PARCEL January-February 2016

PARCEL

JANUARY-FEBRUARY 2016 www.PARCELindustry.com

ARE YOUR DISTRIBUTION CENTERS GIVING YOU A HEADACHE? P.12 TACKLING GOLIATH: HOW TO SUCCEED EVEN WITHOUT THE RESOURCES OF A MEGA SHIPPER. P.22 PARTNERS, NOT ADVERSARIES: A NEW SPIN ON THE CARRIER/SHIPPER RELATIONSHIP. P.30

YOUR 2016 RESOLUTION: STREAMLINE YOUR SHIPMENT PROCESSES

CONTENTS

JANUARY-FEBRUARY 2016 | volume 23 | issue 1

Features

Departments 06 Editor’s Note

Battling the Giant

By Amanda Armendariz

07 Transportation ABCs

Shipping Contracts: ‘Cost Modeling’ Your Way to a Better Deal

By Shaun Rothwell

08 Spend Perspectives

Amazon Is Redefining the Supply Chain

By John Haber

12 Optimizing Your Distribution Center to Boost Revenue

By Kirk Waldrop

10 Ship Right

Size Does Matter

By Chris Giles

32 PARCEL Counsel

Five Points of Warehouse Law that Every Parcel Shipper Needs to Know

By Brent Wm. Primus, JD

34 Wrap Up 14 All Signs Point to Amazon E-commerce giant moving into logistics

16 Are You Overlooking

Obvious E-Commerce Opportunities?

By Will Workman

By Sheila Donovan

Ding Dong, 2016 Is Here!

By Michael J. Ryan

Application Articles 11 Many Happy Returns Stamps.com

21 The Future of Shipping Is

Dimensional Weight: Here’s What You Need to Know Rice Lake Weighing Systems

22 Tackling Goliaths:

Techniques for Small to Medium Shippers

26 Smart Tools to Succeed in the New Shipping Reality

By Bob Fischer

By Jeff Haushalter

30 Have You “Hired” Your Carriers?

By Jake Zidlicky

25 Regional Small

Package Carriers Are Providing A Valuable Alternative PITT OHIO

29 Customers Want a Personalized and Customized Approach with Their Small Package Shipping U.S. Cargo

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JANUARY-FEBRUARY 2016 | www.PARCELindustry.com

PARCEL president chad griepentrog publisher ken waddell editor amanda armendariz [ amanda.c@rbpub.com ]

audience development manager rachel chapman [ rachel@rbpub.com ]

marketing cierra bauer creative director kelli cooke advertising ken waddell (o) 608.442.5064 (m) 608.235.2212 [ ken.w@rbpub.com ]

2901 International Lane Madison WI 53704-3128 p: 608-241-8777 f: 608-241-8666 www.PARCELindustry.com

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EDITOR’S NOTE

BY AMANDA ARMENDARIZ

Battling the Giant Are you signed up for our e-newsletter? s you page through this issue, you’ll likely notice that there is a lot of buzz about Amazon. And it’s no wonder; the e-commerce giant continues to grow at an explosive pace, and there is constant talk that it is poised to change the shipment and delivery process like no organization ever has. And even though there are few companies that can rival the largess of Amazon, Amazon’s constant redefinition of customer expectations regarding their shipments affects almost everyone. Even just a few years ago, five to seven days was a completely acceptable time to wait for one’s package to arrive. Now, thanks to the two-day standard of Amazon Prime (or even same-day delivery, for certain markets), customers are often hesitant to wait more than a couple days for their order to arrive — even if the company they’ve ordered from is a mom-and-pop operation in the Midwest with a shipping budget only a fraction of Amazon’s. Amazon is certainly setting a standard, and it’s one that smaller operations might have a hard time meeting.

It can certainly be daunting to be a small or mid-sized shipper; you’re expected to perform the same as Amazon or other e-commerce giants, without those giants’ resources. But there are ways for smaller shippers to compete. Check out Jeff Haushalter’s article on page 22; he gives some great tips that allow your smaller size work for you, and not against you. And utilizing resources like PARCEL media or the PARCEL Forum (which will be held September 12-14 in Dallas!) is a fantastic way to stay abreast of new ideas and tactics to make your small shipment operation as effective as possible.

As always, thanks for staying connected with PARCEL.

If not, what are you waiting for?

As of press time, these were some of our most popular articles from recent e-newsletters: • Op Ed: Bad Blood Between UPS and Amazon?

• Parcel Pricing Benchmarking Survey Results Revealed

• 6 Best Practices to Prevent Shipping Costs from Eroding Your Margins To get great articles like these emailed to you on a regular basis, just scan the QR code above or go to www.

PARCELindustry.com and click on the word “newsletter” at the bottom of the page, under Subscriber Services.

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All you need to do is sign up for our e-newsletter and you’ll get this information emailed to you the third Thursday of the month (plus an occasional extra one when we have some pressing news!).

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JANUARY-FEBRUARY 2016 | www.PARCELindustry.com

TRANSPORTATION ABCS

BY SHAUN ROTHWELL

Shipping Contracts: ‘Cost Modeling’ Your Way to a Better Deal hippers use one of two approaches when developing a pricing and negotiation strategy: one is benchmarking (the most common), the other is based on the understanding of carrier cost models.

Both approaches are effective in achieving favorable shipping rates and both require high levels of industry knowledge and understanding of carrier pricing.

Where the two approaches diverge is at the level of understanding of carrier costs.

UNDERSTANDING CARRIER PRICING VS. CARRIER COSTS IS AN IMPORTANT DISTINCTION Unlike an understanding for carrier costs, carrier pricing can be well-understood by anyone with enough industry experience. A deeper frame of reference lends itself to the principle of ‘the more you see, the more you understand,’ which is why 3PLs and other contract consultants market their industry experience so heavily when trying to sell contract negotiation services. They know and understand the market shipping rates, and therefore, know what discounts are obtainable for your company.

This focus on existing carrier pricing, market rates and average discounts is the crux of the benchmark approach. In reality, benchmarking is a simplistic analysis that compares a company’s shipping spend, shipping volume, its size and industry against what has been “seen” for companies with similar shipping profiles.

While it focuses on dollar amounts, volume shipped and discount percentages, it

ignores — in large part — language and structure of agreements, which can vary greatly from company to company based on shipping characteristics and corresponding carrier costs. Although benchmarking provides a comparatively quickand-easy negotiation cycle, this usually means shippers are not getting as detailed as they should with their agreements.

MYTH: THE MORE YOU SHIP, THE BETTER YOUR DISCOUNTS Because benchmarking focuses on volume and discount percentages rather than package-by-package details, benchmarkers will miss out on numerous concessions that are relevant to their shipping profiles.

One of the biggest misconceptions in the world of shipping — which is fed by the benchmark philosophy — is that the more you ship, the better your discounts. The truth is, once shippers reach spends of about $100,000, ‘volume’ becomes a much smaller factor in determining rates.

At this point, the best deals result from taking a deeper look at shipping characteristics and determining how they line up against carrier cost drivers.

‘COST MODELING’ ANALYZES VARIABLE SHIPPING CHARACTERISTICS AND CARRIER COST DRIVERS At the highest level, cost modeling means knowing where the carriers have the highest margins and the amount they are able to concede in order to maintain desired profitability. But to get there, cost modeling requires an in-depth understanding of what drives cost for carriers and how they line up against shippers’ package-by-package shipping traits. Package-level detail is key! Companies will discover dozens of additional concessions throughout negotiations by examining their shipping char-

acteristics and weighing their “uniqueness” against their knowledge of carrier cost drivers. These can include service mix, package densities, carrier ground feed costs, sorting costs, delivery densities, special handling and a host of other factors, all of which will vary greatly based on the shipper.

At the end of the day, maximizing concessions from both sides is a key objective because it provides for more collaboration and a stronger business partnership between the two parties. This collaborative approach maximizes savings for the shipper while the carrier concedes in areas they can afford and avoids getting beat up over an area they cannot. ¾

SHAUN ROTHWELL is Founder and CEO of iDrive Logistics — an industry-leading supply chain consulting and contract optimization firm. With 22 years of experience in the small parcel and logistics industry — including 8 with the US Army as a Supply Chain Specialist — Shaun was a partner in building (and selling) the largest and fastest growing small parcel audit and contract optimization firm in the industry. Shaun was the Gold Eagle Chairman award winner while at UPS and holds the degrees of Bachelor of Science in Business Administration and Master of Business Administration (MBA).

