PARCEL Jan/Feb 2011

PARCEL

JANUARY-FEBRUARY 2011 www.PARCELindustry.com

WAREHOUSING UPGRADES THAT PAY Goin’ Up, Up, Up

A look at the rate increases implemented

by UPS, FedEx and USPS pg 20

Don’t Be a DimWeight!

Understanding how the dimensional weight changes will affect you. pg 24

Shipping Internationally?

Tips to filling out customs declaration forms. pg 26

JANUARY-FEBRUARY 2011 | volume 18 | issue 1

PARCEL PUBLISHER Marll Thiede EDITOR Amanda Armendariz amanda.c@rbpub.com

DEPARTMENTS 08

Going Global

Shipping Sales Incentives and Promotional Items Internationally BY TOM STANTON

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Transportation ABCs

Renewed Consumer Optimism Drives Need for Greater Awareness of Shipping Services BY KEVIN BROWN

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Mastering Management What Is Leadership?

BY MARK TAYLOR

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CIRCULATION Rachel Spahr | rachel@rbpub.com

Parcel Perspectives Don’t Pave the Cow Path BY PETER STARVASKI

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PRODUCTION DIRECTOR Chad Griepentrog

Packaging

Reusable Packaging – It Could Be for You

BY DENNIS SALAZAR

15

Ship Right

Leveraging USPS Shipping Services Changes in 2011

BY ELIZABETH LOMBARD

Warehouse Upgrades That Pay

14th Annual Rate Analysis

An overview of how the 2011 rate increases by UPS, FedEx and USPS will affect you — and what you can do to mitigate the charges.

BY DOUG KAHL

Don’t Be a DimWeight!

Think outside the box, understand the dimensional weight changes, and take a second look at optimization

BY BRANDON STATON

26

We’re Off to See the World

Tips and techniques for completing customs declaration forms

BY JOSH FABEL

COLUMNISTS 30

Parcel Counsel

Coming Soon: Elimination of the Cargo Liability Insurance Requirement

BY BRENT WM. PRIMUS, J.D.

31

Wrap Up

Collaboration

BY MICHAEL J. RYAN

Editor’s Note

PARCEL (ISSN 1081-4035) is published 9 times a year by RB Publishing Inc. All material in this magazine is copyrighted 2010 © by RB Publishing Inc. All rights reserved. Nothing may be reproduced in whole or in part without written permission from the publisher. Any correspondence sent to PARCEL, RB Publishing Inc. or its staff becomes the property of RB Publishing, Inc. The articles in this magazine represent the views of the authors and not those of RB Publishing Inc. or PARCEL. RB Publishing Inc. and/or PARCEL expressly disclaim any liability for the products or services sold or otherwise endorsed by advertisers or authors included in this magazine.

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Making sure your upgrades are not just new, but truly improved.

BY DAVID FRENTZEL

24

ADVERTISING Ken Waddell | ken.w@rbpub.com Josh Vogt | josh@rbpub.com

BY ROB SHIRLEY

FEATURES

20

GRAPHIC DESIGN Kelli Cooke

Regional Alternatives Free Shipping

16

CONTRIBUTING WRITERS Josh Fabel, David Frentzel Doug Kahl, Brandon Staton

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EDITOR’S NOTE AMANDA ARMENDARIZ

Ringing in the New Year January can be a rather dreary month. The holidays are over, the novelty of snow has worn off, and for parcel shippers, the rate increases announced in late 2010 have likely shown up on the invoices.

Putting together this first issue of the year is always an eye-opener for me; it’s one thing to hear the talk about rates increasing a certain percentage, but until you actually see it laid out on paper, it doesn’t quite sink in. But when it does, well, it’s quite a shocker!

I know it’s difficult to see your rates go up every year, but being armed with knowledge is the first step in mitigating the effects these increases may have on your transportation spend. Doug Kahl’s article on page 20 is a good page to start; it gives a comprehensive overview of what the rate increases are and how they’ll affect shippers.

For many in the logistics industry, keeping a tight rein on transportation spend isn’t the only way to save money (although it’s certainly a big one!) In his article on page 16, David Frentzel gives some of his top tips for upgrading your warehousing operation — and you can do it without breaking the bank.

Better yet, some of these upgrades provide an almost-immediate ROI. Just because your company may be spending more than ever on your shipping operations doesn’t mean that you can’t stem the tide elsewhere within the organization — and the warehouse is a great place to start.

So maybe I’ll reconsider my assessment that January is a dreary month. Instead, I think it’s better to look at it as a month in which one can take charge of their operations and become pro-active, instead of reactive. I can’t wait to see what 2011 brings!

As always, thanks for reading PARCEL.

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JANUARY-FEBRUARY 2011 | www.PARCELindustry.com

GoinG Global with Tom

Stanton

Shipping Sales Incentives and Promotional Items Internationally Most companies do a good job at arranging for exports of their listed as the importer of record — the person responsible to main products to a foreign country, but they often experience pay duties and taxes on the goods. problems with sales incentives and promotional items. Here is what happened to one company that was shipping sales What should happen: The invoice should be a pro forma incentives — it provides a good example of what can happen if invoice since this is a sales award. (A pro forma invoice has all things are not done correctly up front. the elements of a commercial invoice but is created for cusXYZ company decided to provide an incentive of diamond toms purposes.) The item must be priced at purchase cost or and semiprecious stone jewelry for its sales team. The company manufacturing costs plus normal markup if there is no saledoes business in both the US and Canada. When it came time that was done accurately. The shipper should have been listed to ship the sales awards, there were approximately 30 awards as the importer of record, not the sales person, since they were sent to the shipping department for individual sales personnel in an established non-resident importer for their products shipCanada. The awards that were earned varied from approximately ping to Canada. They did not really want to penalize their sales $100 to $1,500 in value (purchase price). In some cases, peo- people with duties and taxes on their sales incentives. ple earned two awards. In the following paragraphs “What happened” describes the problems that occurred, and “What should What happened: The invoice did not name a customs brohappen” describes the recommended actions to resolve this ker. So, some shipments were cleared by the small package type of problem. carrier at no charge, some were cleared by an affiliate brokerage company at an additional fee of $20 and others were sent What happened: The sales manager filled out shipment to a Canadian broker who was no longer authorized to clear in request forms identifying the Canadian salespeople who were Canada. These clearance documents were held by that unaugoing to receive the shipment and requested insurance cover- thorized broker for about 10 days and then returned to the small package carrier. A penalty was incurred for late filing for clearage since these were pieces of jewelry. ance documents.

What should happen: Corporate insurance should have been applied. Corporate coverage cost is less than half What should have happened: Express shipments by the cost of insurance for individual shipments with a small small package carriers normally include customs clearance; package carrier. however, details need to be worked out ahead of time to determine whom the clearance will be handled by, the classification What happened: The shipping manager called one small of the goods and any special documentation (e.g. NAFTA cerpackage carrier that they had a contract with and was told they tificate) that could be required. do not carry jewelry. So they called the other major US small package carrier, and they were happy to ship for them.

What happened: The shipper knew these items were made in the US and got a NAFTA certificate from the manufacturer.

What should happen: If you change carriers for any But the form was not included in the shipment and the country reason, be sure to estimate the rate volume. If you will have of origin was not declared on the invoice. Duties of 6.5% were regular shipments, you may be able negotiate for better than charged on most of the shipments. list rates.

What should have happened: The country of origin What happened: The shipping clerk filled out a bill of lad- should have been listed on the invoice and a copy of the cering and a commercial invoice stating the purchase price of the tificate of origin should have been attached or a blanket NAFTA jewelry. The sales person, the ultimate consignee, was also certificate of origin could have been filed with a broker who was designated to clear the shipment.

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What happened: When the small package carrier’s invoices for clearance and duties were received by the shipper, it was identified that the shipments should have been duty free. So a certificate of origin was completed, based on the one received from the vendor and sent to the carrier requesting a corrected entry as duty free under NAFTA. The certificate of origin was then returned by the broker for the express carrier because the classification on the certificate of origin was not correct. A new certificate was then completed and resent to the express carrier broker. The express carrier made no charge for the amendments. The affiliate broker had charged $20 to clear and now made an additional fee of $40 each to amend the entries to duty-free.

What should have happened: The classification of the items to be shipped must be identified correctly and advised to the customs broker clearing the goods. The classification should be placed on the export invoice and on the certificate of origin, which is included with the shipment documents or filed ahead of time with Canadian Customs. Any US or Canadian Customs broker can assist in identifying the correct

classification to use. US Customs and Border Protection also offers a search engine for customs rulings on their website which can assist in classification analysis.

Lessons learned: If you are shipping something to a foreign country, talk to a US international freight forwarder or small package carrier that has an office in the destination country.

