for both carriers) will compound the cost to the customer.

That can’t be welcome news to shippers already clamoring to find ways to lower costs in the face of their carriers’ continuing to turn in record numbers for their shareholders.

a theme that has perhaps never been more prevalent throughout every facet of the shipping industry.

Both carriers base their price for fuel on a rounded average of the national U.S. on-highway average price for a gallon of diesel fuel for ground shipments and on a rounded average of the U.S. Gulf Coast (USGC) spot price for a gallon of kerosene-type jet fuel for air shipments. In each instance, the charges are updated monthly, based on the prices reported by the U.S. Energy Information Administration (EIA) for the period two months prior.

Even the savviest of shippers could have a hard time sifting through invoices in search of optimization opportunities,

ANALYZESTRATEGIZEREALIZE

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Parcel news What in the world does that mean?

Current UPS and FedEx fuel surcharge percentage rates.

Well, to start, depending on what those published prices are, each carrier assesses its fuel surcharge percentage according to the four tables pictured: From there, the percentage is applied to the net transportation charge amount (the base transportation charge minus any discount incentive) plus any delivery-related service charges (delivery area surcharge, residential surcharge, etc.).

For example, let’s look at a Zone 4 FedEx Ground Commercial shipment with a rated weight of 11 pounds and assume the customer had a 15% base transportation charge discount for this service level and weight break.

Let’s also assume that the package originated in Atlanta (30338) and was destined for Hebron, IN (46341), a commercial delivery area surcharge destination, and that the shipper has requested an adult signature upon delivery.

Do the math The FedEx published rate for a Zone 4, 11-pound package in November 2014 was $9.95 (we’ll get to 2015 in a minute).

To apply the fuel surcharge, you must first deduct the 15% discount from the $9.95 base rate, which subtracts $1.49, leaving a net transportation charge of $8.46. The published commercial delivery area surcharge for each carrier was $2.07 last year,

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and since that is a delivery-related service charge, it will get added to the rate before applying the fuel surcharge, marking the package up to $10.53, excluding any other delivery-rated service charges (the surcharge for adult signature in this instance) that might be applied. In November, the fuel surcharge for FedEx was 6.5%, or $0.68 for this package. Tack that on to arrive at a net rate of $11.21, then add on the charge for adult signature ($4.75 in 2014) to arrive at the package’s true, net billable rate of $15.96.

Generally, FedEx fuel surcharges rose anywhere from 0.5% to 1.0% effective February 2, hikes which are compounded by three factors: dimensional weight pricing changes, 2015 general rate increases and potential in-

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creases to the average cost of a gallon of diesel fuel.

then the net rate could soar even higher.

Assuming the dimensions of the box in the example shipment above were not large enough to increase the 11-pound billable weight of the package in 2015, the base transportation charge increased 5.5%, from $9.95 to $10.50, the commercial delivery area surcharge rose 6.3%, from $2.07 to $2.20, and the charge for adult signature rose 5.3%, from $4.75 to $5.00.

And if the price of fuel goes up . . . You get the idea.

If the price of fuel in the example remains relatively constant at the time of the shipment in 2015, that same package will cost between $16.91 and $16.96, an overall increase of between 6% and 6.3%. If the dimensions of the shipment do impact the billable weight of the package,

Alas, though much collective attention was paid to the news of these changes at the end of last year, the practice of determining just how much they are now impacting shippers, in conjunction with the recent change in FedEx’s fuel surcharge table and the potential for the price of fuel to increase in general, likely is just getting started.

Analyze the data Even companies equipped to analyze huge data sets will have to strain their resources to find better, more cost-effective options to get their shipments to their destinations. Shops without those resources face a potentially

Adding Fuel to the Fire perilous period of rising costs, which now seem to be originating from every direction.

Regardless of whether it is in the best interest of a company to make the costly investment to bring more resources in house, or to outsource cost initiatives to third party consultants, 3PLs, regional carriers, etc., the most effective way to drive cost out of a business will prove to be a case-by-case scenario.

Are changes ahead?