JANUARY-FEBRUARY 2016 | www.PARCELindustry.com

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SPEND PERSPECTIVES

For more on Amazon’s explosive growth, see page 14

BY JOHN HABER

Amazon Is Redefining the Supply Chain

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mazon is dominating the headlines by constantly challenging the logistics status quo. What started out as “the leading online retailer of books in 1994” has evolved over the last decade to become “the earth’s most customer-centric company.” To support this self-proclaimed title, Amazon has built a unique supply chain network that is transforming the way supply chains are built and managed.

lenge at $10.8 billion in 2014. Fulfillment costs as a percent of net sales have risen from 10.5% in 2012 to 12.1% in 2014, an increase of over 15% for this key metric.

These costs are being driven by expansion of its fulfillment network, rising transportation costs as well as the hiring of tens of thousands of employees that have been hired to run their massive facilities. Attempts to reduce fulfillment costs have included introducing more automation such as robots from its Kiva acquisition, sophisticated algorithms to streamline operations and outsourcing some fulfillment facilities to Menlo Logistics, now a part of XPO Logistics.

CLOSER AND CLOSER Today’s logistics network is moving closer and closer to the customer. Shortening time from order, to fulfillment, to delivery is critical to a growing segment of the population. These days many consumers want their packages next day, same day or even within one hour. Amazon’s fulfillment network reflects these changing customer preferences and, in some aspects, may even be responsible for changing consumer behavior.

Amazon has developed highly automated facilities and now has almost 100 facilities within the US. Once an order is placed, the order is then located via its warehouse inventory management system. Products within an order may ship from several different locations depending on product type and availability. Once located, the order is assigned a priority depending on delivery preference. For example, a “Super Saver” order may wait a few hours before being processed while an Amazon Prime order needs to be shipped the same day.

Efficient and fast as they may be, Amazon’s fulfillment costs still remain a chal-

TAKING CONTROL The 2013 holiday season was an eye opener for the logistics world as many packages did not arrive in time for Christmas. Retailers, led by Amazon, issued apologies and gift cards to customers as a remedy to broken delivery promises.

The backlash in 2013 served as a wake-up call and is considered a major factor in Amazon’s plan to take more control over its delivery network. Rising shipping costs have been a critical problem for Amazon for years. Increasing the Prime subscription fee has helped offset some of the costs, but rising shipping rates continue to be a huge obstacle.

Overall, 2014 shipping costs increased to $8.7 billion, a 31% increase over the previous year — despite shipping revenues increasing 45% to $4.5 billion.

Amazon has been adding sortation centers to its US network to further reduce shipping costs. These centers are used to sort aggregated packages and pallets from fulfillment centers and ship to either post offices or local couriers. Amazon recently acquired thousands of branded trailers

JANUARY-FEBRUARY 2016 | www.PARCELindustry.com

with the purpose of transporting merchandise between its fulfillment and sortation centers. In addition, these centers have allowed the company to expand delivery days by offering Sunday delivery in selected cities year round via the US Post Office.

Amazon is also rumored to be running an Air Cargo operation, leasing aircraft from Air Transport Services Group. Using a previously owned DHL hub in Wilmington, Ohio to facilitate the operation, flights are made daily to Allentown, PA, Ontario, CA, Tampa, FL, Oakland, CA, and Dallas, TX. It remains to be seen if Amazon is building its own air cargo network or if this was a temporary solution for peak holiday season volumes.

Additional rumors exist of Amazon creating a European Air Cargo network. With the assistance of freight forwarder DB Schenker, it is believed that Amazon is utilizing chartered flights from carrier ASL between the cities of Wroclaw, Poland; Doncaster, U.K.; and Kassel, Germany with the possibility of expanding test flights into Spain and Italy.

THE LAST MILE While Amazon utilizes a variety of delivery partners such as FedEx, UPS, USPS and regional carriers, it is also tiptoeing into the last-mile delivery and is doing so in creative ways.

After first introducing Amazon Fresh in 2007 in its hometown of Seattle, the service expanded to Los Angeles in 2013 and subsequently to other metropolitan areas in New York, New Jersey, Dallas and Chicago. The Amazon-owned and operated delivery service primarily delivers groceries, but also delivers additional merchandise from its vast catalog.

Amazon’s Prime Now is pushing the envelope even further by providing one and two hour delivery service for Prime

has promised comprehensive drone legislation by June 2016.

members in more than 20 metropolitan areas. This may be considered a specialized service, but it has already shaped customer expectations. Amazon recently noted that Christmas Eve 2015 was its biggest day ever for 2-hour deliveries.

Amazon Flex was introduced in late 2015 as a crowd-sourced delivery option for Prime Now’s one- and two-hour delivery options. Amazon initially launched this

service in Seattle, but is adding eight other cities, including Portland and New York.

Amazon continues testing drones as an option for last-mile delivery. What was considered a joke by many just a couple of years ago may eventually come to fruition. The first step occurred in December 2015, when the Federal Aviation Administration (FAA) began requiring all drones to be registered. In addition, the agency

A NEW KIND OF LOGISTICS PROVIDER To become “the earth’s most customer-centric company,” Amazon has had to develop a unique supply chain, but is it building its supply chain network for its own purposes or is it preparing to take on existing logistics and transportation providers?

It’s highly unlikely Amazon will reach a point in which it no longer needs any transportation partners, but as e-commerce continues to grow, the dynamics around delivery will evolve. The question is whether logistics and transportation companies can keep up, or if competition will demand a new kind of supply chain network in order to succeed. ¾

JOHN HABER is the Founder and CEO of Spend Management Experts, a global transportation spend management consulting firm. John has helped some of the world’s leading brands drive greater efficiencies through their supply chain operations, while reducing transportation costs by 20% and more. Contact John at solutions@spendmgmt.com.

JANUARY-FEBRUARY 2016 | www.PARCELindustry.com

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SHIP RIGHT

BY CHRIS GILES

Size Does Matter he past few months have seen some significant changes in shipping costs. In the fall, private carriers hiked their rates, and many of these increases came with more complex dimensional ratings and accompanying surcharges. We also had the rate hike for the United States Postal Service (USPS) Priority Mail and package services, plus dimensional surcharges. Suddenly, for companies of all types, size does matter.

The deal is, carriers prefer rectilinear boxes, the smaller the better, so they can stack more into an air freight container or the back of a truck. They’d simply rather not work with tubes and other oddly shaped parcels.

The problem here is that shipping rates based on parcel size can have a dramatic impact on budgets. Think about a western wear retailer selling 10-gallon hats on the Internet. They ship hundreds, perhaps thousands, of boxes weighing less than a pound. But with the new dimensional pricing, the size of that cowboy hat box bumps each parcel up to the 5– pound rate. The USPS continues to offer flat-rate boxes, but guess what — none of them can handle a 10-gallon hat.

It doesn’t take a lot of complicated math to figure out that shipping just 10 parcels a week with dimensional surcharges can now cost a company thousands of dollars more over the course of a year. Size really does matter!

A FEW OTHER THINGS THAT MATTER Add to this the fact that the true total cost of shipping is often hard to see.

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Companies often have accounts with several different carriers and there are often multiple accounts open at each one. This situation arises because organizations have multiple entry points to the shipping process, which can now be originated easily from any desktop. So, with multiple entry points and multiple creators, many companies may be paying a lot more than they realize for shipping.

With private carriers, you also don’t know the total shipping charge at the time your order is placed. When you get the bill later, you may see the dimensional, fuel and residential surcharges. At least with the USPS, you know the total shipping charges upfront, but the postal service may not be the best carrier for other reasons.

Finally, different carriers have different workflows. These process anomalies make it difficult to evaluate carrier cost and performance in an apples-to-apples comparison.

Yet the answer isn’t to reduce the number of carriers the company uses. The first goal in shipping is to satisfy the recipient. Certain areas are better served by one carrier over the others. Plus, costs vary among carriers and should be an important deciding factor, as carriers match each other in performance. The USPS, for example, always a good choice for parcels under five pounds, has now upgraded its service to compete with private carriers on all levels, including a very capable package tracking system.

BRINGING SHIPPING COSTS DOWN TO SIZE In the midst of today’s challenges, shipping costs may seem too difficult to manage. How do you get at all the hidden fees and reconcile multi-carrier charges across multiple accounts in order to determine the most cost-effective carrier mix? How do you get all senders — including those with

JANUARY-FEBRUARY 2016 | www.PARCELindustry.com

little to no shipping experience — to make the right business decision, instead of basing their choices on convenience, or their relationship with a particular carrier driver?

