PARCEL November-December 2015

PARCEL

NOVEMBER-DECEMBER 2015 www.PARCELindustry.com

GIVE YOUR PACKAGING THE LOVE IT NEEDS IN A HOSTILE WORLD P.14

HOW DOES YOUR ORGANIZATION STACK UP TO YOUR PEERS’?

SURVEY RESULTS REVEALED. P.16

5 TOP TIPS FOR IMPROVING YOUR ROI. P.20

SHIPPERS’ PERSPECTIVES ON THE PARCEL CLIMATE THIS PEAK SEASON AND BEYOND. P.12

CONTENTS

NOVEMBER-DECEMBER 2015 | volume 22 | issue 7

Features

Departments 06 Editor’s Note

A Successful Wrap-Up to 2015

By Amanda Armendariz

07 Supply Chain Pivot

Goodbye, Adios, Sayanora

By Rob Shirley

08 Supply Chain Success

The Future of Asia-Pacific Trade

By Elijah Moon

09 Ship Right

2016: The Year of the Self-Served Consumer

12 Shippers’ Perspectives on the Parcel Climate

PARCEL PRICING & this Peak Season and Beyond 2015 BENCHMARKING SURVEY: LIVE PARCEL FORUM RESULTS UNVEILED

By Mike Lambert

By Christoph Stehmann Our primary parcel carrier is: 50

Parcel spend (~Annual Net Revenue) 20

51.3%

10

40

For the third consecutive year at the PARCEL Forum, Shipware, LLC conducted a live parcel pricing and benchmarking survey in which 77 shippers responded to survey questions about their parcel usage, carrier preferences, pricing discounts, cost reduction strategies and other valuable benchmarking data. Survey respondents collectively commanded approximately $2.8 billion in annual parcel spend.

We asked the questions, you provided responses. Contracts were not shared, but rather, participating shippers responded anonymously to survey questions based on ranges. Technology-enabled and totally blinded to avoid confidentiality concerns, the survey was designed to help shippers better understand how their pricing stacks up with other shippers. Moreover, all survey responses were cross-tabulated by industry, company revenues, primary

SURVEY DEMOGRAPHICS Industry

5.3%

carrier, and annual parcel volume/spend for more meaningful like-volume correlations.

Why is benchmarking parcel pricing data so critical? Well, the most common challenge I hear from volume parcel shippers is that they don’t know how good — or bad — are the incentives, terms and structure of their carrier pricing agreements. While no shipper would ever negotiate a contract and knowingly leave money on the table, the reality is that some shippers have clearly done a better job than others when it comes to negotiating the most favorable rates and terms.

Published for the first time to non-survey participants, this article provides survey results on general parcel procurement, discounts/ pricing benchmarks, DIM divisors and minimum charges, and mode/carrier optimization.

My employer’s primary industry

Retail/Wholesale/ E-Commerce 19.7%

Manufacturing 3PL, Warehousing, Fulfillment, Distribution Other

14 Give Your Packaging All the Love It Needs in a Hostile World

By Tom Blanck

6.6%

1.3%

0%

FedEx

1.3%

2.6%

USPS

FedEx SmartPost

Regional Carriers

UPS

Other

UPS SurePost or UPS MI

Parcel Volume Annual parcel volume revealed a balanced mix of small, medium, large and huge shippers, although as expected for the PARCEL Forum audience, nearly half the survey participants shipped high volumes of more than 3 million parcels annually.

Annual Revenues Small and large companies alike were represented with annual sales revenues ranging from under $100M to those businesses that generate revenues greater than $10B.

Employer’s size by annual revenues

Parcel shipping volume (~ shipments/year) 50

High Tech/Software

40

<$100M $500M-$2B

22.4%

21.1%

18.4%

20

19.5%

18.5%

10

10.5%

10 Operational Efficiencies

$5.0 - 10.0M

$50.0 - $100.0M

$1.0 - 2.5M

$10.0 - 20.0M

> $100.0M

$2.5 - 5.0M

$20.0 - $50.0M

SURVEY RESPONSES General Parcel Procurement

Expand Your Horizons

By Susan Ride

By a margin of about 5 to 1, survey respondents feel carrier negotiations have gotten harder rather than easier over the years. Interestingly, more than half (56.3%) of the survey participants that feel it’s harder to negotiate with the carriers today believe FedEx and UPS have a tacit agreement to avoid “price wars.” Personally, my feeling is that these two companies are fierce rivals, and have not colluded in any traditional definition of the word. Rather, I think shippers observe that FedEx and UPS tend to follow each other’s pricing actions. One raises rates, the other matches it. One creates a new surcharge, the other quickly implements the same thing. One changes Ground pricing to dimension-based, the other adapts the strategy. One raises fuel surcharges, the other follows with a similar announcement.

Rather, we agree that it is harder than ever to negotiate pricing with the major national carriers, but view the remaining responses as primary contributing factors. The carriers are categorically focused on operating margin; pricing has become more of a “commodity” with FedEx and UPS pricing so closely aligned; and the industry has few national, private carrier options to FedEx and UPS. But shippers and carriers were still busy making pricing changes in 2015. 61.5% negotiated pricing with their primary parcel carrier within the last 12 months. By further correlating actual pricing results mapped to the frequency of negotiations, the data would suggest that those companies having negotiated contracts more recently are in fact driving deeper discounts than those shippers that hadn’t negotiated in more than two years.

11 Spend Perspectives

10.4% 6.5%

By John Haber

$2B-$10B >$10B

9.2%

< 1.0M

The Evolving Small Parcel Market

30 18.4%

19.7%

$100-$500M

16

10

45.5%

While participants included a mix between several industries the most common sector was retail/wholesale/ecommerce followed by manufacturing.

21.1%

13.2% 9.2%

30 20

47.4%

13.2%

36.8%

By Rob Martinez

3.9% 7.9%

22.4% 17.1%

< 500K

1M - 2M

500K - 1M

2M - 3M

>3M

Primary Carrier

Parcel Spend

Predictably, 94.7% of all survey participants named UPS or FedEx as the “primary” carriers (as defined as more than half of overall volume). Other carriers included USPS and regional carriers although adoption of carriers outside of FedEx and UPS was not common.

Annual parcel spend likewise revealed a balanced mix of shippers of all sizes. Collectively, Shipware estimated survey participants command annual parcel spend of $2.8 billion.

NOVEMBER-DECEMBER 2015 | www.PARCELindustry.com

When is the last time you negotiated pricing with your primary parcel carrier?

19.2%

29.5%

19.2%

32.1%

< 6 mos

1-2 yrs

6-12 mos

> 2 yrs

NOVEMBER-DECEMBER 2015 | www.PARCELindustry.com

17

16 2015 Parcel Pricing & Benchmarking Survey

Live PARCEL Forum results unveiled

By Rob Martinez

20 Top Five Tips to

Improve Your ROI

By Thomas Andersen

4

24 The Evolution of the Same-Day Sector

By Andrea Obston

NOVEMBER-DECEMBER 2015 | www.PARCELindustry.com

28 PARCEL Forum Wrap-Up

By Amanda Armendariz

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 [ 608.442.5064 ] [ ken.w@rbpub.com ]

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EDITOR’S NOTE

BY AMANDA ARMENDARIZ

A Successful Wrap-Up to 2015 s you read through this issue of PARCEL, our final one of 2015, you may notice that much of it deals with our recent PARCEL Forum.

All of our regular writers are, naturally, industry experts (as I’m sure you’ve gathered from their articles over the years!) so many of them are frequently asked to be speakers at our annual conference. I decided to ask several of them to write an article for us following the show, providing a sort of “inside” look into the conference for those of our readers who were not able to attend.

I may be biased, but I’ve gotten confirmation from many attendees, speakers and exhibitors that this year’s show was our best yet. And that’s a true testament to our speakers and the PARCEL Forum staff, since we’ve had many successful shows in the past. But like all successful shows, we keep evolving year after year, and I like to think we improve a bit from one show to the next.

This year’s conference truly highlighted the importance of educating the small shipment professional, since our industry is one that is rife with changes that could have a significant impact on an organization’s budget. This year’s show was abuzz with discussions of several hot topics, such as the fuel surcharge increase implemented by UPS and FedEx, even though fuel prices are down. The conversations that I was a part of were fascinating, and proved that the chance to network and discuss industry hot topics with other logistics professionals is one of the most valuable aspects of our show, and it’s the reason that many keep attending year after year. After all, continuing education is something that is crucial for every professional, and it’s why PARCEL strives to educate logistics professionals through both our media outlet and our conference.