The only certainty is that costs are rising at an alarming rate during a time when commerce, and the economy as a whole, seems to be developing a level of confidence not seen in years. In a perfect world, this would be a period of peace of mind for companies and personnel that were dealt a significant and lingering blow during the latter stages of the 21st century’s first decade. The reality however, is that the landscape we do business within has drastically changed, and the demands of staying on top of price and consumer behavioral shifts have never been more important.

The most effective way to drive cost out of a business will prove to be a case-by-case scenario.

The good news is that the opportunities are endless in this, an entrepreneurial age. If companies take the necessary measures to ensure that their supply chain engines are optimized and well oiled, they can still go far.

If not, though, they could eventually run out of gas.

ANALYZESTRATEGIZEREALIZE

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Shipping Strategy

intentional grounding One of the most surefire ways to optimize your parcel supply chain is also one of the easiest.

OPTIMIZE When determining which carrier will best service your company’s small package needs, the first question worth asking is the simplest: Which carrier can get your product to its destination fastest and at the lowest cost?

A BETTER PICTURE Request that your carrier rep provide a time-in-transit analysis based on the population of the zip codes where discrepancies exist.

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Intentional Grounding

d

espite all the analytics out there, there is a surprisingly simple and transparent method of determining shipping transit times that many decision makers fail to take advantage of.

headquartered in Emerald Isle, N.C. Using our headquarters as an example (our zip code is 28594), the maps that populate show FedEx has distinct advantages from our location. Of course, the results will vary according to your company’s

ness, the impact isn’t as substantial as it first appeared.

In either scenario, your team will be left with a clear picture of what to expect relative to service from a ground-shipping perspective.

Service Maps FedEx (FedEx Ground Service Maps) and UPS (Ground Time-in-Transit Maps) have resources readily available via their websites that can be used to determine outbound ground transit times from any zip code in the United States.

Simply enter a zip code from your shipping location(s) and a map will instantaneously appear, outlining the expected time it will take your ground shipment to reach various destinations throughout the country.

Depending on your location, executing this simple exercise can supply you and your transportation team with visual evidence that could save your company money, especially when trying to identify areas to which 2- and 3-day shipments can be downgraded from premium to ground services and still arrive on the same day.

Not only could you potentially save on the base transportation charge rate, but you could also incur lower accessorial costs, including lower fuel surcharges.

If you plan to engage in a renewal or renegotiation, this exercise can also be useful in validating either carrier’s value proposition by determining ground service advantages or disadvantages.

If you read the welcome message beside the table of contents, then you know Transportation Impact is

FedEx Ground Service Maps - www.fedex.com/maps UPS Ground Service Maps - www.ups.com/maps

location, but it’s safe to say that anything we ship FedEx Ground has a good chance, geographically, of getting to about half the country a day sooner than if we ship with UPS. Either carrier brings plenty to the table in terms of service, but given the relatively level playing field between what really amounts to two primary competitors in the market, any advantage should be analyzed and carefully considered.

First, perform your own study using the method outlined above.

Next, request that your carrier rep provide a time-in-transit analysis based on the population of the zip codes where discrepancies exist. This exercise may validate an advantage portrayed by the timein-transit maps or, to the contrary, unveil that, based on your busi-

Given the current climate, in which so many companies are looking for opportunities to trade down as a means of reducing cost, this simple measure can lay a substantive foundation relative to the proper way to move forward with that process.

Map to your advantage Time-in-transit maps can save your company money.

Downgrade premium ground services and still arrive on time Reduce your base transportation rates Lower fuel surcharges and other accessorial costs

ANALYZESTRATEGIZEREALIZE

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What did you do before your first cup of coffee?

   

Emailed $419 worth of automated address corrections to distribution center.

Scheduled monthly email audit-savings report for parcel review meetings.

Set up GL coding for web orders, service department and warehouse.

Noted $1,284 in soft-dollar savings opportunities and customized dashboard with Air-to-Ground report.

Schedule a 20-minute Parcel Intelligence Dashboard demo and learn how you can optimize your shipping spend and capture all your FedEx and UPS refunds. transportationimpact.com // info@transportationimpact.com // 252.764.2885