The answers lie in having the data, not personal relationships, drive all shipping decisions. For this, you need visibility into the true total cost of shipping — one view across carriers and onto every desktop where orders originate. High-volume e-commerce shippers, of necessity, have always focused on managing shipping costs. But lower-volume e-commerce and office shippers typically didn’t have access to that level of detail or controls because it was simply too time-consuming and complex to manage.

To be fair, big e-commerce players use the latest and most sophisticated multi-carrier logistics software solutions available, which gives them valuable visibility into costs, delivering the data in easy-to-consume form. Luckily, much of this technology is now becoming available in affordable, cloud-based solutions for small and medium businesses.

These solutions are designed to simplify today’s shipping complexities by centralizing your ability to analyze all data and standardize the workflow. They will allow you to integrate data across carriers and address books, get relevant data to the desktop via the cloud, and give you visibility into everything you need to see in order to better manage costs. In the meantime, you should look back at the last six months to calculate your true shipping costs with all surcharges factored in. This will give you a better picture of how much size does matter to your business. ¾

CHRIS GILES is Vice President, Business Development, Global Product Management, Pitney Bowes.

APPLICATION ARTICLE

Many Happy Returns In the world of e-commerce, every customer touchpoint provides an opportunity to develop and sustain a valuable relationship — and that’s especially true of the shipping experience. If you give customers value in the form of hassle-free shipping and an easy returns process, chances are they’re going to come back for more. In fact, according to a 2015 comScore study, 90 percent of shoppers will review a retailer’s returns policy, and 67 percent will do so before purchasing.

Returns are a critical component of the customer experience.

With 89 percent of shoppers saying they’ll revisit an online store following a positive returns experience, retailers owe it to themselves to find ways to streamline returns for customers.

When it comes to returns, businesses of all sizes should explore two main items: the returns policy and the returns shipping process.

A positive returns experience starts with clear communication, and a clear and concise returns policy can make all the difference. A good returns policy includes what can and can’t be returned, whether customers will be granted a full refund, how long customers have to make a return, the cost of return shipping, and whether there is a restocking fee.

Make your returns policy easy to understand and easy to find on your website. Taking the time to spell out these details can help you increase sales in the long run.

While it’s true that buyers love free returns, you don’t necessarily have to offer free return shipping to create a positive returns experience. Convenience makes a big impact, too — according to an Endicia survey, 51 percent of online shoppers want return shipping to be free, while 36 percent want it to be convenient.

The U.S. Postal Service® can deliver on both these points with its accommodating options and affordable rates.

Offering return shipping with the USPS doesn’t mean your business has to take a hit by pre-paying for return shipping labels, which may or may not be used. Endicia’s Pay-on-Use Returns™ service allows your shipping team to provide USPS return shipping labels that are only charged for postage if and when the return label is used.

Businesses can decide whether to offer this service for free, or charge customers for all or part of the return shipping costs.

A Pay-on-Use Returns label can be included in a customer’s outbound package or sent via email upon request. Either way, it provides consumers with a convenient return shipping option, while enabling businesses to take advantage of the cost savings provided by USPS Priority Mail.

Learn more about this service and how it can improve the returns experience for your customers at: www.endicia.com/pay-on-use-returns.

Amine Khechfé General Manager and Co-Founder, Endicia 650.321.2640 a@endicia.com

OPTIMIZING YOUR DISTRIBUTION CENTER TO BOOST REVENUE

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rowing pains are as natural a part of business as they are life.

But what happens when a core aspect of keeping the business healthy and operational is not keeping up with growth and stands in the way of future success? Companies that are facing strong growth often find themselves stretching distribution centers beyond capacity. That threatens fulfillment obligations, which can stop growth dead in its tracks.

Nobody wants to sit opposite a CFO and proclaim that a new, expensive distribution center is needed. Although that is sometimes the wisest decision, often existing space and processes can be optimized to boost the efficiency of existing resources. Doing so, however, is a project worth doing right since failure comes with such a high cost.

PHASE 1: DATA IS THE SECRET SAUCE DC optimization begins with a 12-16 week long planning/concept design phase where possible scenarios are developed.

It is key to understanding what problems need to be solved and how solutions will be measured. That is done through key

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year and peak season: this includes order numbers, shipment ID numbers, order dates, ship dates, customer numbers, carrier code and service level Forecast demand details: Include details for each SKU and projected SKU over a five-year period Order details: order and line numbers, units of measure, quantity ordered and shipped Location in warehouse: internal location identifier zone aisle, bay, level and position, quantities and type of storage location Inbound receipt details: purchase order and item numbers, number of items ordered, quantity received, and receipt dates Customer data: customer number identifier, name, type, billing and shipping address

By Kirk Waldrop performance indicators (KPIs), which will be used to benchmark progress. Ideal KPIs for most DCs include: estimated productivity by functional area storage space requirements facility and equipment capacities estimated labor costs Once KPIs have been agreed upon, operational data must be analyzed to determine optimal product flow. Processes and functional area data that should be studied include receiving, put-away, reserve storage, replenishment, picking, and value-added services. At the same time, the impact of considerations like the use of third-party logistics (3PL) providers, facilities consolidation, transition planning and compliance programs, and the full network should be analyzed.

That’s a pretty big order, and it comes down to collecting accurate operational data in several areas. Item information for each SKU handled: this includes item numbers, descriptions, grouping information, special handling requirements, dimensions and weight per unit, case, and pallet Order history information for the past

JANUARY-FEBRUARY 2016 | www.PARCELindustry.com

Accuracy in data collection is key as any error can easily throw off distribution capacity requirements over both short and long terms. Determining optimal equipment and space requirements for each area of a facility also depends on accurate data.

The best approach is to analyze each functional area independently and outline up to four handling approaches per location in terms of design, cost and efficiency; then, rank each alternative according to how it satisfies the established KPIs. Finally, look at the big picture and understand the sum of all the parts to find the best solution.

PHASE 2: GETTING GRANULAR WITH THE DETAILS Called the detailed design phase, the second stage of DC optimization involves refining the top three conceptual layouts with future growth projections in mind. Doing so requires taking a detailed look at what the future is likely to bring. Consider things like: Potential acquisitions that may affect growth and handling capabilities New product introductions or ecommerce offerings that will alter fulfillment requirements Additional business or operational changes that might impact the design concept that is ultimately decided on The goal of the detailed design phase is to provide clear insights into the feasibility and actual cost of a selected concept.

If the design calls for expanding an existing facility, it is important to fully understand the direct costs of expansion and also how existing operations and future plans will be affected. Major overhauls, like reinforcing a ceiling for equipment suspension, impacts future facility layouts and must be undertaken with a long-term perspective.

When a brand new facility is needed, a robust plan that includes necessary hardware and software, physical footprint, detailed equipment layout plans, and much more must be developed. This can get quite complicated because long-term plans, like staged technology upgrades and other initiatives, can take several years to fully implement.

Automation system integration, material handling engineering, regulatory compliance, and vendor selection all impact the final cost of a design. Each detail must be compared and reconciled against cost/benefit differences of each design to determine which will optimize operations the most.

Before implementation of the selected design begins, be sure to solidify these outputs:

Firm price for the implementation Detailed project completion schedule A budget that details the initial system as designed and the anticipated cost of projected future enhancements and expansions.

PHASE 3: BUILD IT, AND THEY WILL COME During this implementation phase, the project comes to life in the physical world with detailed installation blueprints, equipment, software, and electronic controls.

It is crucial to monitor integration of new or revised automation systems and ERP to ensure that the transition is seamless. Pay special attention to relating the new system functionality to updated business practices.

Now is also a good time to plan a training program that will get all staff up to speed on supporting the facility’s productivity.

Training for all operations, maintenance, and supervisory roles should include both classroom education and hands-on training with equipment as soon as it is installed — but before it goes live. The goal is for everybody to be able to hit the ground run-

ning on the first day of operations, but that can only happen with adequate planning.

After the facility has gone live, the optimization process continues through continual review of the KPIs established in the planning/concept design phase to ensure that return on investment is being maximized.

Organizational expertise will grow as the DC operates, and monitoring actual results against those KPIs will help isolate trends and enable nimble reaction to any unforeseen changes or growth as it occurs. Optimization is a circular process that never truly ends for companies that want to maximize operational, supply chain, and business efficiency. ¾

KIRK WALDROP is a Vice President of the Supply Chain Operations Consulting team at Chainalytics, where he leverages more than 18 years of supply chain consulting experience, including facility design and optimization, forward and reverse logistics process improvement, strategic sourcing, third-party logistics audit and management, and transformation program management. Kirk can be reached for comment at kwaldrop@chainalytics.com

JANUARY-FEBRUARY 2016 | www.PARCELindustry.com

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ALL SIGNS POINT TO AMAZON: E-COMMERCE GIANT MOVING INTO LOGISTICS

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f big business is about gaining leverage and using it to chart profitable paths into new industries, then the biggest business of all may soon be Amazon.