But for those of you who weren’t able to attend, don’t worry; this wrap-up issue highlights some of the most discussed topics at the forum, so even if you weren’t with us in Chicago, we hope our writers give you a sneak peek into our jam-packed three days. And of course it goes without saying that we hope to see many of you in Dallas from September 12-14, 2016!

As always, thanks for reading PARCEL, and happy holidays!

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NOVEMBER-DECEMBER 2015 | www.PARCELindustry.com

SUPPLY CHAIN PIVOT

BY ROB SHIRLEY

Adios, Goodbye, Sayonara t has been a fantastic experience personally witnessing the evolution (revolution) of transportation of goods with technology progress rapidly over the last 35 years.

Basically, we went from local to regional to national to global, all the while accelerating and keeping track of the ball.

Prospective customers in 1979 would literally ask, “Why would anyone want it overnight?”

Now they want it instantly.

My electronic rolodex is exploding with talented contacts worldwide and I have thoroughly enjoyed meeting thousands of points of light constantly moving the speedometer and needle to compete against time.

Yes there has been plenty of good, bad and ugly, but as a summation, it was GREAT. From my perspective, there is no greater job than providing a service that works, enhances the customer experience and adds to the quality of life.

8. Think big, be bold 9. It is both what you know and who you know that count 10. Customers are not always right, but treat them all as if they are We have all witnessed too many people that stayed beyond their capability, and while I can’t swear I will never do anything else, I am erasing the board and retiring to travel, continue to be inquisitive, enjoy the fruits of my work and explore.

I always admired Andy Rooney’s Final Word on 60 Minutes. During Super Bowl XXIV in 1989, in my home town of New Orleans, I was wringing wet and shoeless from the gym in the Meridian Hotel and walked onto an elevator and there was Andy, who said “Soldier, you are out of uniform!” Fortunately for me, an hour earlier, I read a story about him in Reader’s Digest that was stuck into my room’s sofa, describing Andy’s favorite hotel. I said in response, “Andy, that may be,

but you are not in your favorite hotel.”

I swear, he was open jawed speechless, the elevator stopped on my floor and I exited smiling because I successfully told Andy Rooney my Final Word.

I have been lucky enough to have been writing in PARCEL for seven years covering a very wide range of subjects: Regional Carriers, Technology, Ground, Ocean, Air, Train, Containers, Pipelines, Space, Retail, Creativity, Same Day, Import, Export and Competition. I thank the readers, advertisers, publishers (Marll Thiede & Chad Griepentrog) and editor (Amanda Armendariz) for this fantastic experience.

Best regards to you and good luck in your pursuit of achievements, wealth and happiness. ¾

ROB SHIRLEY, formerly a Columnist for PARCEL magazine, CEO of ExpresShip, SVP Sales at NowDocs and VP Global Sales for FedEx, can be contacted at rsxpship@gmail.com.

TEN GEMS THAT I HAVE FOUND TO BE USEFUL: 1. A good attitude makes up for a whole lot of missteps 2. You can’t improve what you don’t measure 3. There is a whole world out there, get out and experience it 4. The vast majority of people want to win without stealing from you. Don’t judge them like the 1% of miserable takers!

5. The glass is always at least half full 6. Hard work is absolutely worth the effort and nothing will make up for faking it 7. Do something nice for a total stranger every single day, the rewards to you are incredible NOVEMBER-DECEMBER 2015 | www.PARCELindustry.com

7

SUPPLY CHAIN SUCCESS

BY ELIJAH MOON

The Future of Asia-Pacific Trade hippers, as well as the US economy, prosper when exports are moving in high volume. Exports allow us to support business growth in the form of job creation and revenue. If we examine history, the Great Recession (200709) had a devastating blow on the gross domestic product (GDP) and import/export volumes. The housing bubble caused many banks to collapse and refuse lending. As a result, investments in manufacturing, a top trading sector, suffered dramatically. Before the crisis, the World Trade Organization (WTO) reported a six percent average annual growth of export and import volumes by country. Today, WTO economists predict the average growth will reach four percent in 2016. Although the world merchandise percentage is below the ideal average, the past few years have shown overall growth and opportunity in the Asia-Pacific. Improvements in geopolitical negotiations and the growth of e-commerce show a promising future for US exports. With these changes, we are seeing parcel carriers expand their global offerings, and shippers eagerly anticipate the opportunities ahead.

On October 5, 2015, 12 nations finalized negotiations over the Trans-Pacific Partnership (TPP) Agreement. The TPP covers more than 40% of global GDP and will write global trade rules that ensure fair governance between nations. The TTP has

received business support and is expected to promote more trade among nations.

Along with geopolitical progress, UPS is now expanding its global capacity. On October 19, UPS expanded its Worldwide Express service in 52 countries. This was the largest one-time expansion in the service’s history, and 65 countries are now eligible for midday delivery (10:30 a.m., 12:00 p.m., or 2:00 p.m.). Shippers who were previously limited to end-of-day deliveries (Worldwide Express Saver) will find this especially beneficial. Forty-one thousand

that streamline processes, shippers can expect to receive quicker turnover, increased revenues, more domestic jobs, and a greater presence in the global market. Shippers will also be able to push their e-commerce efforts across an open internet that isn’t limited by trade barriers or censorship laws.

The barriers that once turned shippers away from the Asia-Pacific will soon become a thing of the past. It is important for businesses to adapt and develop their models and strategies so they can succeed in export markets. Exporting across the Asia-Pacific will prove to be enticing for companies seeking global customer satisfaction and a greater presence in the global market. Ninety-five percent of the world’s potential consumers live outside the borders of the United States, and businesses that do not export will not take full advantage of their brand. With carrier accessibility, trade negotiations complete, and streamlined processes, now is a better time than ever to take advantage of exporting.

The barriers that once turned shippers away from the Asia-Pacific will soon become a thing of the past. It is important for businesses to adapt and develop their models and strategies so they can succeed in export markets.

8

new postal codes are added, and the majority of them are in the Asia-Pacific region.

FedEx, another leader in international shipping, has yet to announce an expansion of its global services. They have, however, made multiple announcements in strong support of the TPP. FedEx believes the TPP standards and procedures are ideal for streamlining trade, and will allow them to move packages more efficiently.

The Asia-Pacific is now offering more exporting opportunities than ever before. Not only will shippers take advantage of increased delivery coverage and reduced transit times, but they’ll also have the ability to ship goods without facing excessive tariffs or trade agreements. Also, with the TPP procedures

NOVEMBER-DECEMBER 2015 | www.PARCELindustry.com

ELIJAH MOON is a Transportation Analyst with the Transportation Solutions Consulting Group at enVista. He is responsible for identifying and measuring key transportation opportunities that allow clients to optimize transportation cost for domestic and international shipping. He has extensive knowledge of carrier agreements, data collection, modeling tools, and route planning that allow clients to reduce cost and maximize carrier performance. Some of the customers he has worked with include 1-800 Flowers, Tommy Bahama, Brighton Collectibles, and PetSmart.

SHIP RIGHT

BY CHRISTOPH STEHMANN

2016: The Year of the Self-Served Consumer e’ve made it.

Another year has passed, one marked by a shift in consumer expectations and emerging shipping trends like flexible delivery options, cross-border shipping and additional return options. While 2015 was all about consumer options, the New Year will add an additional layer geared toward self-service and the ability for consumers to act upon which options are best for them.

From delivery to pick-up to returns, businesses must continue providing not only more options that consumers want, but the options that will allow consumers to serve themselves. In doing so, businesses are giving consumers the power and control they’ve been seeking.

Fortunately, we have the technology to enable these self-services so long as shippers evolve processes to meet these emerging consumer preferences. Here are three areas to consider.

CONSUMER-SELECTED DELIVERY TIMES Have you ever requested a service appointment from your TV or Internet provider? If so, you know the feeling you get when the customer representative offers a four or five-hour service window.

Consumers often feel the same way when it comes to receiving a package, which explains why 98% of consumers track their orders. Many shipping providers now offer consumer-selected delivery times, much like telecommunications providers, that span across several hours. However, consumers want specificity when it comes to shipping. They want to self-select delivery

services within windows of as little as 30 minutes (just enough time to run home during a lunch break).

Contrary to popular belief, consumers don’t always care how a package gets from Point A to Point B — they care about when it’s going to get there. In 2016, expect to see consumer-selected delivery times to be offered in minutes, and not just in hours. You’ll now have the option to choose the exact moment you can expect the doorbell to ring.