If you are shipping items that are not restricted exports by 15 CFR and you have checked the various lists for restricted persons, companies and countries, you should obtain and send all the shipment information such as description, classification, value and country of origin to the broker who will be clearing the shipment to ensure you have all the documentation necessary to minimize duties and avoid delays. If you take these steps, you will be well on your way to going global! p

Thomas m. sTanTon Licensed US Customs broker, AFMS, LLC, can be reached at 800-246-3521 x223 or www.afms.com.

January-february 2011 | www.PARCELindustry.com

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TRANSPORTATION ABCs with Kevin

Brown

Renewed Consumer Optimism Drives Need for Greater Awareness of Shipping Services With the holidays behind us, the logistics industry can finally breathe a collective sigh of relief. However stressful, the past few months of peak season have also shown more signs of economic recovery. Consumers came out in record numbers, making the fourth quarter of 2010 a bright spot on what was undoubtedly a barometer for future retail trends. Some may wonder, “What does this have to do with shipping?” The answer is quite a bit, actually.

Competing in a Changing Marketplace The days of simply focusing on creating a positive in-store experience are long past. New technologies, combined with an increasingly perceptive consumer, force all of us to find ways to meet growing customer demands without breaking the bank.

The fact that many customers no longer “marry” themselves to a brand (as price is the number-one purchase factor) means that merchants’ ability to drive long-term customer loyalty is dependant not only on the products that they offer, but also on the total landed cost of putting those products into their customers’ hands. This is where shipping costs play a critical role in building customer loyalty.

The Rising Costs of Shipping Nobody likes rate increases when it comes to shipping, especially when it can account for as much as 40% of an organization’s total landed operational costs. Nevertheless, there are several things to keep in mind as we negotiate contracts with carriers:

3 3

Fuel rates are volatile and cause uncertainty in cost structures

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In some cases, heavy fixed overhead and real estate costs associated with lower volumes must be absorbed

Investments in new technologies rise as shipping companies identify ways to reduce their carbon footprint in meeting customer demand

Because shipping is such a large factor in an organization’s budget, it is often one of the first places executives go to identify areas in which to reduce costs to remain competitive. While it’s always smart to work with your carrier to negotiate the best deal, I propose that you look even further than your rate chart for opportunities to save, which many merchants are missing out on today.

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Additionally, as you look at alternative carriers, remember that your most loyal customers expect a certain level of service from you. As long as you establish customer expectations through a comprehensive policy that clearly communicates expectations, there is no harm in offering a lower-cost shipping alternative. Reducing costs may even help you attract new customers and build customer loyalty among long-time customers.

look inside As carrier rates increase, one of the largest areas of opportunity is the manner in which corrugate costs are managed. Oftentimes, carriers face the challenge of reducing costs while merchants have not looked at their own shipping practices costs. Some questions to ask are:

3 3

Am I minimizing the cube required to ship an item?

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Am I sourcing products locally when at all possible, allowing me to control my total costs and meet the needs of my customer?

Do I have a standardized set of products that allow me to reduce and/or eliminate the number of boxes that I need to keep on hand to meet organizational needs?

In Conclusion In order to continue serving customers profitably, merchants must ensure that they’re doing everything possible to improve the level of service they receive from existing service providers, or be willing to utilize the services of others when their needs aren’t being met. And rather than placing the entire burden of cost reduction on service providers, businesses must also look to ways to reduce their own costs while meeting customers’ expectations. In an increasingly competitive market, your customers are not the only ones looking to you to deliver a better value — your shareholders are as well. p

kevin Brown is the Director of Marketing, Newgistics. Visit www.newgistics. com for more information.

MASTERING MANAGEMENT with Mark

Taylor

What Is Leadership?

There are many courses and books on management, but what is Management is tactical. It is about setting things in order. leadership and what makes it different from management? I have In management, we look at best practices and case studies. had the opportunity and privilege to be a student of the num- Managers are efficient. They let people know when jobs are out ber one leadership academy for the past six months. My teacher of compliance. They plan the details and track the results. As the has been John King, co-author of the book, Tribal Leadership: saying goes, “what gets measured gets managed.” They focus Leveraging Natural Groups to Build a Thriving Organization. on tasks and often are more directive and controlling. Managers Leadership is a different world than management. There are establish the agenda and get things done, under a deadline. times when managing is critical and other times where leadership is called for. The awareness of the difference is useful so lEAdErship MANAGEMENT that practicing managers and leaders can consciously choose Given by permission Granted by authority the appropriate way of being.

Leadership and management are paradoxical. It is not a Vision Execution problem to be solved but a way of being that is called forth Long-term horizon Short-term horizon by the situation at hand. Leaders often take people to where Set the direction Plan the details they don’t want to go, into the unknown. Leaders don’t have the answers; they embrace ambiguity. A leader stands in the Do the right thing Do things right present and looks to the future. In leadership, everything is Strategic Tactical taken into account and appropriate actions are considered.

Working on the business Working in the business Things are uncertain. A leader is in control while the world around them may be out of control. That is why it is messy.

Context Content Leadership is about changing the way things are for the betChange Compliance ter. Leaders have a vision of the future and look at the big picture. They see what is possible.

Followers choose to follow their leaders, and they can change Leaders set the direction and ask the question of why; their mind quickly. “The source of management is granted by managers plan the details and ask the question of when. authority; leadership is given by permission of those being “Management is doing things right; leadership is doing the led.” (King) So leaders need to inspire, motivate and align peo- right things.” (Drucker) Leaders challenge the way things are ple. Leaders tend to the environment so that all people flour- and managers work to keep things the same, predictable and ish. This is how leadership is measured: are people around the reliable. Managers produce order and consistency. Leadership leader flourishing? How do leaders get people to blossom? They is not management on steroids. Leadership is working on the acknowledge, encourage and nurture. Taking care of the envi- business; management is working in the business. ronment is like taking care of a garden. Everything matters: the Management and Leadership are two different worlds and have sun, the soil, the seeds, the animals and the entire environ- two different sets of operating principles. Without both, we lose. ment. Leadership takes it all into account.

The workplace needs our leadership so that all people can flourish Management is about execution; getting it done on time and know the joy that comes from making a difference. p and under budget. Yet, subordinates will often resent managers that behave like overseers or drill sergeants. Leadership is about inspiration and provides the motivation for perspiration. MArk TAylor is with Vistage International, the world’s leading chief executive Leaders inspire us with a noble cause; something bigger that organization. He applies his 30 years of experience as an accomplished CEO & goes beyond what anyone can achieve on their own. corporate manager towards increasing the effectiveness and enhancing the lives of CEOs. He can be reached at 212-867-5849 or mark.taylor@vistage.com.

January-february 2011 | www.PARCELindustry.com

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REGIONAL AlTErNATiVEs with Rob

Shirley

Free Shipping I ordered at least a dozen products from catalogers and eTailers consumers get more information.” He suggests the consumer this holiday season and didn’t pay shipping charges for any of can use this to negotiate at the retail level for free warranty, them. The merchants included LL Bean, Levi, Neiman Marcus, lower price, free installation or delivery. Kumar told me the Target, Amazon, Macys, OverStock, Skin Store and Radio Wall Street Journal had a recent front page article on his comShack. Most of the products were also at discounted prices. No pany talking about a consumer who was in a store, scanned the wonder it has been reported that 52% of online retailers have barcode with his smart phone, found the exact same item at offered free shipping in some way.

Amazon without tax or shipping fee along with a 30% discount Is this growing phenomenon good for all of the parties, espe- and he ordered it from his mobile while still in the store. This cially the merchant shippers and transportation carriers? is competition at a whole new level. p Luke Knowles, Founder and CEO of Free Shipping, told me, “This is a terrific volume-increasing situation for carriers and shippers. The service offering in the USA is so well-organized roB shirlEy is CEO of ExpresShip, Inc. a strategic business developer in the by carriers that by promoting FreeShippingDay.com on Friday global supply chain. Contact him at rob@xpship.com.

December 17, the participating merchants have moved up from 250 in ’08 to 750 in ’09 to 1500 in ’10. This allows customers to shop later online and for shippers and carriers to gain more business.”

Several Things Are Absolute 3

Free shipping is very popular and is being paid by customers in some form or other

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Parcel volumes for the 2010 holiday peak season from shippers have set all time records

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The major carriers increased rates in January, just like they do every year

In the early ‘90s, when delivering residential packages, carriers had to get a written signature on every package from the resident or a willing neighbor or retry the delivery again (adding to cost). Signatures are generally not required these days.

Greater volumes and less time involved both reduce the delivery cost. Additionally, the USPS has work share programs where a carrier picks up and the USPS delivers, further reducing cost for some packages.