After a record holiday season that topped $35 billion in net sales, the once-modest purveyor of online books — it’s hard to believe Amazon is now two decades old — continues its strides toward dominating the e-commerce landscape, as it posted excellent 3Q 2015 results.

But beneath the sheer volume of goods shipped into homes for the holidays lies a behemoth making strategic moves on a dizzying scale, moves so varied that it’s easy to lose sight of where they seem to be heading. Evidence is building for one direction: Amazon is preparing to disrupt the global logistics industry.

“We believe Amazon may be the only company with the fulfillment/distribution density and scale to compete effectively with global UPS/FedEx/DHL,” said a recent Baird Equity Research report.

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Fully analyzing Amazon’s long-term prospects in global logistics requires a closer look at how it’s fared in some recent strategies that, on the surface, appear unrelated. Taken together, though, they demonstrate a calculated march.

FIRST, OUT-MOBILE GOOGLE IN SEARCH; DOMINATE E-COMMERCE Lest we forget, 2014 marked the year that mobile Internet users exceeded desktop-bound ones, according to research firm comScore. That trend is having a profound effect on how people search and shop for goods, which in turn affects online search ad revenues. Which in turn is tilting online ad revenues in favor of Amazon over Google.

More than half of Amazon’s mobile sales growth is coming from its own app users, according to recent analysis from Morgan Stanley, which concluded that “over time we believe larger app audiences can lead to lower long-term customer acquisition costs, stickier customer

JANUARY-FEBRUARY 2016 | www.PARCELindustry.com

bases, and a greater share of consumer wallet.” Translation: instant gratification spurs consumption.

Amazon Prime memberships are fueling that growth. The program, now two decades old, grew by 53% in the past year, including 3 million in the third week of December alone, the Associated Press reported. The company kept secret the actual number of memberships; while analysts vary wildly in their estimates, a conservative one from Forrester Research puts the number of Prime memberships at 25 million, or roughly 30% of all US online shoppers.

Amazon’s success in this area could spell erosion of Google’s ad base and revenues through a simple but powerful dynamic. The money Google makes from its search engine comes predominantly from searches that lead to shopping (roughly 20% of all searches). But mobile shoppers are increasingly starting their searches on Amazon, not Google (especially with the rise of Amazon Prime

By Will Workman memberships). And, more importantly, the mechanism by which consumers search and shop for goods is far more simple and convenient with a mobile app like Amazon’s than with any desktop program, Google or other, as Business Insider’s Nicholas Carlson has pointed out.

Capturing consumers and ad revenues with its powerful mobile app is mirrored on the other end of the equation: A third of brands selling online say Amazon carries 75% or more of their catalog, according to a recent survey by Retailing Today and ChannelAdvisor. E-tailers have to do business Amazon’s way; consumers are being conditioned to do so.

SECOND, TAKE YOUR PROFITS AND PLOW THEM INTO DISRUPTIVE TECHNOLOGIES For two decades a primary Wall Street criticism of Amazon is that it makes profits, but loses money. But that assessment overlooks where the profits are going: Back into infrastructure Amazon is building.

“Amazon has decided to continue to invest to arm itself for a much larger scale of business,” (emphasis mine) argues blogger Eugene Wei, a former Amazon exec.

For a massive, publicly-traded company, Amazon has a shareholder base that “historically is tolerant of margin volatility relative to the ‘profit mandates’ of traditional Transportation & Logistic shareholders, a significant competitive advantage in our view,” concluded the Baird report.

That’s because Amazon has convinced its investors it can leverage its infrastructure investments to generate profits... to invest in more infrastructure and more profit opportunities.

Amazon Web Services (AWS), its cloud computing platform (i.e. infrastructure for data), provides the most potent evidence to date that this strategy can work. AWS has matured rapidly into a $5 billion business, one that’s already profitable for Amazon (a cool $2 billion in revenue for 3Q 2015, up 78% from the previous year).

The success of AWS has stunned the investor community, finally putting a gloss on the plea Amazon CEO Jeff Bezos has been making all along: Trust me.

With AWS and more than 100 massive DCs globally, the more important question to ask is, What is Bezos planning to use that infrastructure for?

THIRD, USE YOUR STRENGTHS TO PIVOT INTO AN INDUSTRY RIPE FOR DISRUPTION The Baird Report concludes that global logistics represents an opportunity for Amazon worth half a trillion dollars, one for which its infrastructure is perfectly positioned.

“Global logistics is a highly competitive market that we believe has yet to fully capitalize on the emergence of web-based technologies such as cloud computing, data-centric analytics and optimization that can reduce inefficiencies throughout the supply chain,” the report states.

“Amazon’s cloud technology expertise and increasingly complex fulfillment, logistics and delivery network seem to be obvious foundation to offer third-party services.”

So here’s the picture we can assemble so far: Amazon can leverage its financial strength, customer base, mobile superiority, AWS and logistics infrastructure — all toward dominating the purchase and

delivery of e-commerce products. The only element Amazon lacks is the means to get to customers’ doorsteps seven days a week.

It took the first major step in that direction in 2014 with its USPS deal, which Bernstein Research estimates now delivers 40% of all Amazon packages, including on Sundays and including groceries (yes, Amazon Fresh is trying to disrupt that industry as well, but with little success so far). Since declaring its USPS alliance two years ago Amazon has set up 15 sorting centers to do the work of getting the right packages to USPS drivers, and can leverage its own DC network — all to drive down costs.

And now there are reports that Amazon is quietly pursuing top logistics talent to build a management team. But to manage what?

NEW WORLDS TO CONQUER Perhaps Amazon will start buying its own trucking fleet to bypass the current national duopoly. To that end the company announced in early December it was buying “thousands” of Amazon-branded trucks, while stressing it will still continue to rely on its trucking partners.

Perhaps Amazon will take the bankrupt USPS off the federal government’s hands (for a pittance) and build a parcel powerhouse. Or stitch together a network with purchases of regional carriers.

Perhaps Amazon will leapfrog entirely any trucking solution by taking to the skies. It is already preparing a fleet of low-cost drones (which recently received FAA approval) for home delivery. Also, reports last month emerged that the company is leasing Boeing 767s to handle its air cargo business.

Perhaps, perhaps, perhaps.

There is only one certainty: Amazon’s logistics infrastructure will be leveraged, generating seismic effects on the industry. ¾

WILL WORKMAN is Director of Corporate Communications at ClearView Audit, a shipping logistics technology and consulting firm, and a veteran newspaper and magazine journalist, most recently covering television technology and broadband.

Contact him at wworkman@clearviewaudit.com.

JANUARY-FEBRUARY 2016 | www.PARCELindustry.com

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By Sheila Donovan

ARE YOU OVERLOOKING OBVIOUS E-COMMERCE OPPORTUNITIES?

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etermining all of the factors that create a successful global e-commerce business can be an elusive task. You have to shift through the countless tools and apps that build websites, analyze traffic, engage customers, and ship products.

Equally as important, but often overlooked in global e-commerce are cultural and economic factors. Beliefs and values are a core part of religion, making religious beliefs an integral part of a nation’s culture. Retail and e-commerce companies that are aware of the major religious holidays, especially those involving gift-giving, will be well positioned to capitalize on the sales spike associated with these events.

Let’s start with Christmas, which is a Christian holiday. It makes sense that

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countries with large Christian populations are likely to purchase Christmas gifts. We all know that the Christmas holiday has spawned two major shopping days, Black Friday and Cyber Monday, both originating in the United States.

Retailers around the globe have spotted the enormous opportunity that shopping events such as Black Friday and Cyber Monday offer and many have jumped on the shopping event bandwagon. Some countries have adapted the concept to better suit their culture and market. For example, in Lebanon, the day is called “White Friday” and Mexico’s version of “Black Friday” is a three-day event in early November.

The chart below lists countries that have “Black Friday” style shopping events modeled after the US.

JANUARY-FEBRUARY 2016 | www.PARCELindustry.com

Argentina Australia Austria Bolivia Brazil Canada Colombia Denmark France Germany India

Ireland Lebanon Mexico New Zealand Nigeria Panama Romania South Africa Sweden Switzerland United Kingdom

It is no surprise that the Black Friday shopping bonanza concept has been adopted in nations with high Christian populations, but India is a surprising standout.