PARCEL URBANIZATION Imagine the average Manhattan high-rise apartment building — a structure comprised of more than a hundred units with 1,000 plus residents. As e-commerce continues to boom, the influx of inbound parcels will too. Unfortunately, the physical space within urban buildings will not be expanding to accommodate all these parcels.

As more parcels arrive, the space to store them decreases. Often, residential building personnel are running back and forth to makeshift mailrooms in search of a package, unable to tend to their other day-today facilities responsibilities. For the consumer, this can mean waiting for personnel to find a package stored away, or in some cases, receiving a misplaced package late.

In 2016, new solutions for urban facilities will resemble locker storage in Europe.

The US will see more operations opening to act as a drop-off location for packages (think UPS Store or FedEx Kinkos). In step with these new drop-off locations will also come more intelligent drop-offs. Parcel holding facilities will be able to notify a recipient immediately that their package has arrived and can be picked up at a certain time.

This change in the urban chain of custody will again enable consumers to self-

serve in that they can now pick up their own package when they want to, ultimately alleviating these pressures from residential service professionals, reducing the chance for lost packages, and lowering shipping costs for carriers.

LOCATION INTELLIGENT RETURNS When we think about the customer shipping experience, we tend to think about the process it takes for a package to move from a business to a consumer. But what happens after a customer receives the package? What if they decide they want to return it?

This year we will see location information used in an entirely new way, specifically around parcel returns. For the 39% of shoppers that prefer to return online purchases to the store and the 38% that prefer to return to a shipping provider, they will receive the name and address of three best next return locations based on their personal preferences.

We’ll also see technology play a role in returns with scan and pay labeling. For the 20% of consumers that prefer courier pickup, every package will now include a return label — customers who need to make returns can simply scan and pay — eliminating unnecessary costs to the business, and for consumers, a trip to the store.

While I see consumers playing a more active role in shipping services, the obligation for businesses and shipping carriers to provide superior customer service will not go away. It’s evolving. Keep your eye on these emerging preferences and solutions. ¾

CHRISTOPH STEHMANN is President of Enterprise Business Solutions, Pitney Bowes.

NOVEMBER-DECEMBER 2015 | www.PARCELindustry.com

9

OPERATIONAL EFFICIENCIES

BY SUSAN RIDER

EXPAND YOUR HORIZONS his year at PARCEL Forum it was interesting to see a shift that I have not experienced at any conference/forum/tradeshow over the many years in the industry. The shift was people interacting with each other, discussing their issues/opportunities and sharing solutions and suggestions. Was this shift because of the interactive app that attendees downloaded that enabled the attendees to discuss and interact with each other?

If it was, kudos to PARCEL committee.

One main thing the app enabled was the sharing of best ideas across the forum, whether it was tours, speakers, exhibits or networking. It was a refreshing change and a big value to all who attended.

The entire forum gave attendees an opportunity to share and expand their horizons. You may ask, why is this important? Or you may know why it’s important but convincing your boss that you need to attend this off-site forum is a challenge.

Here are some suggestions: I. One attendee shared how they were able to save over one million dollars on their transportation spend just from tips that they learned attending the show.

II. The vendors in the exhibit hall had time to hear about your opportunities and how they would suggest you find solutions. Many share other companies that can help alleviate such issues and what process to go through to determine the best solution.

III. Quality information from industry experts is shared in the educational tracks on software, shipping systems, negotiations with carriers, same day 10

courier solutions… the list goes on.

IV. Your customers expect expediency.

How do you improve at the lowest possible cost? By learning the ideas and suggestions shared at this conference and how shippers just like you have achieved superior results.

There was a recap of the forum at the last session on the last day. During this session the best tips of the three days were shared. Below are some of the tips which will hopefully help you expand your horizons and your case for attending the conference next year in September, 2016 in Dallas.

1. Check to see what’s hiding in your carrier contracts. FedEx raised fuel surcharges twice in 2015 and UPS increased in November. Make sure you’re checking your invoices and are aware of hidden cost increases to assist your true evaluations of your shipping spend and to assist in negotiations each year.

2. When evaluating new technology or material handling equipment, vendors ask for your average orders per day, lines, etc. Never design a system for your average times because it may crash and burn during peak. Always design for peak numbers and make sure the system has built-in flexibility and agility.

3. For Direct to Consumer shippers, a creative way to avoid the residential fee charges is to ask the customer if you can ship to their work. When encouraging commercial deliveries vs residential deliveries, it helps to alleviate residential fees.

4. A very small change with big savings impact for shipping internationally is getting the HS code correct. By making the small change in classification

NOVEMBER-DECEMBER 2015 | www.PARCELindustry.com

you can save a lot of money so make sure the HS tariff code is correct on your shipments. Harmonized Systems Code is a commodity classification.

5. Evaluate the new automation processes for parcels. By implementing an automatic print and apply/insert system, an e-commerce company was able to reduce the number of packers dramatically over three shifts.

There are new automation solutions for picking piece items (Opex had a booth at the Forum), piece picking with lights (Lightning Pick was there), and there are new automatic baggers in order to ship product in poly bags to avoid DIM charges.

6. When it comes to getting the product to the customer at the best possible speed, don’t forget that USPS has an edge at the end of the week because they work weekends! Plus, USPS priority mail transit is better than ground by 1/2 days because of Saturday processing.

This is just a sample of the best ideas from the conference there were many great tips and suggestions shared with over 25 given in the session.

Expanding your horizons is something that will help you personally but absolutely helps the company you work for and with which you spend a good portion of your day. Hopefully, you will make a commitment to expand your horizons every day and share this newfound insight with your peers, your associates and your industry. As Dr. Seuss said, “Oh, the places you’ll go!” ¾

SUSAN RIDER, Supply Chain Consultant, Executive/ Life Coach can be reached at susanrider@msn.com.

SPEND PERSPECTIVES

BY JOHN HABER

The Evolving Small Parcel Market he US domestic small parcel market is growing much faster than the US economy and we expect this to continue for years. We estimate the 2104 market at approximately $62.5 billion, reflecting a 14.4% increase over 2013. This is based on US domestic small parcel revenues from delivery providers including FedEx, UPS, USPS, regional carriers, etc. in addition to economic data from GDP and personal income spend. The growth rate is attributed to rapid changes in consumer behavior and new supply chain solutions. E-commerce has been the primary driver, however, alternative delivery locations, same day and one hour delivery solutions are also driving the change. These innovative solutions are found across the entire small parcel supply chain, but most noticeably within fulfillment and final mile delivery.

FULFILLMENT BUSINESSES THRIVE Over the last several years fulfillment services have been radically changed loosely due to the “Amazon effect.” Fulfillment companies are getting closer to the end consumer, fulfilling orders and constantly improving efficiencies and technology.

Robotics is playing a huge role in Amazon’s facilities. Amazon acquired robotic company, Kiva, in 2012 and has implemented 30,000 robots in Q3 2015 alone.

This doubled the number of robots in place at the end of 2014. These robots have supposedly improved efficiency by 25% and allowed for 50% more inventory in Amazon facilities.

Augmented reality is also becoming an accepted means towards improving efficiency. In early 2015, DHL tested smart glasses and augmented reality for ‘vision picking’ in a warehouse. Staff members were guided through the warehouse by graphics displayed on the smart glass to speed up the picking process and reduce errors. According to a DHL press release, the test found a 25% efficiency improvement during the picking process.

3D printing is also driving significant change. UPS is hedging its bets on 3D printing technology and has been one of the early embracers. UPS started by placing 3D printers in select UPS stores and then followed with an investment in 3D printing company, CloudDDM. They opened a facility with more than 100 industrial 3D printers and is located next to UPS’ Louisville, KY, Air Hub. The venture can take orders from businesses for a 3D printed item in the afternoon and ship product overnight.

FINAL MILE DELIVERY LOCATIONS CHANGE Final mile delivery no longer assumes delivery ends at a residence. Final mile delivery points are now located at convenience stores, grocery stores, dry cleaning businesses, and lockers.

UPS is at the forefront of alternative delivery locations. It recently expanded its European ‘click & collect’ solution, Access Points, to the US and by year end UPS expects to have 8,000 alternative US locations for consumers to pick up or drop off packages.

FedEx, UPS, and USPS offer locker facilities for consumers to pick up packages around the clock. FedEx’s Ship&Get locker system is primarily available in Texas; UPS’ lockers are being tested in Chicago; USPS’ GoPost lockers are located predominantly

in New York City and Washington DC. Competition and speed continue to drive final mile delivery. For many customers, five to seven-day delivery seems pre-historic — they want things the same day.