Siva Kumar is Founder and CEO of TheFind.com, which was started six years ago. Their site compares exact product pricing online and is in the top tier of shopping sites. “Online is currently only six percent of all retail, and our main use is to help 12

January-february 2011 | www.PARCELindustry.com

Parcel PersPectives with Peter

Starvaski

Don’t Pave the Cow Path Welcome to my first column for PARCEL! While I’ve written a Beth, the ability to select a job that was scheduled for complefew articles over the last couple of years, this is the first install- tion in the manufacturing area. The job resulted in any number ment of a recurring column. of parcel labels that Beth would then bundle up with an elastic While I hope to cover a variety of topics, I decided to start band, write the name of the job on the top and bring out to the my first column with the adage to not ‘pave the cow path.’ shipping area. If it was a rather large job, Beth could split it up For those of you not familiar with this term, it is a popular say- amongst printers so she didn’t have to wait. The user interface ing (at least here in Boston where the streets used to be mean- had a variety of features like this. dering, well-worn cow paths). The saying is a reminder that what Now the irony is that the shop floor knew what jobs it was has evolved into a process may not be the most efficient process. going to do a full six hours before Beth came into work. I The term’s origins date back to a poem by a New Englander, Sam asked, “Why do you wait until 8:00 AM to start processing?”

Walter Foss (1858 -1911). Here’s a snippet from the poem: The answer? “Because that’s when Beth comes in.” Every other question I asked had an answer that specifically related to Beth. Beth picked the jobs so we color coded them for her, …For men are prone to go it blind, Beth shouldn’t have to wait on one printer; Beth needed to be Along the calf-paths of the mind; able to handle exceptions, etc.

And work away from sun to sun, From a software perspective, there was absolutely no reason To do what other men have done…. that you couldn’t eliminate most, if not all, of Beth’s activity.

Dr. Michael Hammer popularized the saying in this century And, the new software could do almost all of what this company needed, out of the box. with his writings on reengineering business processes.

Anyway, with a few fairly simple questions we went down an easy to implement solution that basically changed the work of So How Does That Relate to Parcels?

I have been called in to help with stalled parcel software one full-time employee. implementations, and all too often, I find a stalemate is due to a team that is trying to accommodate what was done with their Questions We Asked: old technology by force fitting newer software to the old way. 1 “What are you doing?”

They are paving the cow path.

2 “Why are you doing it that way?”

Once an investment in a shipping solution is made, it is handed “Would you consider an alternate approach so off to the IT department for implementation. Often this is part 3 Beth can be free to do other activities?” of a larger roll-out of an ERP or WMS deployment. While a lot of thought may go into achieving efficiencies with the ERP or WMS The key is often moving past the IT department (that too often system, the shipping software can often be an afterthought; I’ve witnessed a number of IT departments try to duplicate the exact has its own agenda) and talking to the owner of the operation. shipping operation that has been in place for years. They see the I think you’ll be surprised at how eager they are in wanting to investment in the shipping system in terms of ensuring a com- eliminate steps that are the parcel equivalent of cow paths.

I hope to make readers aware of other cow paths in our indusmon operating system, common databases, standard integration framework and other IT perspectives. All too frequently, no one try and challenge us all to discover areas we can improve. p questions the actual process and asks “Why?” Here’s a great example: A group of field engineers and IT professionals were stalled in an implementation as the IT department was asking the field engineers to provide custom screens.

The old screens had been created by the IT department and had evolved over 10 years. The screens allowed their employee,

Peter starvaski has over 10 years in the parcel shipping industry and is a recognized industry expert in parcel shipping, having authored numerous articles and whitepapers. He is currently Director, Product Management for Kewill’s Shipping Products.

January-february 2011 | www.PARCELindustry.com

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PACKAGING with Dennis

Salazar

Reusable Packaging — It Could Be for You Long before plastic, corrugated or paper board were invented, most everything shipped in boxes made of wood. Those handcrafted crates were valuable and expensive, so they were reused many times until the lumber eventually completed its life cycle as fuel in someone’s stove or fireplace.

This packaging idea of the past is back in vogue in the form of reusable packaging, which is simply packaging that by design can be used more than once. Please keep in mind there are many types of reusable packaging, including pallets, drums, totes and returnable/refillable bottles made of glass or plastic. However, for the purpose of this article and audience, we’ll focus on reusable shipping containers.

new reusable Packaging Options Daily Packaging manufacturers now know there are companies that for environmental and economic reasons are determined to minimize their use of disposable packaging. Those green-minded packaging buyers are willing to pay a premium for reusable packaging if there is a legitimate benefit and/or a quick ROI. Distribution and logistics experts have delivered dramatic savings by identifying “closed loop” situations where packaging can be easily recovered and economically returned to the place of origin for reuse. At the same time, marketing and sustainability focused people have discovered that with minimal additional cost, they are able to design stronger shipping containers, encouraging their reuse and carrying or reinforcing a valuable green message to their green consumers.

reusable Packaging — Paper or Plastic?

For applications where the objective may be dozens or more uses, the surprisingly best option is plastic — the same, much maligned material many greenies love to hate. However, reusable shipping containers made of plastic corrugated board are frequently made of recycled plastic, partially relieving some of the green guilt. In return, plastic offers some valuable and unique characteristics. It is extremely durable compared to most paper corrugated options and it is also washable, moisture resistant, lightweight and can easily be die cut or formed into just about any size, grade or shape.

By far, the biggest downside of plastic is the cost, which can be as much as eight to 10 times the cost of a similar corrugated paper shipping container. However, depending on the application, 14

January-february 2011 | www.PARCELindustry.com

it may be able to be used as many as 80-90 times, making it a far less expensive option on a “cost per use” basis. So, for closed loop applications where you are absolutely sure to get the container back for reuse, plastic can be the much lower cost option.

Once again, the variations are many, such as the Globe Guard Reusable Box we created that can be easily inverted inside out, providing a distinct look on the return trip while

When is PAPer the Best OPtiOn? Paper is usually my suggestion when fewer than 10 uses are expected or required. Again, much depends on the application specifics but it is ideal for two common situations:

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The shipping container can be used multiple times between the same two or more users and locations. Ideally shipping back and forth for loaners, warranty, repairs, replacement, etc. or intra-company.

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It can be potentially and is likely to be reused by the recipient but not necessarily back to the shipper. This often includes an eco message as well as a marketing plug of some type.

avoiding labeling. Another entry into the reusable shipping box arena is the one recently launched by eBay. It is essentially a heavy duty, coated, die cut mailer that eco-minded eBay sellers should be able to use multiple times.

Part of the beauty of corrugated board is that it is available in countless weights and grades and can be inexpensively printed or coated. Clients are usually surprised to find out that a slight increase in quantity ordered will usually offset most changes designed to make it more reusable. Of course, the greatest benefit of paper-based shippers is that they can easily be recycled just about anywhere and will usually end up as new corrugated containers. p

Dennis sAlAzAr is president and co-founder of Salazar Packaging, Inc. and one of the most prolific writers in the area of sustainable packaging. Contact him at dennis@salazarpackaging.com.

SHIP RIGHT with Elizabeth

Lombard

Leveraging USPS Shipping Services Changes in 2011 On January 2, 2011, new USPS Shipping Services prices went Plus pricing are also reduced. Priority Mail Commercial Plus into effect for Domestic and International products such as prices are available for shippers having a cumulative account Express Mail, Priority Mail, Parcel Select and Global Express volume exceeding 75,000 total pieces or 5,000 letter-size Guaranteed, Express Mail and Priority Mail International, and and flat-size pieces in the previous calendar year — except for International Priority Airmail and Surface Air Lift.

Priority Mail Open and Distribute — and for Express Mail, volWhile pricing for Mailing Services products, such as First- umes of 5,000 pieces in the previous four quarters. Shippers Class Mail and Standard Mail, are set per a price ceiling, may also qualify with a customer commitment agreement.

Shipping Services products are based on a price floor where each product and contract must cover its costs and gener- Priority Mail Regional Rate Boxes — These are ate sufficient net contribution to cover a certain percentage available to Commercial Base and Plus shippers. Pricing is based of USPS overhead. The overall price change for Domestic on box size and zone. The maximum weight limit is 15 pounds for Shipping Services products was 3.6%. For Priority Mail, Retail Regional Rate Box A and 20 pounds for Box B. Box A measures prices increased an average 3.9%, while Commercial Base 0.21 cubic feet, the side loading box is 13 1/16” x 11 1/16” x 2 and Plus prices increased an average 3.2% and two percent. ½”, and the top loading is 10 1/8” x 7 1/8” x 5.” Box B measures In addition to price increases, there are some interesting new 0.41 cubic feet, and the side loading box is 16 ¼” x 14 1/2” x opportunities for shippers in 2011.

3”, and the top loading option is 12 1/4” x 10 1/2” x 5 ½”.