Only 2.3% of the country’s population is

COUNTRY

GROSS NATIONAL INCOME LEVEL PER CAPITA

Argentina Australia Austria Canada Denmark France Germany Ireland New Zealand Sweden Switzerland United Kingdom

High Income High Income High Income High Income High Income High Income High Income High Income High Income High Income High Income High Income

Christian and Diwali, not Christmas, is India’s major gift-giving holiday.

Clearly, religion is not the only cultural factor that influences buying habits. China’s socio-economic policy known as “The One Child Rule,” which will expire next year, created an imbalance in the population with males outnumbering females by more than 20 million as of 2011. It is widely believed that in the 1990s, a group of male students at Nanjing University created Bachelors’ Day to honor being single. Since then, this unique day has morphed into Singles’ Day. In 2009, China’s Alibaba began heavily promoting Singles’ Day as a shopping day and has since trademarked the term.

Held each year on 11-11, Singles’ Day celebrates being single and splurging on oneself. In 2015, Alibaba Singles’ Day surged to $14.3 billion, quickly outpacing Cyber Monday in the US. Retailers and e-tailers are not the only companies seizing the vast selling opportunities on Black Friday and Cyber Monday. Envios de Colombia, the country’s official postal operator, has created a service called 4-72, which regularly promotes Black Friday and Cyber Monday.

Shoppers can have their parcels shipped to the company’s US collection point address, which are ultimately delivered to the recipient by Envios de Colombia.

It is proven that demand can be driven to new heights by culturally driven events, but what about economic buying power?

Brazil China Colombia Lebanon Mexico Panama Romania South Africa

Upper middle income Upper middle income Upper middle income Upper middle income Upper middle income Upper middle income Upper middle income Upper middle income

Bolivia India Nigeria

The breakdown of Gross National Income per Capita tells an interesting story.

Of the 23 countries listed above that have a Black Friday and Cyber Monday styled mega-shopping events, 52.17% are High Income nations, 34.78% are Upper Middle Income and 13.04% are Lower Middle Income as defined by the World Bank.

Consumers in developed nations not only have higher incomes, they also have easier access to credit cards and fewer restrictions on using the card for cross-border transactions than in Upper Middle Income and Lower Middle Income nations. However, the continual increase of credit card usage and alternative payment methods in Upper and Lower Middle Income nations will give consumers in these nations greater buying power in the future.

Smart retailers and e-tailers recognize that in developing nations, average household incomes and the purchasing power of its citizens are lower. They often realize that they have to offer pricing that is affordable in the market and this is precisely what eBay has done in India.

During their Black Friday Rush, eBay India promised to provide the Indian consumer with the world’s hottest labels and coolest brands from the comfort of their home at unbelievable Indian prices. The site was boasting prices of up to 70% off.

Other sites, such as grabmore.in, were offering deep discounts such as 66% off.

While India does have a rapidly growing

Lower middle income Lower middle income Lower middle income

middle class and its fair share of wealthy citizens, these aggressive pricing strategies are sure to open the buying opportunity to a much wider audience of consumers.

When developing your global e-commerce strategy, it is very important to learn about the people of the country.

Understand their culture, including their celebrations. Celebrations are often accompanied by gift giving, which is a rapidly growing e-commerce opportunity.

Also, be aware of the average incomes within your target nations and price your product within the buying reach of the citizens. It does not matter how much they love your product. If the cost is prohibitive, your sales will be limited to only the wealthier people within the country.

There are dozens of reliable sources online to help you with your research.

The CIA World Fact Book offers detailed profiles of virtually every country and is a great place to start. If you need detailed economic information, you can visit World Bank or the International Monetary Fund sites. ¾

SHEILA DONOVAN is the President and Founder of Global DM Solutions, an international direct marketing agency specializing in compliance based marketing and contact data quality. Ms. Donovan has assisted many companies such as Forbes, The Wharton School of Business, Cornell University, Macy’s, Chanel, and DHL with their international data management and marketing needs.

JANUARY-FEBRUARY 2016 | www.PARCELindustry.com

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APPLICATION ARTICLE

The Future of Shipping Is Dimensional Weight: Here’s What You Need to Know From small businesses and mail counters to large operations and warehouses, parcel and package shipment is a daily occurrence.

Many of these facilities routinely use large shipping carriers, such as FedEx®, UPS® and DHL®. In order to more accurately reflect billable weight, these large carriers are now determining shipment pricing based on either dimensional weight or actual weight—whichever is greater.

Dimensional weight, often referred to as dim weight, reflects the package’s density—the amount of space the package utilizes in relation to its weight. To determine dim weight, a package’s length, width and height are multiplied, resulting in its cubic size, and then divided by 166 for domestic or 139 for international shipments.

When lightweight items are shipped in large packages, carriers can reach maximum volumetric capacity in their shipping containers far before reaching weight capacities. To better maximize carrier capacity and efficiency, dim weight policies prompt shippers to more efficiently package their items with less wasted space and to maintain a higher regard for the importance of package density. Companies who ship packages without properly calculating dim weight will pay increased shipping costs from miscalculated dimensions or due to freight compliance issues.

Implementing Dimensional Weighing Measuring dimensions manually is more time consuming than obtaining the package’s weight with a conventional shipping/ postal scale. How can businesses ensure freight compliance and deter revenue-loss from miscalculated dimensions, without adding time to their process? There are manufacturers modernizing dimensioning technology to provide shippers with solutions to quickly, efficiently and accurately obtain package dimensions for shipment with dimensioning systems.

Dimensioning systems use sensing and imaging technology to calculate the dimensions of packages to determine dim weight. Although dimensioning systems differ in performance and technology, they provide valuable solutions to ensure companies optimize dim-weight shipping with accurate package dimensions—all without slowing processes.

Dimensioning Key Facts 1. Optimize the way you package items. Pack items with only the material needed to safely ship and choose the best-sized cartons.

2. Use quality packaging materials for strength, durability and to reduce the amount of empty space when determining dim weight.

3. Do your research. Speak with your carriers to determine the dim weight policies they have in place. Knowing the shipping requirements now can help deter compliance fees in the future.

4. Document your total monthly shipping charges to ensure your dim-weight shipping charges are accurate and that you’re measuring the correct dim weight.

5. Poly bags, tubes and irregular shapes need cubic measurements to determine dim weight. Manually measuring irregular cubic dimensions can be complicated—a dimensioning system can measure them for you.

6. Streamline your system. Utilizing dimensioning systems can maximize your process flow and limit the amount of time spent measuring dim weight.

7. Not all dimensioning systems are created equal. If speed, accuracy and dependability are important to your shipping business, ensure that your dimensioning system can deliver all three.

8. If you ship a variety of items, from oversized packages to thin mailers, closely research the maximum package height and widths dimensioning systems can measure.

9. Certain dimensioning systems can integrate scales to provide package dimensions and weight at the same time. Some can integrate this data with existing shipping software as well.

10. Consider maintenance and support when you purchase a dimensioning system. Does the dimensioning system you purchase include a support network?

www.ricelake.com/idimension 800.472.6703 dimension@ricelake.com

By Jeff Haushalter

TACKLING GOLIATHS: TECHNIQUES FOR SMALL TO MEDIUM SHIPPERS

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any small to medium shippers believe they are at a competitive disadvantage because of their smaller size. Carrier price increases, free shipping pressures, dimensional (dim) charges, accessorials, and fuel surcharges are real marketplace challenges that can eat up and erase profits.

The term “Goliath” can be applied to certain parcel shippers. These giants have several common traits: a huge customer base, powerful Internet/omni-channel ecosystems, broad products lines, operational scale, and the ability to set consumer expectations on price, service and freight policies.

While giant shippers have certain marketplace advantages and seemingly endless resources, the story of David and Goliath can be used to build a winning plan of attack. Here are four techniques small to medium shippers should deploy that level the playing field.

won. There are two lessons to be learned: All competitors have vital weaknesses Battles can be sometimes won or lost before the other can react Goliaths are not invincible. One weakness they share is that they often compete to sell at the lowest possible price.

This, obviously, is a destructive habit since only one supplier can have that lowest price.

While it is important to understand the weaknesses of your competitors, it is vital that you understand the strengths in your operation. Common areas of advantage in

DON’T MAKE COSTLY MISTAKES It is imperative that you understand the weaknesses in your operations and avoid costly mistakes.

One easy way to identify vulnerabilities and mistakes is to “staple yourself” to an order and follow it through your fulfillment organization. Look for process breakdowns at the systems, package,

HERE ARE SOME OTHER WEAKNESSES:

EXPLOIT WEAKNESSES AND STRENGTHS In the story of David and Goliath, a heavily armored giant, Goliath, challenges his enemy to fight one-on-one to decide a major battle. David, an undersized shepherd boy, accepts the encounter.