Numerous start-up companies have joined Amazon, Google and eBay in this market.

FedEx SameDay City is now available in 20 US markets. The service includes uniformed FedEx drivers, branded vehicles and real-time tracking. Uniformed drivers and branded vehicles may be a differentiator in the growing same day delivery space especially when considering many start-up companies utilize crowd-sourcing. Crowd-sourcing as a delivery vehicle is an interesting idea and one that has certainly benefitted Uber, but still faces security hurdles.

THE SMALL PARCEL HORIZON One size definitely does not fit all. Instead, it’s all about customization, speed and efficiency. Start-up companies are bringing new ideas to a mature small parcel market, but shippers will need to determine the value of these new inventive solutions and at what cost to offer them to customers. For the old guard, FedEx, UPS, USPS, it’s an entirely new mindset that has these companies seeking ways to prove their agility and adaptability in the new environment.

What’s next? Stay tuned. ¾

JOHN HABER is the Founder and CEO of Spend Management Experts, a global transportation spend management consulting firm. With nearly two decades of transportation spend management experience, 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.

NOVEMBER-DECEMBER 2015 | www.PARCELindustry.com

11

SHIPPERS’ PERSPECTIVES ON THE PARCEL CLIMATE THIS PEAK SEASON AND BEYOND

By Mike Lambert

T

he parcel industry continues to be as unpredictable as ever. Uncertainty is a consistent theme among parcel shippers and navigating through it is becoming increasingly challenging. I recently attended the PARCEL Forum in Chicago this October and took the opportunity to ask many of the shippers and carriers present to share with me their concerns about uncertainty within the parcel climate as we approach peak season and a new year in 2016. Common thoughts revolved around challenges I anticipated and have written about in the past couple years. Increasing complexity, growing consumer expectations, changing shopping behavior, rapid technology developments, cost pressures, and aggressive competition are significant challenges that every parcel shipper is contending with managing.

MEETING CONSUMER EXPECTATIONS In speaking with an e-commerce retailer, meeting consumer expectations through peak season was a large concern. I can imagine he wasn’t the only retailer in the room with this thought. Primarily on his

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mind was the uncertainty that his 400 vendor partners would be able to keep up with his firm’s service commitments to its customers and maintaining visibility to issues that could arise among so many vendors.

I’ve been hearing about managing vendor fulfillment more and more lately as a growing concern. Vendor fulfillment is tough to manage. It’s characterized by decentralized fulfillment execution and thus parcel managers lack a degree of control. During peak season, service issues from one key product vendor could destroy a successful fourth quarter for many a retailer. Compliance is also an issue among some vendors, from both a cost and service perspective.

Examples of compliance areas to monitor include product presentation, carton utilization, and carrier/service routing choices. As a result, parcel managers need to ensure they have audits and the visibility solutions for their vendors’ activities, compliance levels, and cost performance in order to manage them appropriately.

THE ISSUE OF CARRIER AIR CAPACITY Another peak season concern mentioned by a larger retailer is the issue of carrier air capacity. While we often hear that

NOVEMBER-DECEMBER 2015 | www.PARCELindustry.com

the carriers are concerned about the accuracy of retailers’ forecasts, it is interesting to hear that shippers in turn are concerned if the carriers have properly planned capacity requirements and can fully execute them. The uncertainty of winter weather only adds to the sleepless nights these managers may endure! The capacity concern is a driver for shippers to implement risk mitigation and alternative carrier strategies. Should a carrier fail to deliver on the extreme peak days of Black Friday, Cyber Monday, and Christmas Eve, parcel managers will want alternatives in place. Of course, there are potential technology, infrastructure, and contract constraints that require parcel managers to allow time to plan and address these issues proactively.

UNPLANNED RATE INCREASES Almost every shipper I spoke with discussed their concern regarding the trend of unplanned rate increases introduced both FedEx and UPS in the 2015. Certainly, two fuel index changes that resulted in increases in fuel cost expectations have frustrated shippers. Falling fuel prices have been the only saving grace for parcel managers

to achieve some year-over-year expense reduction, yet everyone I spoke with was upset that some of those savings where swept away by the carriers due to surcharge increases in the fuel indexes. Complicating matters even more for shippers, UPS also announced new “non-standard” pricing and service alterations, including a 2.5% surcharge on third-party billed shipments and transit time increases for Ground and 2 Day Air shipping over the holiday period starting in late November.

Furthermore, other shippers were concerned with the impact of dimensional weight on their costs this peak season, considering this will be the first holiday period impacted by the removal of the three cubic foot Ground threshold. Short term contract relief provided by the carriers from the threshold removal will begin to terminate for some shippers, and many are concerned they haven’t done enough to mitigate the impact themselves. A few shippers indicated that they were making strides to improve carton utilization and packing practices, yet in the midst of a chaotic and high volume shipping period like Cyber Monday, packaging best practices could get easily over looked! Of course, peak surcharges were also a concern. While not rolled out universally, some retailers will be impacted by additional peak season fees on top of the universal increases.

Looking ahead to 2016, both FedEx and UPS introduced their general rate increases to base rates and surcharges.

Most of the surcharge increases were the customary ones shippers are accustomed to absorbing each year. However, a 100% increase for the postal insertion Delivery Area Surcharge fee has e-commerce shippers reexamining their 2016 budgets. Shippers have been increasing volume to postal insertion services to minimize expense for promotional “free delivery” of residential shipments, but it’s no longer a safe haven from high shipping expenses with increases such as this. Most frustrating to shippers is that this $1.00 fee didn’t exist just a few years ago! Summing up all the carrier increases slated for 2016, many retailers may be paying 5% to 10% more in 2016 than they expected just a few months ago! One major retailer stated to

me they are concerned how aggressive their carrier has been in pricing changes and the potential future negative impacts it will have on the retail industry.

I also spoke with a regional carrier about his concerns as well. Of course he too was concerned about shippers’ forecasting accuracy and executing upon potential variances. But interestingly, I also found that the recent pricing actions from UPS and FedEx impact the smaller carriers as well. For one, the national carrier actions may create momentum for these carriers to evaluate jumping on the profitability improvement bandwagon. In an industry with little competition and capacity limitations, the option to adjust pricing higher is possibly likely. And perhaps it’s the only alternative, given FedEx and UPS are attempting to be compensated for high cost activities and packages, and certainly other carriers would have the same cost constraints if treated by shippers as a relief valve for the major carriers’ “unprofitable” packages.

CREATING COMPETITIVE SOLUTIONS AND STRATEGIES Lastly, another major retailer stated his focus for the coming year will be to stay ahead of his competition in implementing parcel delivery solutions designed to improve their customers’ experiences and meet their escalating expectations.

In the case for this retailer, many complexities from their product assortment to criticalness of delivery make this a com-

plex solution to develop. Plus there is the added element of technology and carrier requirements to understand in order to execute the solution. Many brick and mortar retailers are also focused on refining their ship-from-store fulfillment model. They are reexamining everything from strategy to daily processes to drive down expense and improve the profitably of this model.

Based on these conversations, one can conclude that the job of a parcel manager is increasingly complex. The role has become extremely difficult and the appropriate skill set for this role is limited but in high demand. The parcel industry continues to evolve into unprecedented waters.

Shippers and carriers alike are navigating unchartered waters, and that’s concerning. Cost and profitability management is the largest struggle for the carriers and shippers alike, both struggling to share the load in the face of demanding consumers. As we observe how the industry is progressing, something has to eventually give because maintaining an environment of uncertainty appears unsustainable. ¾

MIKE LAMBERT is Vice President of Strategic Solutions for Green Mountain Technology (GMT). In this role, Mike is responsible for the development and execution of all strategic Parcel Spend Management solutions which include spend analysis, network optimization, and contract management. Mike can be reached at mlambert@gmcps.com. Learn more about Green Mountain Technology’s Parcel Spend Management solution at GreenMountainTechnology.com.

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By Tom Blanck

GIVE YOUR PACKAGING ALL THE LOVE IT NEEDS IN A HOSTILE WORLD

R

emember how your mom always made you take a jacket when you left the house if she thought it might turn cool before you came home? You probably remember rolling your eyes and begrudgingly taking that jacket just to keep her off your back, but what you might not remember is exactly how many times you ended up being glad you had it with you. That bit of parenting wisdom is based on generations of learning that it’s better to have a kid that has a jacket and doesn’t need it than one who doesn’t have a jacket but does need it.