Flat-Rate Envelopes — All domestic USPS-produced Priority Mail Critical Mail — Available for qualifying Priority Mail envelopes smaller than 12.5” x 9.5” are priced the Priority Mail Commercial Plus mailers, Critical Mail includes tracksame as regular Priority Mail Flat-Rate envelopes even if they ing, free electronic Delivery Confirmation and travels with Firstdon’t bear “Flat Rate Envelope.” Some envelopes are available Class Mail. Unlike Express Mail service, delivery is not guaranteed. at local post offices, while others must be ordered online at www. The USPS provides two envelope options. Postage for the letterusps.com/shop. Flat-Rate envelopes include gift card (10” x size option is $3.50 and the piece must weigh less than 3 oz. and 7”), window (5” x 10”), small envelope, legal-size (15” x 9 ½”) be less than ¼” thick. Postage for the flats-size option is $4.25 and padded (12 ½” x 9 ½”). The Retail price is $4.95 and and the piece must be less than 13 oz. and less than ¾” thick.

Commercial Base and Plus prices range from $4.70 to $4.95.

Qualifications include volume thresholds, a customer comThere is also a legal-size, Flat-Rate envelope for Express Mail. mitment agreement, using USPS-provided automation-comSome benefits include: the price is fixed regardless of weight patible letter-size or flat-size envelopes bearing the Intelligent or zone; packaging is free; there is no charge for electronic Mail barcode, a qualifying postage payment with inscription, Delivery Confirmation service for Priority Mail; envelopes are pre-approval of mailpieces and preparation requirements. easily recognized by recipients; there is no charge for picking up packages with the Carrier Pickup service, or for a small fee, Hold for Pickup Service — This service was expanded shippers can pick up packages on a specific date and time from Express Mail to commercial Priority Mail, First-Class Mail with Pickup on Demand service; and there are no delivery area, commercial parcels and Parcel Select barcoded, non-presorted fuel surcharges or address error fees. parcels. Packages are shipped directly to a post office and held for recipient pickup, beneficial for sending important documents Commercial Plus Pricing — Another new opportu- and merchandise where safety of the package is critical. p nity is USPS-approved Information-Based Indicia (IBI) postage meters that print the IBI with the appropriate price marking and electronically transmit transactional data daily to the USPS. This ElIzabETH lombaRd CMDSM, CMDSS, MDP, MDC, EMCM, National Postal-Carnow serves as a qualifying postage payment method for Express rier Manager, Mailing Solutions Management Learning & Performance, Pitney Mail and Priority Mail Commercial Plus pricing. Thresholds for Bowes Inc. January-february 2011 | www.PARCELindustry.com

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Y Warehouse

Upgrades That Pay Making sure your upgrades are not just new, but truly improved.

By David Frentzel 16

January-february 2011 | www.PARCELindustry.com

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You may not realize it, but if you purchased or received a new electronic gadget this past holiday season only to discover that it didn’t work as well as the old one, you learned an important warehousing lesson for these times: Some upgrades are truly worth the money. Others are merely new, rather than improved.

As our country heads into economic recovery, many companies may be willing to begin funding more capital improvements again, including some that involve their distribution centers. However, most won’t want to designate these funds lightly, and they’ll be watching closely to make sure any dollars they spend actually yield tangible results.

With that in mind, here are nine warehousing upgrades that will truly — and quickly — deliver an ROI.

Energy-Efficient Lighting When it comes to DC lighting, older usually isn’t better. The metal halide lights commonly installed in warehouses as recently as five to 10 years ago consume considerably more energy — and can cause your company to accrue significantly higher electric bills — than the more efficient fluorescent lighting technologies available today.

In fact, some statistics say that converting to newer, “green” lighting could reduce a building’s light-related electricity requirements by as much as 70%.

A lighting conversion also could earn your company tax breaks because some local governments and utilities offer incentives when buildings use more sustainable materials.

Plus, your company could save the expense of related carbon offset purchases.

Industrial Equipment Impact Switches Forklifts do a great deal of the heavy lifting in distribution centers. However, they also cause a great deal of the product and property damage because it’s all too easy for their operators to inadvertently hit or bump into things if they’re not properly trained and supervised. In fact, these small collisions could cost a company thousands of dollars per facility every year.

To reduce these incidents, consider investing in impact shock switches for your industrial equipment. These devices are designed to switch a vehicle off any time there’s an impact.

As a result, managers and supervisors can immediately assess the damage, investigate the incident and take immediate corrective measures as appropriate.

Although the up-front expense of these devices is approximately $500 per vehicle, the additional accountability they provide and their effect on reducing accidents can be substantial. For example, at one of our facilities, a $7,500 investment in impact switches resulted in $25,000 fewer lift truck maintenance and building and repair expenses within two years.

And that doesn’t even begin to factor in the impact on safety and reduced worker’s compensation expenses.

Fast-Charge Technology Many forklifts now run on batteries. But unfortunately, these batteries usually have an operating life (six to eight hours) that

doesn’t last through multiple shifts, and it takes a lot of time and effort to recharge them.

As a result, most companies must invest in two batteries per forklift — and build time in their operators’ day to drive to a battery changing room and have the battery changed out.

But now, fast-charge technologies are available. These technologies allow companies to recharge a battery approximately four times faster — in about 30 minutes — than other charge technologies, which means companies can schedule recharges during operator breaks, lunches or shift changes with little to no loss in productivity.

Companies that employ fast-charge no longer have to purchase a second battery for each forklift, which is a potential savings of $1,000 to several thousand dollars per battery. They also don’t have to pay for a battery changing room, the personnel trained to change the batteries or a battery change machine.

Fast-charge battery advocates say the technology could pay for itself within one to two years and help your facility achieve recharge savings of up to 50% on a go-forward basis.

Snowplows Although this particular recommendation is quite literally outside the box, bear in mind that a facility’s efficiency depends on traffic flowing smoothly — which can only happen if its truck yard and loading dock areas are free of snow.

If your company operates a facility someplace like Chicago, where record snowfalls are common, and it’s paying to have that snow cleared by an outside company several times a year, the annual cost could quickly and easily add up to the equivalent of what it would take to buy your own truck and snowplow combination (about $30,000). It may make considerably more financial sense to invest in one of your own.

Baling Machines A distribution center can easily generate tens of thousands of pounds worth of waste per year thanks to the shrink wrap and corrugated cardboard it removes from incoming shipments and throws away. And in some markets, that can add up to approximately $185 per ton for haul-away and disposal.

Your company can eliminate this wasteful practice and all of the related expenses by using baling machines and selling the baled material to recycling companies. Some recycling companies will even donate the use of a baler in exchange for the materials.

One of our facilities in the Northeast has already managed to eliminate 40,000 tons of plastic waste – a savings of $4,000 – and eight tons of cardboard waste via this tactic. It also reports that the baled materials occupy less space and make less of a mess, which has boded well for its space utilization.

Labor Management Systems Warehouse labor management systems are not inexpensive, especially when you factor in the cost of hardware, software, licenses and implementation services.

January-february 2011 | www.PARCELindustry.com

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Other economical automation examples include a ThermoHowever, neither is the cost of labor, which is the single largest component of most warehouses’ expense. A robust labor man- shrink machine and an auto-labeling machine. One of our agement system enables your company to take a good, hard look operations purchased the former for $13,000 and expects to at every functional task in a facility — receiving, put-away, pro- save $142,000 in reduced labor costs annually; it has also cessing and value-adding activities — and to examine it at gran- realized $21,000 in reduced annual labor costs after purchasular level. Just as important, it can help you enhance individual ing the latter for $6,300. accountability for managers, supervisors and floor associates.

As a result, you can isolate and correct the problem areas Better Space Utilization Tools where productivity issues decline, evaluate how certain activi- Space is the second-largest component of warehousing cost. ties are being executed and know where to better focus your Any tool your company can use to optimize your use of existing staffing, training and other resources. facilities while delaying or eliminating the need to use overflow Bear in mind that it may take longer to see an ROI for these space at others is usually money well-spent. systems than it will for some of the other upgrades mentioned.

For example, one of our food and grocery facilities found In fact, a year to a year and a half is a reasonable expectation. 7,500 additional pallet storage positions simply by installing However, the potential payoffs are also greater. additional racking. Some of our others freed up space by going with a Very Narrow Aisle configuration.

And many of our facilities have streamlined their physical Labor-Saving Devices While we’re on the subject of warehouse labor and its high operations by making use of Lean training and tools to re-evalexpense, it’s important to note that some forms of equipment uate their warehouse layouts. In fact, one of our successful and automation offer highly reliable — and ultimately less Lean warehousing achievements to date comes from a facility whose Lean project inspired it to pursue proactive replenexpensive — alternatives.