David decides to use the element of surprise and slings a rock at Goliath’s head. Goliath is incapacitated by the blow, dismembered, and the battle is 22

small to medium shippers include: fewer SKUs, manageable daily order volumes, consolidated operations, decreased employee turnover, fewer layers of management, enthusiasm, and employee loyalty.

JANUARY-FEBRUARY 2016 | www.PARCELindustry.com

Goliath Weakness

Why It Matters

Desire for market dominance

Constant expansion and disruption into new markets, loss of focus

Some are not making money

View investment categories as loss leaders

They sell a wide variety of different items: dense, light, bulky, small…

Incompatible ordered items add extra cost, generate more handling and split orders

Big push towards Omni-Channel fulfillment

Difficult and expensive to find the right store/warehouse balance

Pursuing a lowest cost fulfillment strategy

Some customers appreciate “no-frills” fulfillment experiences. Others want to be delighted

They have intense package volume peaks and dips

More packages = more problems.

Fewer packages = sub-optimized supply chains

Lowest cost often means using the slowest methods

Delivering faster is one way to improve margins and increase customer loyalty

supply partner and customer experience levels. Red flags to look for include: costly accessorial/dim charges, lack of repeatability on similar orders, rework to get things right, manual methods, and lack of repeat customers.

It is easy to blame old antiquated systems or lack of systems for less than stellar performance. We have found, however, that if we give two companies the same “modern” system, after a year they will have very different success stories.

The reason for this gap is the emphasis winning companies place on training and culture. First, work methods must be consistent, correct and repeatable. Next they need to link back to your company’s culture and values. After those two steps are done you can consider investing in systems and automation.

For companies looking for solid operational investments we recommend the following: multi-carrier shipping (TMS) systems, cartonization methodology improvements, better packaging regimes (how many bags to have and their sizes),

capture of accurate item dimensions and weight, address verification and scrubbing software, customer service and order processing tools.

LEVERAGE YOUR SUPPLY CHAIN NETWORK There are two problems with pretending to be a Goliath: It is incredibly expensive and each Goliath is different. Duplicating Amazon’s business involves a different set of supply chain investments than matching Walmart.

One key difference we see between David and Goliath operations is the daily breakeven package volume needed to make that operation efficient. Many Goliath facilities and supply chains are designed for and dependent on a very large package flow.

For shippers whose volumes are growing it is wise to consider a warehouse network analysis. This study will explain the benefits of adding warehouses in different geographic parts of the country.

For example, a shipper in the Midwest with one warehouse would be able to calculate the drop in average zone from

pursuing a dual or triple warehouse strategy. Service improvements such as days in transit and same day shipping can also be modeled and measured.

The analysis will show benefits accruing as more warehouses are added; however, the marginal benefit diminishes as more warehouses are added. Put differently, going from one to two warehouses generates more incremental savings than moving from two to three warehouses or from three to four.

Customers appreciate cost competitiveness and prefer shorter lead-times.

We have modeled this effect and have shown increased sales from getting product to customers faster. This effect is very dependent on the marketplace, however, so knowing your customers’ responsiveness is important.

For those small to medium shippers who are service focused, three well-placed warehouses can provide two-day ground service to the lower 48 states. Multiple warehouse networks also provide more shopping days to your customers as these holidays approach.

JANUARY-FEBRUARY 2016 | www.PARCELindustry.com

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CHOOSE YOUR BATTLES David would have surely perished if he had battled Goliath in a traditional handto-hand fight. Instead David chose a safe standoff distance and hit Goliath quickly with a surprise attack.

When you do bump up against a Goliath, you need to understand where you win and where you lose. Remember that all battles are won on cost and service.

The easiest territory to defend is the market around your existing distribution warehouses. Your costs are the lowest possible (Zones 2-3) and your time in transit is as low as it can be using ground as a delivery method.

We encourage all shippers to perform a competitive zone analysis versus those Goliaths you feel threatened by. You will likely discover customer regions in which you dominate, those which you match the competition, and those in which you find yourself disadvantaged.

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Feed these findings back into your marketing department and use them to capture new customers in regions where you are competitively matched. For more difficult higher cost regions, targeted incentives can be offered, encouraging existing customers to stay loyal.

PULLING IT TOGETHER Hollywood and the evening news have taught us that the more difficult the struggle the more exciting the story. It is in our DNA to root for the little guy, the underdog.

The daily struggles and victories of small to medium companies are interesting to customers. These stories need to be personalized and humanized.

One emerging differentiator between David and Goliath shippers is the respect for the customer. Use downtime in the call center to thank your customers for choosing your company. Explain how important they are to your continued success

JANUARY-FEBRUARY 2016 | www.PARCELindustry.com

and tell them how you are working as hard as you can to make their orders perfect.

Plan your future by capturing ideas from these conversations. Understand what customers valued about the transaction and what products and features they wished you provided. Listen carefully because these are, after all, your customers.

In boxing, many successful fighters can punch above his or her weight. The same can be said for companies who ship products to customers. By focusing on the four elements above, small to midsized shippers can better prepare for the inevitable brush with a Goliath and emerge victorious. 他

JEFF HAUSHALTER, Partner Chicago Consulting and frequent speaker at the PARCEL Forum, can be reached at jeff@chicago-consulting.com.

SMART TOOLS TO SUCCEED IN THE NEW SHIPPING REALITY

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ecent headlines have made it crystal clear that for today’s shippers, it’s anything but “business as usual.” On one hand, shippers face the constant threat of growing competition from existing and new market entrants. Google, for example, announced plans to test same-day grocery delivery in key markets.

Who saw that coming a few years ago, and what does it mean for other stores in those test markets?

On the “business as usual” side, shippers continue to battle rising shipping costs. Everyone took notice when FedEx announced its 4.9% rate increase for Janu-

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ary 2016, and UPS followed with a rate increase of its own for the same time frame.

Further, a survey conducted by Logistics Management concluded that “the new reality for shippers is one of transportation rate increases into the foreseeable future.”

According to the Journal of Commerce, carriers point to higher equipment costs and, especially, the cost of finding, hiring, training and keeping truck drivers as factors pushing contract truck rates higher in the long term.

Many companies are working hard to find new ways to serve their customers while controlling such operational costs.

For example, when Amazon launched Amazon Flex, a same-day, same-hour delivery

JANUARY-FEBRUARY 2016 | www.PARCELindustry.com

program in Seattle, it adopted an Uberlike framework in which independent drivers can sign up via an app to deliver packages in their own vehicles. The Wall Street Journal cited this as “the latest move by Amazon in its perpetual drive to lower shipping costs and pare delivery times as it seeks to become the central commercial hub for all shoppers.” This solution may help Amazon control delivery costs, but it is also likely to add competitive pressure for many of the area’s businesses.

These announcements all underscore today’s highly dynamic business climate, where one company’s innovations can disrupt another company’s “business as usual” almost overnight.

By Bob Fischer

1. CARTONIZATION SOFTWARE Optimized order packing decisions can yield a tremendous ROI in controlling shipping costs. This can be achieved by adding cartonization software to your order fulfillment workflow. Cartonization software uses sophisticated algorithms to calculate the ideal shipping carton size for the greatest packing efficiency and lowest shipping costs. Shippers have numerous choices in this area, thanks to continuous advances in technology.

HOW TO SURVIVE AND THRIVE Very few companies have the deep pockets of Amazon and Google to test innovative new programs and services and even operate them at a loss until they determine their viability. But all of us can make advances by investing more time in “working on our business, not in it.”

Companies that consistently study their marketplace and adopt a philosophy of continuous improvement are in the best position to succeed. Those who are willing to invest in purpose-driven technology and refresh it to respond to market changes also have an edge. Yet many companies still rely on manual processes to manage their operations. In the Logistics Management survey,

2. DIMENSIONING SYSTEMS Another option, if you’re not using cartonization software, is to automate dimension capturing. There are numerous benefits to be gained by doing this in both receiving and shipping operations.

While large companies may already have sophisticated dimensioning systems in place, many small to mid-sized companies do not. Their staff is manually measuring and keying dimensions into their system. Not only does this add to labor costs and slow down the shipping line, but it opens the door to significant carrier back charges due to discrepancies in dimensional measurements.