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Something similar can be said of your supply chain. The moment you send merchandise off your dock, it faces a world of potentially hostile environments before it reaches its final destination. If it lacks adequate protection for that journey, it isn’t going to come home with a case of the sniffles. In a best case scenario, it will arrive looking beaten up and paint a negative picture of you as a supplier — more likely, the contents will be damaged upon arrival.

Either way, you’ve lost goodwill and could very well lose a customer relationship.

The only barrier between you and a truckload of broken merchandise is packaging; but how do you optimize it to with-

NOVEMBER-DECEMBER 2015 | www.PARCELindustry.com

stand the transportation journey without overspending on wasteful material? The path to designing optimized packaging is a delicate balancing act, with packaging spend on one side and acceptable damage on the other. Achieving that equilibrium depends on visibility into the supply chain, determining damage risk, and identifying each individual packaging hazard along the way.

KNOW YOUR SUPPLY CHAIN Products spend considerable time, sometimes years, in development. Marketers often spend weeks or months determining the best way to display items on store

shelves. Supply chain managers do research and careful planning to determine the best distribution channels. But how much do you know about the physical forces your package faces between point A and point B — or in the case of most supply chains, point A to point B, then point B to point C, and so on.

What are the specs on the suspensions of the trucks that haul your merchandise?

What temperature is maintained in the warehouses or planes? How high do warehouse workers and trucking staff stack boxes? How long are they left stacked?

Do clamp trucks move boxes in the warehouses, or are pallets and forklifts used?

It’s not enough to know where distribution centers are located and how long it takes to get to them; full visibility into how boxes and pallets are handled on every step of their journey and what vehicles haul or move your products are vital to packaging them to easily tolerate the elements they face without wasting money on protecting them from forces they will never encounter.

range (with a little wiggle room on both sides to best fit the value proposition and positioning of your individual company) that is an excellent reference point to strive for. It can, and should, be finely tuned over time as conditions dictate.

IDENTIFY AND SOLVE FOR EACH SPECIFIC HAZARD Packaging faces seven basic hazards that affect product integrity, and the functional purpose of packaging is to protect contents from them. Almost every hazard within a standard deviation of operations can be mitigated by packaging suited for it, so packaging optimization relies heavily on knowing what hazards are likely to be encountered:

housing best practices that mitigate the ill-effects of warehousing. Transportation hazards — These include vibration experienced from the motion of trucks, compression from how items are stacked or sequentially loaded, impact from rail cars hitting one another on intermodal journeys, even natural vibration frequencies emitted by truck trailers and suspension systems. Strapping and bracing loads in trucks with appropriate dunnage reduces jostling when in motion and air-ride vans can also be used for susceptible freight. Increasing pallet integrity and hardening products can also be effective tactics. Environment — Temperature, humidity, and moisture can be tremendous enemies to packaging: Pharmaceutical items can be notoriously difficult to transport over long distances and modes and must be packaged to withstand problems with temperature fluctuation (for example, while being transported in the belly of a plane). Likewise, condensation, melting ice and transferred moisture can quickly compromise an entire pallet of food packages. Understanding all environments a package will be subject to is extremely important, and they should be appropriately tested for the environmental conditions in the distribution environment The real key to guaranteeing items and packages arrive in top shape is complete visibility into the entire supply chain and every hazard faced along the journey. Designing and testing packaging to protect against any hazards that are unavoidable will yield the best results while keeping the supply chain efficient.

Just like your worried mother always knew when it might turn cold, you need to know what conditions your packages could face and protect them adequately. ¾

The path to designing optimized packaging is a delicate balancing act, with packaging spend on one side and acceptable damage on the other.

CALCULATE YOUR RISK Risk is calculated by multiplying a hazard by vulnerability and then dividing by your packaging’s capacity to cope. In its most general sense, a hazard is defined as a situation that poses a level of threat to life, health, property, or environment. In supply chain transportation, a hazard is a specific event that occurs in a distribution cycle that may pose a hazard to a product. When we apply this risk equation to supply chain transportation, it can be said that damage risk is calculated by multiplying a package’s vulnerabilities with the hazards it will face in on its journey, divided by the packaging’s ability to cope with these forces.

Determining the amount of damage risk packages face is vital to understanding how much upfront package design is necessary to reduce the risk to an acceptable level. The other element that requires a bit of research — but no complex analytics — to obtain is the cost of packaging.

Reconciling the added cost of packaging with damage risk will provide an optimal

Handling — Rough handling at the hands of humans or machines like forklifts and clamp trucks often leads to crushed corners, punctures, and crushed cases.

Drop testing can simulate manual handling damage, while testing using the mechanical systems encountered on the supply chain will reveal their associated risks. Appropriate packaging designed to work with equipment and withstand drops coupled with reductions in manual handling reduce this hazard. Warehouse stacking — When stacked for an extended period, or in stacks that are too high, boxes on the bottom can become crushed. Stacks can also become obstacles for people and equipment navigating around them in warehouses and easily get knocked over or damaged if heavy machines contact them. Studying compression rates and stack heights advises packaging decisions and ware-

TOM BLANCK is a Certified Packaging Professional and leads the Packaging Optimization competency at Chainalytics, where he manages the delivery of supply chain packaging optimization and complex package engineering services as well as packaging value improvement programs for leading supply chains globally.

NOVEMBER-DECEMBER 2015 | www.PARCELindustry.com

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2015 PARCEL PRICING & BENCHMARKING SURVEY: LIVE PARCEL FORUM RESULTS UNVEILED

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By Rob Martinez

For the third consecutive year at the PARCEL Forum, Shipware, LLC conducted a live parcel pricing and benchmarking survey in which 77 shippers responded to survey questions about their parcel usage, carrier preferences, pricing discounts, cost reduction strategies and other valuable benchmarking data. Survey respondents collectively commanded approximately $2.8 billion in annual parcel spend.

We asked the questions, you provided responses. Contracts were not shared, but rather, participating shippers responded anonymously to survey questions based on ranges. Technologyenabled and totally blinded to avoid confidentiality concerns, the survey was designed to help shippers better understand how their pricing stacks up with other shippers. Moreover, all survey responses were cross-tabulated by industry, company revenues,

SURVEY DEMOGRAPHICS Industry While participants included a mix between several industries the most common sector was retail/wholesale/ecommerce followed by manufacturing.

My employer’s primary industry

primary carrier, and annual parcel volume/spend for more meaningful like-volume correlations.

Why is benchmarking parcel pricing data so critical? Well, the most common challenge I hear from volume parcel shippers is that they don’t know how good — or bad — are the incentives, terms and structure of their carrier pricing agreements. While no shipper would ever negotiate a contract and knowingly leave money on the table, the reality is that some shippers have clearly done a better job than others when it comes to negotiating the most favorable rates and terms.

Published for the first time to non-survey participants, this article provides survey results on general parcel procurement, discounts/pricing benchmarks, DIM divisors and minimum charges, and mode/carrier optimization.

Annual Revenues Small and large companies alike were represented with annual sales revenues ranging from under $100M to those businesses that generate revenues greater than $10B.

Employer’s size by annual revenues

18.4%

19.7%

<$100M $100-$500M

3.9% 7.9%

Retail/Wholesale/ E-Commerce 19.7%

47.4%

Manufacturing 3PL, Warehousing, Fulfillment, Distribution Other

21.1%

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High Tech/Software

NOVEMBER-DECEMBER 2015 | www.PARCELindustry.com

$500M-$2B 22.4%

21.1%

18.4%

$2B-$10B >$10B

Primary Carrier Predictably, 94.7% of all survey participants named UPS or FedEx as the “primary” carriers (as defined as more than half of overall volume). Other carriers included USPS and regional carriers although adoption of carriers outside of FedEx and UPS was not common.

Our primary parcel carrier is: 50

Parcel spend (~Annual Net Revenue) 20

51.3%

22.4% 17.1%

10

40

13.2%

13.2% 9.2%

36.8%

10.5%

9.2%

5.3%

30 20 10 6.6%

1.3%

0%

1.3%

2.6%

FedEx

USPS

FedEx SmartPost

Regional Carriers

UPS

Other

UPS SurePost or UPS MI

Parcel Volume Annual parcel volume revealed a balanced mix of small, medium, large and huge shippers, although as expected for the PARCEL Forum audience, nearly half the survey participants shipped high volumes of more than 3 million parcels annually.