One good example of such automation is a layer-picking device, ishment for the forward pick areas, take advantage of double which can sometimes double or triple your facility’s picking pro- stacking on the top level of racks and use dock space in front ductivity in locations that use a great deal of case picking. In a of unused doors. Ultimately those efforts helped that facility’s facility with sizable volumes, this device, which picks a whole client shave $1 million off its warehousing costs. layer of cases at a time, could easily pay for itself within a year.

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January-february 2011 | www.PARCELindustry.com

An Improved Safety Push

The Bottom Line

Safety is not just the most important aspect of running a ware- These nine warehouse upgrades are by no means the only fishouse; it also pays. Most warehouses have a safety program cally fit uses of any dollars you receive for warehousing in or safety committee, even if it’s only to comply with OSHA 2011. Nor are they the only ones to consider making to your regulations. supply chain as a whole should you be fortunate enough to However many logistics professionals — and their compa- receive additional logistics funding. nies — still mistakenly think of logistics safety programs in However if the axiom that you have to spend money to make terms of what they’re spending instead of what they’re saving: money holds true, they should do a good job of demonstrating lives, pain, product damage, property damage, extra insurance, to your company that when it comes to warehousing efficiency, legal liability and OSHA fines. you truly won’t take any funds you receive lightly — and that If your company is one of them, here are just a few financial when you say warehousing upgrade, you don’t just mean “new;” reasons why you might want to consider a safety upgrade in you mean “improved.” the form of a full-time safety professional or a more concerted safety program.

First, according to data from the Workers Compensation Task DaVID FRENTZEl is Vice President Of Global Contract Logistics, APL Logistics, Force, it turns out that your payment for workers’ comp claims one of the world’s largest providers of warehousing and other supply chain might represent as little as 20% of what those claims-related management services. It operates distribution centers in more than 50 couninjuries actually cost your company. In a survey conducted by tries. Visit www.apllogistics.com for more information. workers’ comp insurer Liberty Mutual, nearly 40% of respondents reported that for each dollar in direct costs they spent on injuries, they spent anywhere from $3 to $5 on indirect costs such as lost Check out our warehouse management spotlight secproductivity and time spent training a replacement. tion on page 28, and you can get in touch with an A lack of logistics safety also puts more pressure on your expert that will help you with your WMS needs! company as a whole: If you have a profit margin of just one percent, you’ll need to earn an extra $100,000 in revenue to offset every $1,000 workers comp injury your employees incur.

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By Doug Kahl

Annual

Rate Analysis

A look at the rate increases implemented by UPS, FedEx and USPS

September 29, 2010, FedEx Express was the first of the parcel carriers to announce its 2011 rate increase, followed by UPS on November 1 and USPS on November 2. It came full circle back to FedEx, as the company released its Ground rates on December 3. The USPS changes went into effect on January 2, with FedEx and UPS taking effect on January 3. A couple of “Other Charges” did not go into effect until January 17.

For a taste of what’s in this year’s article, you will see as in years past that the actual increases by service level vary from the average increases announced in the series of press releases.

Unlike recent history, you will find one of the providers taking a rate decrease in one of their service levels in order to entice volume growth. While that applies to a single, select service, for others you will see a wide variance from zero to over 10%. You will 20

January-february 2011 | www.PARCELindustry.com

find that some minimum charges exceed the average increase, while other minimums remain unchanged from this year.

But the big news for 2011 is the change to the dimensional weight calculation for domestic and international, and a later section of this article will be devoted to this important change.

Last year’s rate analysis included seven charts covering the major domestic services. This year, we have expanded the coverage to include hundredweight and international services and are providing 18 charts with additional illustrations of the dimensional changes to provide greater visibility into the 2011 rate increases to help you determine the impact that these increases will have on your business based on the services, weight levels and distance or countries to which you ship. Editor’s Note: Please go to The Experts section of www.PARCELindustry.com to obtain the charts referenced in this article in PDF format. Due to space constraints, we were not able to print the charts in this issue.

USPS When the USPS announced that the overall price change for all have been reduced from the 2010 qualifying levels. Starting in Shipping Services was going to be 3.6%, it was almost lost in 2011, the qualifier for Express Mail will be 5,000 shipments all the news regarding their Flat-Rate products offering. There per year, Priority Mail will be 5,000 per year for docs/flats and appeared to be a theme to this year’s announcement, and that 75,000 per year for packages, and the new Critical Mail will start theme was Flat-Rate, mentioned 15 times in the opening para- out with a 5,000 per year qualifier. That’s works out to approxigraphs. Figure 1 shows the rate increases for existing Flat-Rate mately 20 pieces per day. products is less then their 3.6% announced overall increase.

UPS

In addition to the existing product line, the following new flat-rate products were introduced after the first of the year:

3 3 3

Priority Mail legal-sized and padded envelopes Specialty sized Priority Mail envelopes including Gift Card, Window and Small Two sizes of Regional Rate boxes

The core product in the USPS’ competitive products segment is still Priority Mail. Figure 2 outlines the 2011 percentage increases for Commercial Base and Commercial Plus.

This year’s Commercial Base percentage increase is much less and also more uniform than last year’s, when we saw average/zone jumps of 6.4% in zone L,1,2; 10.5% in zone 2; and a low of 3.9% in zone 8. The Commercial Plus increase looks to be a rather consistent increase in the two percent range but is close to double the overall one percent increase we saw in last year’s analysis. Last year, the Postal Service introduced a new half-pound rate for Priority Commercial Plus shippers. At the bottom of Figure 2, you will see the increase for this product is about two percent in the short zones to over six percent in the longer zone 8.

Flat-rate products are not the only new additions from the USPS in 2011. The cubic pricing program started last year will grow. Prices for the Priority Cubic rate program are listed in Figure 3, as is the new Critical Mail program.

From the Postal News of November 2, 2010, “Critical Mail is another innovative product offering for January available to Commercial Plus customers. Offering fast, consistent time-intransit service for sensitive documents such as event tickets, identification cards and high-value direct mail, Critical Mail provides customers with tracking and free Delivery Confirmation.

Critical Mail is a category of Priority Mail with First-Class Mail service standards. Additional extra services such as insurance and signature confirmation are also available. Critical Mail requires using USPS-supplied envelopes at a mailing cost of $3.50 for letters and $4.25 for larger, flat-size pieces.”

Moving from Priority Mail to Express Mail you see the service level that will be decreasing its rates in 2011. While Express Mail Commercial Base prices remain flat, the Express Mail Commercial Plus prices will be going down 5%.

Figure 4 An important note for companies looking to take advantage of the Commercial Plus pricing program: the volume requirements

On November 1, 2010, UPS announced, “UPS Ground services will increase a net 4.9% through a combination of a 5.9% increase in rates and a one percent reduction in the UPS Ground services fuel surcharge. UPS Air and International services will increase a net 4.9% through a combination of a 6.9% increase in rates and a 2% reduction in the UPS Air and International services fuel surcharge.” In late November, UPS posted the Preview Rates.

In assessing the Ground increase, we begin with the Zone 2, one-pound rate that is used to establish the Absolute Minimum Charge (AMC). Figure 5 follows a pattern from previous years; this particular zone/weight increase of 6.8% is greater than the announced base rate change of 5.9%.

Taking a closer look at the Ground rates in Figure 6, we see that lighter weight shipments have rate increases a point or two above the announced average. In comparing this year’s rate analysis to last year’s study, we also noticed that the 2010 1-5 lb. zone 2 and zone 3 increases were 6.5% and 6.7% respectively compared to this year’s 8.0% for both. Overall, the average zone increase for 2011 is also running fractions of a percent higher than last year’s increase.

Switching gears to Domestic Air services, we found that the Next Day, 2 Day and 3 Day Select products follow a similar pattern with smaller overall rate increases in the short zones compared to the increases in the long zones as depicted in Figures 7 and 8.

We are adding an analysis of the Hundredweight base rate changes to this year’s article. Figure 9 provides the percentage increases by tier for each service level. Note that the minimum charges for both the 3 Day and Ground levels did not increase.

This year, we are also providing a glimpse at the suite of International Air export and import services that cover over 200 countries. Given the comprehensive nature of international distribution, it will be important for shippers to take a closer look at the key zones they export to and import from because the base rate changes range from less than two percent to over 10% depending on the international zone. We encourage anyone shipping internationally to take a close look at Figures 10-12 identify the key zones where they are conducting their business.