Automatically capturing accurate package dimensions upfront, before the shipment leaves the facility, is the best practice to control these costs. This is another area of automation where the technology continues to get better while the purchase price goes down. A number of flexible and cost-effective dimensioning systems are now available to streamline the dimensioning process, with a rapid ROI. 3. CARRIER-AGNOSTIC SHIPPING SOFTWARE Let’s imagine that your biggest competitor introduces a free shipping program to

TAKE CONTROL OF AUDITING YOUR PARCEL INVOICES

DO IT YOURSELF!

which included 400 companies, 27.5% of respondents said they’re still using manual methods, supplemented with email and spreadsheets, to manage their domestic transportation.

Using technology to replace manual processes is critical, but it’s also important to invest in responsive technology that facilitates proactive decision making to control operating costs. At a minimum, shippers should consider the following technology tools:

Parcel invoices can be full of errors. Late deliveries, consolidated shipments, and incorrect fuel and accessorial surcharges can leave you exposed to overcharges that you don’t know about.

But your only option to eliminate these overcharges is normally to use an outside auditor.

Now there’s a solution. With our TrafficPro Parcel Auditing Software, you can easily audit and pay your invoices in-house.

And the reporting capabilities will allow you to quickly and easily track your parcel expenses.

Contact us today and we’ll show you how to gain control of the auditing of your parcel invoices.

Garry Oswald 800-775-8253 ext 206 goswald@natraf.com www.natraffic.com

JANUARY-FEBRUARY 2016 | www.PARCELindustry.com

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woo your online customers away. Or your primary carrier announces a rate increase that will gouge your profitability. Can you quickly switch to alternative, cost-effective regional carriers who can tailor transportation plans to meet your specific needs? Perhaps; regional carriers such as OnTrac, LaserShip, Eastern Connection, and Spee-Dee Delivery, for example, all have strong regional delivery networks that may meet your needs. Another cost-saving option is to add national carriers whose rates do not include residential, rural and/ or fuel surcharges such as USPS and DHL eCommerce to your portfolio.

If you’re using “free” carrier-provided systems, adding new carriers is a challenge. It can be fairly easy to do and yield huge savings when you invest in flexible technology. The best solution is to implement carrier-agnostic multi-carrier shipping software to manage and compare all your carriers on a single system. The

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shipping software should make it easy to add national, regional, local and international carriers and rates. This ensures that all possible delivery options are objectively compared to yield the right carrier service at the lowest possible cost.

The right system will streamline labor and prevent shipping errors by auto-generating carrier-compliant shipping labels and documents in seconds.

4. REPORTING AND ANALYSIS SOFTWARE In the spirit of working “on our business and not in it,” it pays to create comprehensive shipping reports to analyze historical order and shipping data and identify areas of improvement, internally and with your carriers. If you don’t have it, add reporting and shipment analysis software to your transportation system.

Some vendors provide it as part of their solution, but if not, a multitude of third party solutions are available.

JANUARY-FEBRUARY 2016 | www.PARCELindustry.com

SUMMARY Granted, these are not exactly “plug and play” technologies — they’ll need to be integrated to exchange information with your other systems. But the payback is well worth it. Our recommendation is to start by asking your logistics technology providers for advice. If you’ve partnered with a sizable ERP, order fulfillment or shipping software vendor, the odds are good that they’re working with other companies like yours who have the same challenges. Also, never stop asking questions — your vendors should be at the forefront of emerging trends like those discussed here and in a good position to help you plan ahead. ¾

BOB FISCHER, founder and CEO of ADSI, is a recognized logistics expert with 30 years of logistics technology experience. He can be reached at bfischer@adsionline. com. For more information on ADSI shipping software and dimensioning solutions, visit www.adsionline.com.

HAVE YOU ‘HIRED’ YOUR CARRIERS?

C

onsider the following scenario. You are the supply chain manager at a large, publicly traded company.

Your company has just reported record revenues and profits on its latest earnings call.

Your group has exceeded expectations by reducing cost, improving client survey results from previous years, and reducing waste from the system. You and your team are doing the job better than it has ever been done at your company before, and the outlook is bright.

As you sit down for an annual performance review with one of your direct reports, she starts to rattle off statistics about her performance. She knows her job very well, and she has done everything she has been asked to do. Her numbers exceed her goals, and she understands that her efforts have contributed to the success of the department. You have witnessed the impact she has had throughout the year.

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She is a steady worker, churning out consistently reliable work, and is a great value to the team. She hasn’t set the world on fire, and as a result her solid performance is often taken for granted.

You patiently listen to her finish her compelling narrative, acknowledging her effort. You subsequently remind her of a handful of times that she missed the mark on her a couple of assignments, and how that has inconvenienced you.

The focus of the remainder of the review, of course, is on how to improve upon this year’s results. She will need to anticipate the changing needs of the group, without being invited to any of the management meetings. Additionally, you will need her to take a pay cut for doing the same job.

This year, there will be penalties enforced if she does not meet the escalating goals, so any raise she could hope for next year could be dampened by these penalties.

Did I mention that she is one of only two or three people in the country who have

JANUARY-FEBRUARY 2016 | www.PARCELindustry.com

By Jake Zidlicky the knowledge and ability to do her job?

This scenario sounds incomprehensible, right? As managers, we all realize that this employee, this valuable, productive member of your team and significant reason for your success, is going to be looking elsewhere. While she may stay, and might even continue to produce high-quality results, what happens if she falls just short of the loftier expectations, and therefore takes another pay cut?

How loyal do you think she will be? How inspired will she be to develop creative solutions for you?

This scenario seems very unlikely, I agree. Who would repeatedly treat such a valuable resource this way, especially given the rarity? Would you blame the employee from walking away from this organization? The intellectual capital, the tools, and the capacity she possesses make her an in-demand resource.

So now let’s rewind back to the start of that first performance review. What

changes if you start off affirming the performance, sharing how her contributions not only helped the department, but also how those efforts made a tangible impact on the company’s record year? While shortcomings are still reviewed, the focus is on lessons learned and actions taken to prevent recurrences. The majority of the review is spent discussing strategic initiatives of the company, and how the department will support and lead those initiatives. You engage her in the discussion, and she has some surprising insight from her years of experience. This time, goals set are mutually beneficial, and reasonable targets with milestones to measure progress are agreed upon.

Throughout the year, she is included in strategy meetings to provide input on various initiatives.

How much more motivated is your employee to achieve, and likely exceed, those goals? How imaginative might she be in identifying process enhancements or reengineering, since she is now sharing in the rewards of those initiatives?

Follow me now and let’s shift gears.

What if rather than talking about an employee in our charge, we are talking about a national parcel carrier? If carriers are “working” for us, providing valuable service in exchange for compensation, why is it we treat them so differently than we do our employees? The best managers I have worked for spend the majority of their time helping those under their supervision become better, more productive assets to the company. Why should this be so foreign when managing carriers? After all, it is in our best interest as shippers to have prosperous, effective delivery partners who have a vested interest in our success.

I suspect that the primary reason we resist approaching carriers like employees is a lack of trust. We talk about working “with” our carriers, but they ultimately have different authorities to which they must answer. Many times these represent a different set of shareholders who measure success by ROI, EPS, and dividend yield, but not ours. Do we really believe these vendors could be vested in our business enough to seek true win-win solutions?

Admittedly, I’m a skeptic by nurture (I’m pretty sure this is a learned trait).

Often the one trying to poke holes in stories, I play contrarian for the sake of argument. My experience has been that vendors may not be willing to operate as an extension of your organization. Conversely, Strategic Business Partners are not only willing, but are usually seeking opportunities to do just that. Developing solutions that mutually, if not always equally, benefit both parties is something on which these partners thrive.

The leadership of these organizations, in highly competitive and often limited-margin categories, understand the value of long-term relationships and is willing to step out of the traditional, confrontational roles of Us vs. Them.

These folks welcome the opportunity to open up operational expertise and statistics that have historically been the “man behind the curtain.”

If you’re like me, you yearn for this kind of relationship with your carriers.

How much easier would your life be if your carriers were as interested in your success as you were? I believe that your carriers, at least the ones you really want to be working with, are asking themselves the same question about their shipping clients. I have never run into a transportation manager who lies awake at night worrying about how to make her carriers more profitable and successful. Indeed, that would be a stretch for me. However, I can tell you that I am increasingly mindful about how I can creatively and intentionally work with these Strategic Business Partners to make them more successful.

You will not drift into this kind of relationship. Like most anything of value, these relationships take work. You may be fighting an internal culture which is addicted to cost reductions, in which Procurement is the heavy hammer brought into arbitrarily slash X% from your current spend every year. Meanwhile, you have to manage the service consequences of those “savings.” You almost certainly will be dealing with seasoned carrier representation, which has

been trained to spot shippers’ ulterior motives and protect yield and volume.