Parcel shipping volume (~ shipments/year) 50 45.5%

40 30 20

19.5%

18.5%

10

10.4% 6.5%

< 500K

1M - 2M

500K - 1M

2M - 3M

< 1.0M

$5.0 - 10.0M

$50.0 - $100.0M

$1.0 - 2.5M

$10.0 - 20.0M

> $100.0M

$2.5 - 5.0M

$20.0 - $50.0M

SURVEY RESPONSES General Parcel Procurement By a margin of about 5 to 1, survey respondents feel carrier negotiations have gotten harder rather than easier over the years. Interestingly, more than half (56.3%) of the survey participants that feel it’s harder to negotiate with the carriers today believe FedEx and UPS have a tacit agreement to avoid “price wars.” Personally, my feeling is that these two companies are fierce rivals, and have not colluded in any traditional definition of the word. Rather, I think shippers observe that FedEx and UPS tend to follow each other’s pricing actions. One raises rates, the other matches it. One creates a new surcharge, the other quickly implements the same thing. One changes Ground pricing to dimension-based, the other adapts the strategy. One raises fuel surcharges, the other follows with a similar announcement.

Rather, we agree that it is harder than ever to negotiate pricing with the major national carriers, but view the remaining responses as primary contributing factors. The carriers are categorically focused on operating margin; pricing has become more of a “commodity” with FedEx and UPS pricing so closely aligned; and the industry has few national, private carrier options to FedEx and UPS. But shippers and carriers were still busy making pricing changes in 2015. 61.5% negotiated pricing with their primary parcel carrier within the last 12 months. By further correlating actual pricing results mapped to the frequency of negotiations, the data would suggest that those companies having negotiated contracts more recently are in fact driving deeper discounts than those shippers that hadn’t negotiated in more than two years.

>3M

19.2%

29.5%

Parcel Spend Annual parcel spend likewise revealed a balanced mix of shippers of all sizes. Collectively, Shipware estimated survey participants command annual parcel spend of $2.8 billion.

When is the last time you negotiated pricing with your primary parcel carrier?

19.2%

32.1%

< 6 mos

1-2 yrs

6-12 mos

> 2 yrs

NOVEMBER-DECEMBER 2015 | www.PARCELindustry.com

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Shipware advocates that shippers should create an expectation with carrier reps of ongoing cost reduction. Notable reasons to bring the carriers back to the negotiation table include changes in shipping profile: volume fluctuation, changes in shipping product utilization, zonal distribution shifts, weight/DIM changes, etc. Moreover, changes in FedEx Earned Discounts thresholds and UPS Portfolio Tier changes, up or down, are legitimate reasons to make contract changes.

However, the most effective rationale for initiating pricing improvements with FedEx and UPS are changes in the market place. The rise of the USPS as a legitimate third option — especially when comparing Priority Mail to Ground — regional parcel carrier options, package consolidators and parcel select players, service guide and pricing changes initiated by FedEx and UPS, etc.

We followed up by asking what changes were made during the most recent negotiations. Roughly one-third of respondents (31.5%) made adjustments to their contract to address General Rate Increases. 19.2% made changes to the Ground Minimum Charge.

What changes were made? (All that apply)

If could change UPS or FedEx Pricing Agreement, how would you?

(Rank top 3) 90 80

85.1%

70 60 50 40

63.5%

48.6%

45.9%

30

27.0%

20 10

8.1%

Fewer surcharges Better discounts Better minimum charges Improve DIM divisor/threshold

50 40 30 20 10

31.5%

19.2% 13.7%

12.3%

11.0% 4.1%

4.1%

2.7%

1.4%

Adjustments for GRI

Change revenue thresholds

Changes to Min Charge

Minor language changes

Added rebates

Changes to DIM

Improved discounts

Decreased discounts

Changes to accessorial It is important to note that what’s meaningful for one shipper may not be meaningful for another. It is important to conduct a comprehensive analysis to understand which pricing contract changes will have the most material impact.

When asked to rank the top three ways shippers would change their UPS and FedEx pricing agreements, minimizing surcharges was the highest weighted response (85.1%), amazingly higher than getting deeper discounts (63.5%). Shippers would also like to have more favorable minimum charges (48.6%) and DIM factors/thresholds (45.9%).

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NOVEMBER-DECEMBER 2015 | www.PARCELindustry.com

8.1%

4.1%

2.7%

No revenue based incentives Strike confidentiality Better payment terms Kill early termination Other

While historically only a UPS discounting vehicle, FedEx has also started to offer rebates called FedEx Earned Discount Override Program. Shippers that have rebates get monthly, quarterly or annual rebate checks for meeting negotiated revenue thresholds. Rebates are quickly becoming a popular carrier incentive. Forty percent of survey participants now get rebate checks from either UPS or FedEx.

ROB MARTINEZ, DLP is President & CEO of Shipware LLC, an innovative parcel audit and consulting firm that helps volume parcel shippers reduce shipping costs 10%-30%. Rob offers more than 25 years’ experience negotiating parcel contracts – on both sides of the negotiating table — for some of the most recognizable brands in the world, and is a sought after speaker and industry thought leader. He welcomes questions and comments, and can be reached at 858.879.2020 Ext 114 or rob@shipware.com.

To read the rest of the article, visit our newly re-designed website at www.PARCELindustry.com, or read the full results in the January e-newsletter.

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TIPS TO IMPROVE YOUR ROI

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ou’re likely just getting back into the swing of things after attending PARCEL Forum 2015, trying to determine what great idea(s) to implement first… or, perhaps you’re still evaluating the options. After working with thousands of clients for more than two decades, the following five actionable initiatives stand out as being some of the most realistic to implement effectively with the highest return on investment. Utilizing carriers & services based on cost & service Negotiating with your carrier(s) Implementing technology solutions Optimizing shipping materials Streamlining operating efficiencies

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UTILIZING CARRIERS & SERVICES BASED ON COST & SERVICE We find that many, if not most, shippers are married to their incumbent carrier.

Some don’t want to consider the other national carrier, nor wade into treacherous waters by considering regional carriers, other couriers, the USPS, or even different services, which may include UPS SurePost or FedEx SmartPost. Many UPS shippers won’t even consider FedEx, and vice versa. Often, the concern stems from a negative situation from many years ago or the perception that there will be a negative customer experience. The mentality is often that if it’s not broken, don’t fix it.

That will hold up for so long, until enough rate increases and changes in carrier policies create an environment where an or-

NOVEMBER-DECEMBER 2015 | www.PARCELindustry.com

ganization can no longer be competitive.

One has to adjust to the competitive landscape, which includes evaluating all shipping options, on an ongoing basis.

Some of the key regional carriers include the following: Eastern Connection: services the Northeast and Mid-Atlantic GSO: services California and parts of NV, AZ, and NM LaserShip: services parts of the East Coast LSO: services Texas and parts of Oklahoma OnTrac: services the West Coast and parts of AZ, NV, UT, CO, & ID PITT OHIO: services parts of the Northeast and Midwest

By Thomas Andersen

Spee-Dee Delivery: Services parts of the Midwest US Cargo: Services parts of the Midwest and East Coast Although these carriers cover nearly 90% of the US population, it’s challenging for a shipper to depend on one or more regional carriers for the majority of the volume. There is a volume play that needs to be considered and the DCs or origin points would need to be geographically in line with the carriers.

When negotiated properly, with cost savings often being 25% to 40% versus the national carriers, it’s worthwhile to examine if there is an opportunity to shift a portion of the volume in key markets.

In addition to regional carriers, more cost-effective services may be available. Many large shippers continue to use UPS Ground and FedEx Home Delivery, rather than the respective carriers’ SurePost and SmartPost solutions. There are various other similar solutions through the USPS or USPS partners that can generate substantial savings without impacting service levels significantly.

By single sourcing, you ultimately lose leverage with either of the two national carriers, which is likely leading to overspending. One should therefore examine these options on an ongoing basis and ensure that Portfolio Tier and Earned Discount Tiers are being met.

Don’t assume that you have an agreement in place that protects your best interest. Parcel agreements never look the same, and most leave significant gaps, which are likely to lead to unexpected expenditures over the term of the agreement. Since the carrier “leads” the shipper to focus on the primary services and weights, many of the other components, areas, and services that account for substantial costs are ignored. Review your discounts on transportation charges and fees against your historical shipping patterns. Odds are that there are services that aren’t receiving the discounts that they qualify for, and some are likely to receive no discounts. In addition, it helps you identify areas where more appropriate services can be utilized.

Don’t feel that the terms of an agreement are set in stone. There may be X months or years remaining on a three-year agreement with the carrier. Some feel that they are required to wait until the end of the term to renegotiate. Rather than feeling locked into a three-year term, recognize that most agreements include a 30 day out clause and no penalties when making changes. Some may include an early termination fee, but it’s rarely applied and is more of a deterrent than anything else. You should put the business out to bid on a regular basis (we suggest every two years for most shippers) and have quarterly reviews with the carriers, to ensure that your needs are being met.