Regarding Surcharges, Accessorials and Other Charges, UPS released these and other changes:

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Address Correction Charge for Ground will increase $1.00 (+ 10%) January-february 2011 | www.PARCELindustry.com

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3

Delivery Area Surcharges will increase $0.15 (+9%) for commercial addresses and $0.25 (+10%) for residential addresses

3

Declared Value will increase $0.05 (+7%) per $100 of the value declared, with a minimum charge of $2.25 (+7%)

3

Delivery Confirmation Signature Required and Delivery Confirmation Adult Signature Required will increase $0.25 (+8% Signature and +6% Adult Signature)

3

Residential Surcharge for Ground and Air will increase $0.25 (+11% Ground and +10% Air)

The incremental increase in Delivery Area Surcharges is rising at a faster rate this coming year than last year. For 2010, the DAS commercial increase was $0.10 compared to 2011’s $0.15 while the DAS residential increase was $0.10 last year compared to the $0.25 raise for this coming year.

In addition to surcharges, UPS also posted its Area Surcharge ZIP Codes list. There are a total of 23,751 ZIP Codes that will be subject to additional surcharges. 4,186 ZIP Codes fall under the Delivery Area Surcharge category, and 19,268 ZIPs are listed under the Extended Delivery Surcharge, both in the lower 48 states. An additional 78 Remote Hawaii and 219 Remote Alaska ZIP Codes are also subject to surcharges.

FedEx

est increases, Express Saver the highest and the Overnight services in between.

Internationally, the increases in Figure 16 look to be even across the various weight levels in Puerto Rico, Canada and Mexico. Moving out of North America, Export rates rise between a low of two percent up to almost eight percent depending on shipment’s destination. Imports may be less than two percent or as high as nine percent.

Figure17 and Figure 18.

Here are some of the Surcharges and Other Fees changes from the FedEx Express released:

3 3

Additional Handling Charge from $7.50 up to $8.00 (+7%) Delivery Area Surcharge for commercial and extended commercial from $1.70 up to $1.85 (+8%)

3

Delivery Area Surcharge for residential from $2.50 up to $2.75 (+10%)

3

Delivery Area Surcharge for extended residential from $2.75 up to $3.00 (+9%)

3

Direct Signature Required moves from $3.00 to $3.25 (+8%) and Adult Signature Required goes from $4.00 to $4.25 (+6%)

3

Residential Delivery Charge from $2.50 up to $2.75 (+9%)

As they’ve done in recent years, FedEx Express was the first Other changes that took effect on January 17 include a per carrier to announce its 2011 rate increase on September 29, shipment Residential Delivery Charge for Express ($2.75) and and FedEx Ground was the last to announce on December 3.

Express Freight ($110) shipments from the US to Canada The percentage increases for the three Overnight Service lev- delivered to a home or private residence, including businesses els listed in Figure 13 virtually mirror the avg/zone percentage operated out of a home. US import-related packages and increases we saw in last year’s analysis. But the increases in 2 freight shipments from all origins to the US will also be subject Day and Express Saver show a different pattern from what we to these changes. saw in the 2010 rate increase.

There is also an $8.00 Additional Handling Charge that Figure 14 may be applied to First Overnight and Express US Export The avg/zone increases in the 2011 charts for 2 Day ser- services for packages that 1.) measure greater than 60 vice are a full point to a point and a half less than they were in inches in length; 2.) measure greater than 30 inches in 2010, while the increases for Express Saver are substantially length along its second-longest side; 3.) have an actual greater than last year. A couple examples will illustrate this weight of greater than 70 lbs; or 4.) do not meet other packpoint. The 2010 Express Saver increase for one to five pounds aging guidelines. in zone 2 was 1.5%, but in 2011 this increase is 8.9%. Some On December 3, FedEx updated the 2011 Rate Information of the highest rate increases in all of this year’s analysis are on its website by posting its 2011 Ground & Multiweight in Express Saver zones 2-4, six pounds and above, where we rates. As in past years, FedEx Ground rates mirror the UPS see the rates going up over 10%. It’s interesting to see these Ground base rates through 70 pounds and are $0.05 less increases because shippers can route these shorter zone ship- 71-150 pounds. ments via Ground at a lower price. This increase may have an Whether it is FedEx, UPS or the USPS, I encourage readers impact on Undeliverable Express shipments that are returned to go to the carrier websites to confirm these and other rate and and billed at the Express Saver rate (see page 115 in the Terms rule changes. I also suggest that while you’re on those sites, be & Conditions section of the FedEx Service Guide.) sure to download a copy of the latest Terms & Conditions docuThis year we’ve also added analysis on the Multiweight and ment for your records as well.

International Express for FedEx as well. Rate increases for the While the above Additional Handling Charge may seem like a various Express Multiweight services in Figure 15 show a simi- rather small item, it is an example of how the size and weight lar pattern to the Express services with 2 Day having the low- of your shipments really do matter — as we’re about to find out.

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January-february 2011 | www.PARCELindustry.com

The Dimensional Weight Calculation Differences between announced average versus specific rate increases and changes in surcharges happen every year, but the change that may have the biggest impact on parcel shippers going into 2011 are the new Dim Factors. The divisors for domestic ground and air change from 194 down to 166 and the divisor for international air moves from 166 down to 139. While the Dim Factors do not apply to ground shipments less than three cubic feet, that minimum measure does not hold true for air, making all air packages subject to dimensionalization.

By now, shippers should have heard all the news related to this change. For anyone who has not, as of the time of this writing, you can access the specifics at either:

Let’s focus on the 18 x 12 x 12 box across the three services.

If this box is shipped via ground, the Dim Factor does not apply; but if shipped via domestic air the new Dim Factor changes it from 14 pounds up to 16 pounds, representing a 14% increase in billable weight. If this same box is shipped via international air, the new Dim Factor increases it from 16 pounds up to 19 pounds, nearly a 19% change in billable weight.

That’s why many of the industry pundits are talking about the impact the Dimensional Weight Calculation will have on many shippers. The design of the package, type of package selected, and especially the choice of void fill become more important. Packaging efficiently and densely to ensure the shipment arrives damage free while trying to avoid Dim Weight adjustments will be a challenge for shippers in 2011.

http://www.fedex.com/us/2011rates/otherchanges.html

Closing Comments

There has always been a great deal of talk about rate increases http://www.rates.ups.com/ being excessive, some of the highest in history, and no doubt you will hear those comments regarding the 2011 changes.

What is the real impact of this change? The adjacent illusPARCEL has been kind enough to extend these pages in order tration takes three box sizes and shows you the difference to provide you with information to help you better determine between the old and new dim factors across ground, domestic the impact of the rate change. But it’s neither the hype nor a air and international air. review of base rates that is going to determine the impact that the 2011 parcel rate increase will have on your company. The real impact will be based on the terms of your carrier agreement.

Let me wrap up this year’s analysis by reiterating a point I made last year: Rates themselves are only one piece of an increasingly complex puzzle you must solve in order to properly identify your total cost of parcel transportation. No matter which carrier you are using, you’ll need clear visibility into your package distribution pattern, a thorough understanding of your service agreement as well as a review of the applicable Terms & Conditions from the carrier’s Service Guides and Tariffs in order to determine the specific impact this year’s rate change will have on your business. p

The first thing you may notice is the importance of the three cubic foot rule minimum on ground shipments. That helped to ensure the dimensional rule did not apply to two of the packages (as well as any other box sizes with a smaller volume then those chosen in this illustration). But there is no three cubic foot minimum on air shipments, so how will air shippers be impacted?

doUG KaHl is Founder & Principal of Integrity Logistics Consulting Group, Executive Consultant, Parcel for TranzAct Technologies, and a contributing writer to PARCEL. Contact him at doug.kahl@integrityLCG.com.

January-february 2011 | www.PARCELindustry.com

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Don’t Be a DimWeight!

Think outside the box, understand the dimensional weight changes, and take a second look at optimization. | By Brandon Staton

From an economic perspective, what you are shipping tends to $5.17, a 6.8% increase. Analysis shows the one-to-five to matter less than the language of the agreement you have pound ground rates are up 7.7%, six-to-10 pounds up 7.2%, in place with the carriers that govern it. So never mind how 11-15 pounds up 6.5%, 16-20 pounds up 6.1% and 21-35 you’re going to fit that 3.4-cubic-foot (18” x 18” x 18”) box pounds up 5.8%. into the trailer; sit back and let the driver handle that. What you need to worry about most is small in dimension, yet enor- The carriers also implemented a number of changes mously influential — your pricing agreement. to their accessorial rates — here are the highlights: As many of you know, FedEx and UPS ushered in 2011 with rate increases, which they have outlined on FedEx.com and 3 Residential/Home Delivery Surcharge is up $0.25 to $2.45, an 11.4% increase.

UPS.com, respectively.

In January, both carriers implemented a net average ground increase of 4.9%. The full average rate increase of 5.9% was 3 Declared Value has increased $0.05 per $100 to $0.75, a 7.1% increase. The minimum charge for Declared partially offset by adjusting the fuel price threshold at which Value has increased $0.15 to $2.25. the fuel surcharge begins, reducing the fuel surcharge by one percentage point.