To transition your relationships from stubbornly antagonistic to productively collaborative, you will need to be straightforward about your intentions, and be transparent and genuine throughout the process. Through repeated interactions, your carriers will begin to trust your intentions, especially as they start to see you speaking in terms of how ideas will benefit them as well as your organization. I am certainly not suggesting that you begin by offering a larger rate increase than is contractually allowed, as that would be a “career-limiting decision.” Similarly, I am not suggesting that you fall all over yourself to praise your carriers for meeting your SLAs. That is what you pay them to do.

Let us begin by treating our carriers as if they care about our success, and start considering theirs. With the continuing consolidation and tightening capacity in the transportation markets, especially in the modes of parcel and TL/LTL, having loyal, engaged partners is invaluable to the long-term success of your supply chain. Let us focus on building a culture of trust and vision upon which our carriers can rely; one that extends beyond the contract term or next sourcing event.

Do I have a magic pill that you and your carriers can take to create the collaborative trust necessary to make this kind of relationship suddenly appear?

Regrettably, that formula has not been discovered. I have seen it work, though, and it can happen over time. I don’t have the kind of relationship I would like with all of my carriers, and there are still have occasional snags in the fabric of my best Strategic Business Partnerships. I struggle to increase the trust levels with some carriers, presumably like most of you do.

It is a battle worth fighting, however, as the results can be transformative. ¾

JAKE ZIDLICKY has 18 years of supply chain experience, with a focus in parcel transportation spend management and procurement. He serves on the PARCEL Forum Advisory Board, and he can be reached at Jacob.Zidlicky@gmail.com.

JANUARY-FEBRUARY 2016 | www.PARCELindustry.com

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PARCEL COUNSEL

BY BRENT WM. PRIMUS, J.D

Five Points of Warehouse Law that Every Parcel Shipper Needs to Know n this installment of PARCEL Counsel, we will take a look at the laws relating to warehouses and warehousing — a topic not previously addressed in this column. But with the rise of e-commerce, the number of parcel shipments originating at or destined for a warehouse is rapidly rising.

First Point: Warehouses are governed by state law. While carriers are governed

by US federal law and international treaties, warehouses and their operations are governed by state law. Fortunately, most states have adopted a version of Article 7 of the Uniform Commercial Code governing warehouses and warehouse receipts so there is some degree of uniformity across the United States.

Second Point: Liability standard of a warehouse. The liability of a warehouse with respect to goods in its possession is not the same as that of a carrier. A carrier’s liability is based upon the concept of a contractual breach. The carrier contracts to take an item from point A to point B and when it does not arrive at point B, or arrives damaged, the carrier is liable for a breach of the contract of carriage. There are certain things that a shipper has to prove to recover its claim, but the one thing that it does not have to prove, with a few limited exceptions, is that the carrier was negligent.

However, the standard of liability for a warehouse is that of what is known as a bailee — a person holding property belonging to another. A warehouse is required 32

both to (1) exercise reasonable care so as to prevent loss of or damage to the property and (2) to refrain from converting materials left in its care to its own use.

Accordingly, if property is lost or damaged as the result of negligence on the part of the warehouse, it will be found liable. If the warehouse is not negligent, then it will not be found liable for the lost or damaged goods. For example, if a warehouse caught on fire, the warehouse can defend the claim by showing that it had a state-of-the-art sprinkler system, fire alarms, well trained security personnel and so forth, and thus would not be liable.

Third Point: Warehouse receipts are the “contract for storage.” Generally speaking, a warehouse issues receipts at the time that the goods are delivered to the warehouse. These receipts will usually include business terms and conditions relating to the storage of the goods either contained on the receipt… or incorporated by reference to the warehouse’s standard terms and conditions found elsewhere, e.g., on its website. By tendering goods to the warehouse and accepting the receipt, the customer is deemed to have agreed to the terms and conditions of the warehouse receipt. It should be noted that high volume customers can often negotiate individual contracts which, when properly drafted, will supercede the warehouse’s standard business terms.

Fourth Point: Warehouses establish limits of liability. Warehouses almost always establish a limit of liability for damage to the goods in their possession. Typically these limits are very low, e.g., $1.00 per pound or even $0.50

JANUARY-FEBRUARY 2016 | www.PARCELindustry.com

per pound. The limits of liability are either stated directly or incorporated by reference in the warehouse receipt.

This means that a parcel shipper should attempt to negotiate higher limits of liability and also obtain its own property insurance to minimize the effect of a limit of liability or of the warehouse not being liable at all.

Fifth Point: A carrier’s facility can be a “warehouse.” While typically someone would know when a warehouse is involved, a parcel shipper may have goods placed in a “warehouse” without having any intent to do so… or there even being an actual warehouse. This situation arises, for example, when a delivery is refused by the consignee and the carrier returns the shipment to its own terminal.

At that point in time the goods are no longer considered to be “in transit.” Virtually every carrier who maintains a tariff includes a provision stating that in such event the liability of the carrier will revert to that of a warehouseman (the “Second Point” above), not that of a carrier. In addition to reverting to the warehouse standard of liability, there will often be a lower limit of liability than the one in effect while the goods are in transit.

All for now! ¾

BRENT WM. PRIMUS, J.D., is the CEO of Primus Law Office, P.A. and the Senior Editor of transportlawtexts, inc.

Previous columns, including those of William J. Augello, may be found in the “Content Library” on the PARCEL website (www.parcelindustry.com). Your questions are welcome at brent@primuslawoffice.com.

WRAP UP

BY MICHAEL J. RYAN

Ding Dong…2016 Is Here! s a parcel shipper, you just survived the largest price increase in the history of the parcel shipping industry. In 2015, there was a rate increase (4.9% but actually larger), fuel index changes, dimensional weight charges, oversize charges (just in time for peak season) and multitudes of additional charges.

What can we expect for 2016?

Hopefully it will be easier than 2015.

Here are some of the trends that I believe with continue to change the parcel shipping business this year:

3. Store to Consumer: I think we are just seeing the beginning of this trend. Most of the brick and mortar retailers have a distinct advantage by having inventory close to the consumer and could provide next day delivery by using multiple service providers. This has been Amazon’s strategy but it has done it with massive distribution centers. There are technology providers that can execute this strategy very quickly and cost effectively.

dle multiple customers. For small and medium sized organizations, this is the best route to take.

4. Multi-Carrier Shipping Technology: This is a mission critical item to deploy in 2016. A multi-carrier technology will provide you the opportunity to optimize

7. Amazon: It looks like it is about to launch its own dedicated air network in the US. There is speculation that it is going to take over the three primary Hubs from DHL’s old domestic network (Wilmington, OH; Allentown,PA and Riverside,CA). This is the beginning of Amazon in building out its own network in a play to reduce its cost and take control of the service levels.

6. Regional Carriers: These carriers are gaining more strength in the e-commerce space and are well aligned with the Store to Consumer model. If you have not looked into the regional carriers, I would highly recommend this strategy for 2016. They offer an alternative solution from the big carriers.

With the advent of Amazon and the USPS getting stronger, this should bode well for the shipper.

1. Dimensional Weight/Oversize Charges: The major carriers want to get paid for the space and/or weight of any package. This continues to be a drag on most companies and should be a number one priority for most shippers in terms of minimizing the extra fees. If you are offering free shipping, this will wipe out your profit, so take a hard look at this.

2. USPS: The USPS is becoming a viable carrier in the B2C space. With its recent price increase (January 17, 2016), it has made a statement that it wants to drive as much business as possible through its Parcel Select program. It is driving the package consolidators to enter these parcels at the DDU level, which makes sense because the USPS has the largest delivery network in the US. The Priority Mail service is exploding and becoming a widely used service for many e-commerce companies.

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your shipping cost and service. These systems always seem to be a little pricy but they have a quick return on investment and will position your company to be more competitive.

5. 3PL Outsourcing: There are many organizations that try to “do it all” and they go through a long and expensive learning curve. There are many e-commerce fulfillment companies that can provide the scale (from start up to full scale). They also get the advantage of pooling their volume for their customers, which can lower their shipping cost. They have all the technologies and processes in place to efficiently han-

In 2016, the competitive landscape for the parcel business will continue. With the advent of Amazon and the USPS getting stronger, this should bode well for the shipper. FedEx and UPS can no longer keep driving the cost up. A healthy dose of competition should make them re-think their pricing strategies.

However, most of their business is powered by B2B customers but a drop in B2C could impact their network efficiencies. ¾

MICHAEL J. RYAN is the Executive Vice President – Parcel Solutions at Pro Star Logistics and has over 25 years of experience in the parcel industry. He can be reached at 708.224.1498 or michael.ryan@prostar.com