Allow for enough time for the carrier to make the necessary changes to your agreement. A full-blown RFP is likely to require several rounds and weeks (sometimes months) to negotiate, to achieve the best results. Allow sufficient time for the process to develop, as escalation of a pricing request is required to occur within the corporate pricing or finance group.

This is a time consuming process with all carriers and requires patience. A thorough analysis requires substantial time and effort, on your part, to determine the savings. One must be able to apply the current versus proposed net transportation charges, based on the discounts, minimums, and fees. Building an accurate shipment profile, based on historical spend, is therefore critical when determining the net impact. Set aside ample time to review this thoroughly, as you progress through the negotiation process. If comparing pricing proposals for two or more carriers, be aware that base rates and zones differ for most services, as do select fees.

Don’t be married to your carrier. FedEx and UPS are typically both good options, yet most organizations are reluctant to

Having the ability to know your customers every step of the way also yield benefits when it comes to the returns process.

NEGOTIATE WITH YOUR CARRIER(S) Once you make the necessary improvements to packaging and operational efficiencies, and determine which carriers may be a fit, the focus should turn towards negotiating with each of the carriers. It is absolutely essential that you have specific goals based on your requirements.

Pricing tiers are established based on the carrier receiving specific volume.

If there is a slight decrease in volume, you may fall into a lower tier, which can result in extremely undesirable results.

Make sure that you are meeting the appropriate revenue qualifiers. As this may be challenging to measure on your own, ask your account manager to provide you with your revenue qualifier on a consistent basis. If you identify a significant gap between the current revenue qualifier and discounts that are available at higher thresholds, ask your account manager to help minimize the gap or lower the qualifier at the higher tiers, so that you qualify for more aggressive pricing.

NOVEMBER-DECEMBER 2015 | www.PARCELindustry.com

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make a switch. With services being similar, the cost savings may be substantial enough to justify the short-term potential headaches. Although a change in carriers is typically unnecessary to achieve savings, be willing to negotiate with them, but be sure that you are comparing apples to apples, which can be a cumbersome and complex process.

We often hear how the UPS and FedEx make the rules, establish the terms, and limit your visibility. Although there is some truth to that, increased knowledge and visibility can help you level the playing field. The basis of any negotiation is to have a goal and an understanding of what you are setting out to accomplish.

Although it may be a challenge to have either of the two national carriers offer pricing based on less volume, if you can provide a case around the shift to a regional carrier, the USPS, or another solution, the carriers may prove to be flexible… rather than losing the volume, they may even de-

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cide to offer pricing beyond pricing guidelines, in order to retain the business.

Developing relationships with the carriers and driving towards ongoing discussions is critical as costs continue to increase and the supply chain continues to become more complex.

IMPLEMENTING TECHNOLOGY SOLUTIONS There are a variety of technology solutions that are available to help optimize carriers and services based on cost and time in transit. To open the door to multiple carriers, it’s beneficial and sometimes necessary to implement multi-carrier shipping software. It enables the shipper to choose the low cost carrier based on acceptable transit times and service levels. In addition, having options protects one against any changes and interruptions in service. It can also help provide cost-effective inventory management if it’s properly integrated with an organization’s warehouse management system (another recommendation).

NOVEMBER-DECEMBER 2015 | www.PARCELindustry.com

A relatively modest upfront investment and small ongoing fee can also help provide an ongoing environment for cost management, by implementing systems that focus on effectively cubing, weighing, and dimensioning shipments. This helps ensure that proper costs are passed onto the recipient and more effective use of packaging is utilized.

Gaining access to one’s shipping data is another critical step that every organization needs to take. In order to have complete visibility to transportation costs, based on service levels, zones, weights, residential versus commercial status, urban versus rural, and any other factors, data must be compiled and analyzed consistently. Most shippers are shocked by the amount of money that’s not only spent on transportation costs, but also random accessorial charges, and unexpected charges such as late payments and shipments that may not be receiving any discounts.

For any of the services, one must determine what discounts are being applied to Undeliverable packages, Third Party, Undeliverable Third Party, Freight Collect, and others. In reviewing the data, one will quickly identify areas that have not been addressed, and it may require little more than a phone call to your carrier account manager to have those areas addressed.

By having visibility to your data, you will be equipped to review your shipment volume, service utilization, zone distribution, actual vs. billable weights, dimensions, pickup requirements, etc. This will help you identify areas where more cost-effective shipping methods and packaging can be used.

OPTIMIZE SHIPPING MATERIAL Right-sizing packaging became a much higher priority at the beginning of this year.

With both national carriers applying dimensional weight to shipments that measure less than three cubic feet, companies can

no longer expect to carry a handful of standard box sizes. Shippers should evaluate shipping boxes. This may include analyzing the impact of cut-down boxes vs. standard box sizes, opportunities to utilize Jiffy Mailers or other packs and packaging options.

Options for dunnage should also be analyzed, so that shipping “air” is minimized.

Finally, evaluating hardware to optimize density should be evaluated. Although there will often be an upfront investment, most of the cost can be absorbed in a relatively small amount of time.

STREAMLINE OPERATING EFFICIENCIES Optimizing the efficiency of one’s operation can include a variety of options. Not only does it require a comprehensive review of processes and procedures that influence outbound shipments, but also the inbound volume, as well as the returns process. Are products brought in and distributed most effectively? Is it beneficial to drop-ship certain products? Is a centralized warehouse,

multiple DCs, or “Store-to-Door” the most effective methods to ship… or perhaps a combination? Is partnering with a 3PL in some cases the right fit? It may include increasing operating costs and carrying inventory, but lead to reduced shipping costs and improved time-in-transit.

As for one’s operation, one should examine the pick and pack process and evaluate all the processes that influence the customer experience. There are many more options that can be beneficial for cost reduction and to optimize your operations.

Identify the low-hanging fruit and work your way through the larger initiatives. ¾

THOMAS ANDERSEN is Partner / Vice President of Supply Chain Service for LJM Consultants. LJM Consultants has been helping shippers save time and improve profitability with expert FedEx & UPS auditing, as well as shipping consulting services focused on cost management since 1998. To speak with him, please call 631.844.9500 or email tandersen@myLJM.com.

NOVEMBER-DECEMBER 2015 | www.PARCELindustry.com

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The Evolution of the Same-Day Sector

By Andrea Obston

“HOPE IS NOT A STRATEGY” The speaker was Ivan Hofmann, a 35-year veteran of the transportation industry. This former Executive Vice President & CEO of FedEx Ground offered his perspective on the industry at the CLDA Fall Forum in Conjunction with PARCEL Forum ’15, held in October. Hofmann now consults in the transportation and logistics industry as a founding member of ETC & Associates, LLC. “You’re competing in a very crowded industry. It’s competitive and difficult,” he said. “You’ve done some things right, but there are things that you could do better.” To that end, he offered advice for those who want to survive and thrive in the same-day sector: } Be more than a commodity competitor } Realize that all that glitters is not gold } Price your services based on your true cost 24

} Look for opportunities beyond your current markets } Never underestimate or take for granted a competitor } Understand that a goal without a plan is a dream.

Be more than a commodity competitor – Hofmann pointed out what he called “the commoditization of the transportation industry.” It started with the deregulation of the airline industry and quickly expanded into the trucking and communications industries. “All of that wasn’t bad,” he pointed out. “A lot of us wouldn’t exist without this. But the downside is that customers have been conditioned to think that all carriers are the same and that the only difference between them is price. And carriers who go along with this

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mindset buy into the myth that the only way to get and keep business is by being the low-cost provider. But, if you act as if price is the sole factor in the buying decision, this industry will come down to the last man standing. If you price your services as a commodity, you’d better be prepared to be paid and treated as one.”

It’s all about differentiating your company by more than just price. And educating your customers about what you provide that goes beyond a low price. He pointed to Starbucks as an example of a company that changed the way a commoditized product, coffee, is viewed by the consumer. “Before Starbucks entered the market most people thought of coffee as a commodity. Coffee was, well, just coffee,” he said. “But Starbucks took coffee beyond just cream and sugar. Not only did they educate us about what makes a good cup of coffee, but they surrounded the product with better service, a distinct

you don’t know what your costs are, you don’t know the game you’re playing. And the two basics in cost are density (both stop and route — driver operating efficiency) and yield (revenue per stop.) There’s a difference between cost and price and a lot of people in our industry don’t understand that. You want to have the lowest cost not, necessarily, the lowest price.”