3 The Address Correction charge for ground has inEven though the average announced increase was 4.9%, the creased $1.00, from $10.00. all-important zone 2 one-pound minimum charge is up $0.33 24

January-february 2011 | www.PARCELindustry.com

3

Delivery Area Surcharges are up 15 cents to $1.85 for commercial addresses (an 8.8% increase) and up 25 cents to $2.75 or $3.00 for residential addresses (9% and 10% respectively).

UPS Air and International services had an announced increase of a net 4.9% through a combination of a 6.9% increase in rates and a two percent reduction in the UPS Air and International services fuel surcharge. FedEx Express rates had an announced increase of a net 3.9% through a combination of a 5.9% increase in rates that are partially offset by adjusting the fuel price threshold at which the fuel surcharge begins, reducing the fuel surcharge by two percentage points.

An example of similar services for the carriers reveals the following: a FedEx Priority Overnight package weighing five pounds to Zone 4 had a published rate increase from $50.35 in 2010 to $54.00 in 2011. This represents a 7.2% increase. The same package with an AM delivery at UPS increased from $46.70 to $50.80; an 8.8% change. Keep in mind that different comparisons may show slightly different increases for all services.

The Dim Factor

arrived at the same time/day regardless of whether you shipped via ground or air. Of course, your business has rules in place, and they are there for a reason. Still, utilizing optimization technology efficiently will allow you to have visibility of such scenarios, making it easier to hold your employees accountable and to make adjustments where possible.

I know what you’re thinking: “Decisions about ground versus air probably don’t apply to this company. We have great discounts within the terms of our agreement with our carrier.”

While it may be true that you have a great air discount, think of it like this: If you ship a package via air for a cost of $19 and the package would have arrived at the same time had you shipped ground for $6, you’re looking at a discount of nearly 70%.

Regardless of your agreement with your carrier, savings that measurable will trump even the best incentives. In situations such as this, the implementation of optimization to effectively move from air to ground can put money back on a shipper’s bottom line in ways far greater than even the deepest air discounts. Simply put, switching service levels will always override incentives.

One 20-pound package will always be

Without question, the biggest surprise of this year’s GRI announcement was the effect of the change to the dimensional less expensive than two 10-pound weight factor (DWF). The carriers changed the dimensional weight packages to the same address. volumetric divisor from 194 to 166 for US domestic services.

Dimensional weight factor for international export shipments has The other area of focus through optimization is package conchanged from 166 to 139. On its face, the 2011 rate change, solidation. Multiple package shipments may be the result of while undesirable, is not unprecedented. But a closer look at how packages being prepared/manifested at different times duryou could be affected by the DWF reduction is an eye-opener. ing the day or even by different employees. Look for reports Remember that 3.4 cubic-foot (18” x 18” x 18”) package? that identify opportunities to consolidate such shipments. One Let’s assume it has a scaled weight of 27 pounds. When the 20-pound package to a receiver will always be less expensive divisor changed from 194 to 166 in 2011, its billable weight than two 10-pound packages to the same address. increased from 31 to 36 pounds. Assuming an average incentive of 30% for this shipment (an easily attainable incentive) More Savings Opportunities and considering the rate change, on December 31, 2010 that Another area ripe with savings opportunity lies within the package would have a net rate of $10.56 to zone 5 before any “SmartPost” and “Basic” services offered by FedEx and UPS, other surcharges. On January 3, 2011, that same package has respectively. Industry sources have unofficially confirmed that a net rate of $12.84 prior to surcharges. No need to break out UPS will launch a new service offering in early 2011, which is your calculator; that’s a 21.6% increase, a far cry from the designed to better rival FedEx’s “SmartPost.” advertised general rate increase of 4.9% for ground shipments.

These hybrid services are offered by the carrier to clients that While a hike in the neighborhood of five percent might not break may require certain volume levels. The aim is to eliminate certhe bank, it more importantly does not break the ice. In reality, tain surcharges. There are drawbacks, however. Due to the fact the advertised increases are just the tip of the iceberg. And failure that these programs mix the services of the private carrier with to adequately understand what lies beneath the surface can sink the United States Postal Service, the savings they produce can the margin between your budget and your bottom line, fast. come at the expense of limited visibility and an increase in the total time in transit.

Optimize, Optimize, Optimize How does your pricing agreement fit in the trailer?

Another area that requires a second look is optimization; to help you understand your own business at a more granular level than you may have ever imagined. Optimization is about utilizing curBrandon Staton is an Account Manager with Transportation Impact LLC., a rent technology and reporting capabilities to get your package growing 3PC focused on carrier rate reduction and process improvement in the off of a plane and onto a trailer, or to reduce the number of parcel industry. Brandon specializes in contract negotiation, project managepackages in multiple piece shipments. There are reporting serment, process improvement and growth opportunities. vices available that will highlight each package that would have January-february 2011 | www.PARCELindustry.com

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We’re Off to See the World Tips and techniques for completing customs declaration forms

By Josh Fabel

he world grows smaller every day, and more and more businesses are finding international markets for their products and goods. For many companies, though, the shipping process represents one of the greatest challenges when expanding overseas. In particular, filling out the paperwork can be daunting.

For those who regularly ship packages to foreign countries, completing customs declarations forms can be a time-consuming and highly error-prone process. In some companies, more than one person may be responsible for different aspects of packing and shipping — when several people are involved, errors are more likely, and it can take more time for forms to be completed accurately. Some technologies may not be adaptable to shipping overseas, so they must be jury-rigged for the job or more than one type of software may be needed. This approach can also lead to errors and wasted time. For smaller organizations that only ship overseas occasionally, the idea of filling out customs declarations forms may be too intimidating or too labor-intensive, and many small businesses may deny themselves sales growth opportunities by deciding to limit operations to the United States.

Fortunately for those with overseas customers, there are ways to lessen the burdens of labor, cost, risk and time management and minimize the chance of errors when filling out customs 26

January-february 2011 | www.PARCELindustry.com

declarations forms. While paper forms will not disappear any time soon, a number of technological advances can help shippers increasingly find automated and digital options for international shipments. Those who ship numerous items around the world can achieve significant savings, while smaller operations can open themselves up to new markets. By considering their own processes and procedures, those responsible for shipping can pinpoint areas where they can remove the impediments of manual processes and integrate technology and databases in order to reduce the challenges of customs declaration forms.

Going Global Many businesses have an online presence nowadays, either through their own websites or sites such as eBay. In the wired world, international borders are often irrelevant, and customers can just as easily be around the globe as across town. But shipping packages globally offers different challenges than shipping across the state or across the country. The United States Postal Service has its own requirements for customs declarations forms, and different countries have their own regulations regarding customs and security.

Consider what can be involved in shipping just one package overseas. First, it’s important to understand that individual countries have their own laws and restrictions. For example, according to the USPS, it is prohibited to send “printed matter offensive to

Arabs and Muslims” to the United Arab Emirates. When shipping fabric to China, senders are restricted to 10 meters of cotton or synthetic fabric, and the width must not exceed 50 inches.

After determining that items will not raise any red flags, those items must be properly packaged to avoid breakage during an overseas shipment. Then, the shipper must determine the type of customs form required — depending on the size and value of the products or goods, it is often either a 2976 or 2976-A form.

Customs forms have to be accurately filled out, the information must be legible on every copy of the form and the addresses of both the shipper and the receiver must be complete, along with specific descriptions of the package’s contents. Information about tax codes and value-added taxes may be necessary, and some countries also require tax ID numbers. Then, the customs declarations forms must be placed precisely on the package with all the pertinent documentation properly attached.

Considering the many steps involved, it should be little surprise that shipping overseas can be rife with errors and inefficiencies, particularly when processes, people and technology are not working in alignment.

Improving Processes and the Bottom Line With the right alignment, though, any shipper can confidently tackle customs declarations forms and other intricacies of international shipping. While companies have their own unique situations structures, there are several factors to think about.

Have People Working Together When multiple people are involved in packing and shipping, it’s important that each person is clear on his or her responsibilities. That way, packages don’t get stuck in limbo when one person thinks someone else is involved in the process.

Standardize Processes Make sure there is a standardized approach to the shipping process, from the moment a customer places an order to the time it is delivered. This will ensure that all customs declarations forms are filled out completely and that the shipment can proceed smoothly.

Find the Right Technology Automating the process of completing customs declarations forms can save considerable time and money. Before investing in any type of new technology, though, shippers must make sure that particular technology is the right one for them. Some things to consider:

Compatibility and Ease of Use The technology should be simple to use and intuitive, without requiring extensive training. It should also integrate seamlessly with current software programs and hardware devices — shippers should check to be sure that any program designed to automatically complete customs declarations forms can easily pull information from customer and shipping databases and import it easily into the shipping form. After all, if shippers just wanted a blank customs form that they manually type information in to, they can go to the USPS website.

Forms should also be able to print easily from every type of printer in the organization, whether it is laser, inkjet or thermal.

Organizations that ship packages overseas regularly should also be sure that the technology can keep up with the volumes they

require — some programs may not be able to manage batch printing and are more suited for smaller organizations or those that ship fewer packages overseas.

Flexibility and Customization Of course, businesses that are small today or that don’t ship many packages overseas may find themselves growing in the years to come. And customs forms can change as well. Before investing in technology and training, shippers should be sure that the software can evolve as well. Otherwise, it may be necessary to switch technology providers in a couple of years.

USPS and UPU Compliance In order to meet the twin goals of increased efficiencies and decreased errors, any new technology should be compliant with all USPS and Universal Postal Union requirements. Such technologies should be able to print and format all documents and forms to USPS and UPU standards, including the International Postal Manifest and Postnet barcodes.

Electronic Manifest Discounts Under a new program being developed by the USPS, customers with qualifying technology may be eligible for postage discounts if they meet certain volume requirements for shipments to different countries. The USPS is in the process of developing a reduced-rate program for international shippers who use an “electronic manifest.” While details are still being finalized, the USPS has indicated that qualifying electronic manifests will consist of a shipping form with a barcode that can be scanned at the post office. Shippers who can include the right information and who have sufficient volume will qualify for cheaper rates.

Until the Postal Regulatory Commission issues finalized guidelines, it’s difficult to know which technologies may qualify. But it’s important to make sure potential vendors have this issue on their radars before adopting any new technology.

Overall Costs When investing in any type of new technology, shippers must understand the true costs of software, forms and labels. Some products may include hidden costs, which can chew up any labor and efficiency savings.

Particularly in today’s economy, time and money are of the essence. International shipping errors and inefficiencies can quickly increase costs while dragging down turnaround time, leading to employee frustration and decreased customer satisfaction. With the right processes and technologies, though, completing all the necessary customs declarations forms can be easy, quick and cheap, freeing up people to focus on other aspects of their businesses..

Josh Fabel is an author, presenter and industry expert on integrated business solutions for mail and parcel technologies. He is president of LaserSubstrates, Inc., the leading provider of PC-based and web-based software solutions to automate the generation of USPS Certified Mail and Customs Declaration forms. He can be reached at jfabel@lasersub.com.

January-february 2011 | www.PARCELindustry.com

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Put the spotlight on your solutions in the next issue.

Contact Ken: ken.w@rbpub.com or Josh: josh@rbpub.com for details.

PARCEL COUNSEl with Brent

Wm. Primus, J.D.

Coming Soon: Elimination of the Cargo Liability Insurance Requirement In June 2010, the Federal Motor Carrier Safety Administration (FMCSA) issued a Final Rule whereby approximately 80,000 motor common carriers will no longer be required to obtain cargo liability insurance. The effective date of the Ruling is March 21, 2011. This means that after March 21, 2011 motor carriers will not have to file any proof of cargo liability insurance with the FMCSA. It also means that something known as the BMC-32 endorsement will become history.

By way of background, since 1937 motor common carriers, but not contract carriers, have been required by federal law to have at least $5,000 in cargo liability insurance. To ensure that the insurance coverage was not illusory, the policies had to include a provision, known as the BMC-32 endorsement, that was written to ensure that there would indeed be at least $5,000 in coverage regardless of any otherwise applicable exclusion or deductible.

In 2005, the FMCSA first announced a proposal to eliminate the insurance requirement and solicited comments from the industry. Thirty-two parties submitted comments. Twenty-two of these commenters opposed the elimination of the requirement.

They included such industry groups as the Transportation and Logistics Council (T&LC), the Freight Transportation Consultants Association (FTCA), the Transportation Intermediaries Association (TIA) and the National Industrial Transportation League (NITL).

Sixteen of these commenters were especially concerned with the collateral consequence of the end of the BMC-32 endorsement and the requirements for filing proof of cargo liability insurance. As summarized by the FMCSA, these parties noted that “the BMC-32 endorsement is the only protection against deductibles and other exclusions from liability found in cargo liability policies. They noted that in many cases the carriers’ deductibles can be very high and the exclusions may eliminate most sources of loss or damage recovery. They also stated that the BMC-32 endorsement permits the shipper to proceed directly against the insurer, providing relief to shippers in the event the carrier becomes insolvent or bankrupt.”

Three commenters supported, for various reasons, the proposal to eliminate the requirement for cargo liability insurance — the American Trucking Associations (ATA), the OwnerOperator Independent Drivers Association (OOIDA) and the Property Casualty Insurers Association of America. For the reasons stated in its decision, the FMCSA agreed with the views of these three commenters.

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January-february 2011 | www.PARCELindustry.com

The full text of the decision makes for very interesting reading. It may be found at http://edocket.access.gpo. gov/2010/2010-14866.htm.

Although I agree with the position of those in favor of continuing the current requirements, and although I believe that the FMCSA decision is ill-advised, it doesn’t really matter — this truck has left the terminal! The real issue now is what can or should one do after March 21, 2011 with respect to cargo liability insurance?

The FMSCA believes that “Shippers are like any other party in a transaction where one party will be providing services to another party. If the parties do not communicate the terms and conditions, or read the terms and conditions in their contracts (also known as bills of lading in transportation), the shipper assumes the risk. Shippers should ask carriers for copies of their policies, including all endorsements, exclusions, and declarations, to see whether the shippers’ property or interests will be served by a particular motor carrier.”

This suggestion, although not at all as easy to do as the FMCSA would imply, only addresses the problem of determining what insurance a carrier has before tendering it a load or before entering into a contract. There is still the problem of how a shipper will be able to know if a carrier’s policy has been cancelled. In the past, one could simply check the FMCSA website. After March 21, 2011, the FMCSA’s website will only show historical coverage as of March 20, 2011.

For someone utilizing even just a few motor carriers, reading all the provisions of all of their insurance policies is a daunting task.

And, having read all the policies, one will not be able to easily tell from the FMCSA website whether they are still in effect.

But all is not lost! In its decision, the FMCSA stated “The Agency recognizes the elimination of the BMC-32 endorsement will make it less convenient for commercial shippers to confirm the existence of cargo insurance. However, FMCSA believes that motor carriers, in order to effectively compete for desirable traffic, will devise alternative means of facilitating shipper verification of their cargo insurance policies.” All for now! p

BrENt Wm. PrimUS, J.D., is the CEO of Primus Law Office, P.A., the Senior Editor of transportlawtexts, inc. Contact brent@transportlawtexts.com.

Wrap up with Michael

J. Ryan

Collaboration

The “Peak” season is over, and everyone has survived the mad end-of-year rush. It is estimated that over 175 million packages were delivered on December 22, 2010 (by UPS, FedEx and USPS)… Santa’s helpers were quite busy. This is a great example of “collaboration” at work. There is a tremendous amount of planning that goes into the execution plan for peak season. This also requires an enormous amount of collaboration between vendors, airlines, business units, employee teams and seasonal help. The definition of collaboration is “the ability to work together in an intellectual and operational manner.”

Let’s take a closer look at how we can use collaboration in 2011 with our small parcel carriers and 3PLs. The goal in exercising collaboration is to develop synergistic value creation.

In order to gain the most in a collaborative partnership, this requires senior management support and commitment from all organizations involved. There is an element of shared risk and resources in this process.

StRiking up a paRtneRShip Here are some steps to get you started in this journey of developing a collaborative partnership:

3 3 3 3 3 3 3

becomes essential in developing the most optimized solution. In a recent supply chain study, it shows that most organizations spend about 72% of their supply chain cost on transportation (50%) and inventory (22%). In the transportation bucket, this can come in many different modes and suppliers. With inventory carrying cost as the second largest one, you can get very creative in this approach to pull out cost and improve operational efficiencies. This is most likely to happen in a partnership that is grounded in a strong collaborative approach.

There are three critical components to collaboration and they are as follows: visibility, integration and synchronization.

The process of developing a collaborative approach takes time and is built on trust and commitment. All shippers will be challenged with rising transportation costs in 2011 and the “Best in Class” organizations will embrace the “Collaborative Approach” in achieving their financial goals.

Collaborative partnerships will help you achieve your goals in 2011! p

Michael J. Ryan is Director, Business Development at DSC Logistics and has been in the parcel industry for over 25 years. He can be reached at 847-3935862 or mike.ryan@dsc-logistics.com.

Establish mutual goals by all organizations Obtain senior leadership commitment Set ground rules for “open book” discussions Assign cross functional teams Determine how technology will be integrated Meet regularly Develop communication plan

The small parcel carriers/3PLs are playing a bigger role in the global supply chain arena. Most of them have a full portfolio of services to offer, and this is where collaboration

January-february 2011 | www.PARCELindustry.com

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