He pointed out that pricing discipline and control are the most important considerations for any delivery company that wants to remain competitive and in the game. “Pricing is an art and a science. It can be a tool or a weapon,” he said. “You can’t have sales people out there winging it on pricing. You won’t get the economic returns that you should. You’ve got to have an in-house group that thinks sensibly about new contracts. They need to be rational with pricing and that means getting a reasonable margin. If a new piece of business doesn’t offer a reasonable margin, you need to be willing to walk away from it.”

Hofmann also offered a radical idea when it comes to pricing: Sharing information about your costs with the customer.

“They should know what it costs to do what they want,” he said. “I’m not advocating that you share this information with all customers, but I am suggesting you share it with reasonable business people. If you sit down as a reasonable business person with another reasonable business person and share your costs, you can arrive at a fair price together. If you have a customer who doesn’t want to listen to that, they aren’t willing to be a true partner. And that may mean they aren’t the customer for you.”

Look for opportunities beyond your current markets – Regional carriers and couriers have an advantage over the Big Two that opens the door to new business: their flexibility. “You have the flexibility the others don’t. Use that ability to create new opportunities that go beyond your current book of business,” he advises.

Hofmann offered a number of opportunities in the environment that could open the door to new business: } The trend of large shippers to open more distribution centers requiring the services of last-mile providers } The increased use of local stores by retailers to service e-commerce customers

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image and, most importantly, scrupulous attention to customer feedback. What can we learn from their approach to their market? Listen to the customer and respond and don’t compete on price. Starbucks, in fact, is the price leader and look at the market share they have.”

Realize that all that glitters is not gold – Sometimes an account that looks attractive initially can be less than it seems. And when you compete hard for that account and lose it to another provider, it tends to gather more luster.

Here’s the scenario Hofmann offered: “You go after a big customer with all you’ve got. You do the RFP. It looks good but you lose the business to a competitor. Two months later they call you.

They’ve decided to give you the business after all. The other provider just isn’t working out. Before you say yes to the business, consider this: there’s a reason you got that call. And it probably wasn’t that they didn’t like the other people.

It’s probably because the other provider only saw the “glitter” of that account, but didn’t price it properly. Two months into the contract their CFO probably walked into their CEO’s office to tell him they’re in a negative position with the business. They went to their customer (the guy who’s on the phone with you right now) to say they’d have to raise their rates. He doesn’t take well to that price increase and you’re his next call.

Before you jump at the chance, take a good look at the account. Use discipline in your decision-making process to do it in a rational manner.”

Hofmann offers this piece of advice about this scenario and for those looking at any new piece of business: “You’ve got to be prepared to walk away from an account if you won’t make money on it.

Bottom line dynamics don’t change in the transportation business just because you have a bigger truck and handle more at the same price.”

Price your services based on your true cost –“The number one item that you as owners must understand is your true cost,” said Hofmann. “If you don’t know your costs, you will never make it in this business. You need to understand your costs down to the cent. We have a saying, ‘Pennies make sense in our business.’ If

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 is normally to use an outside auditor, which means ongoing auditing fees – month after month, year after year.

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Contact us today and we’ll show you how to eliminate those painful auditing expenses.

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The trend by retailers of offering free returns } The demands of consumers for sameday and weekend deliveries } The option of offering late deliveries

}

For those carriers who prefer to stick to the services they know and not look beyond them, Hofmann offered this: “Be careful of the menu you give to your customers. If it has limited appeal you’ll find yourself in a box.”

He also cautioned about only catering to the needs of a few customers or of operating in limited markets. “If you have an over-concentration of business, you’re held hostage by your customers,” he warned.

Never underestimate or take a competitor for granted – “Know your industry. Know your competition if you want to remain competitive and in the game,” said Hofmann. “Nothing gets me angrier than the arrogant business owner who brags ‘We have plenty of competitors but no competition.’ Right. You have

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competition every place you look. Learn from them. Study them. Steal ideas from them. It’s my advice to clients who are now underestimating Uber’s impact on this industry. They have already changed the industry. It’s your job to pay attention to what they’re doing and figure out how you can take their ideas and use them in your own business.”

Understand that a goal without a plan is a dream – Throughout his presentation Hofmann stressed the value of developing a plan based on a strategy. “You need to develop a strategy to address the challenges of this business,” he said.

“Just having a goal of making more money is not a plan. A goal without a plan is not a strategy. It’s a dream. You have to sit down and develop a solid business plan. Put it on paper, but understand you don’t have to carve it in stone. It can, and will, change as your business responds to opportunities and customer demands.

But if you’re just flying by the seat of your pants, that’s a recipe for disaster.”

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In general, Hofmann was upbeat about the future of the same-day industry, especially for those who learn from their customers and the environment. It’s an exciting and ever-changing industry that he expects to move faster and faster in the years to come: “I love this industry with a passion. I have this industry in my blood. Why would anybody get into the transportation industry? It’s because we love it. We have great services to offer that are critical to the economy, and I see a bright future for those of us who choose to be part of it.” ¾

ANDREA OBSTON is the Director of Public Relation for the Customized Logistics and Delivery Association. In addition, she is the President of Andrea Obston Marketing Communications, LLC. The firm builds, enhances and defends reputations that lead to business success. The firm mobilizes traditional, web-based and social media as tools in brand development, public and media relations and crisis communications.

By Amanda Armendariz

WRAP UP

Our 2015 show was, hands down, our best year yet. Hereâ&#x20AC;&#x2122;s a peek into the conference.

28Opening NOVEMBER-DECEMBER Night Grand Reception 2015 | www.PARCELindustry.com

This year’s PARCEL Forum, which was held in Chicago from October 19-21, took educating professionals responsible for the small shipment process to a whole new level. Now, we’ve been doing this show for a long time, so of course each year we’ll improve as we take into account what worked the previous year and what didn’t. But this year’s show was… different.

The energy among attendees and exhibitors was almost electric.

There was excitement in the air as people milled around between sessions, discussing what they had learned in the previous session and what they hoped to obtain from the next one. Networking among attendees was at an all-time high, as various conversations I overheard entailed lots of commiserating on shared problems and recommendations for solutions.

PARCEL Forum is the ONLY conference entirely dedicated to parcel shipping.

If your job involves parcel distribution – whether as a shipper or vendor to the industry – do yourself a favor and attend this show! As a speaker and sponsor of the PARCEL Forum for many years, I appreciate the Forum’s constant innovation, first-rate content, and qualitative attendance growth.

In my preconference workshop alone, we had more than $2.7 billion dollars in parcel spend represented! We are looking forward to next year!

— Rob Martinez, President & CEO, Shipware

GAME CHANGER OF THE YEAR Red Hat Global Logistics Team (L-R) Bryan Nelson, Global Logistics Analyst; Rick Pate, Manager, Global Logistics Operations (Project Leader); Steve Shaffer, Project Manager

THE FACTS } Paid conference attendance increased 14%. } Exhibit hall only attendance increased 28%. } Total Verified Attendees: 756 } Total Verified Exhibitor Personnel: 267 } Total Overall Verified Attendance: 1,023 } Number of Exhibiting Companies: 92 (sold out)

SUNDAY For those attendees who came in to Chicago over the weekend, they were treated to a special Sunday evening dinner and networking event at Ditka’s, sponsored by AFS. Not only were we treated to some amazing food in this iconic Chicago establishment, we were also able to meet former NFL Super Bowl quarterback Joe Theismann. He took time to chat with each attendee and take photos, so the evening (which was a new event this year) was definitely a fantastic way to kick off the conference.

MONDAY Monday was our workshop day. Attend30

ees were able to choose between four workshops that ranged from four to seven hours, allowing them to get more indepth information on negotiating carrier contracts, international parcel shipping, omni-channel distribution strategies or real-world DCs. An all-day tour workshop took attendees to Pampered Chef and Cintas. Our first stop was Pampered Chef, an organization which, of course, needs no introduction for most people; the company name is synonymous with high-quality kitchen utensils and products which are then sold by direct sales consultants across the country. Their distribution center, which opened in October of 2002 and began shipping

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orders in April of 2003, was a fascinating look at how an operation of their size handles their 575 SKUs virtually error-free. The DC has an average of 8,000 cartons shipped per day, with a quality control check happening to about 25% of the cartons.

After we left that tour, we stopped at the famous Chicago restaurant, Portillo’s.

Almost all of our tour attendees said that when colleagues or friends heard they were coming to Chicago for the Forum, the almost unanimous response was, “You must go to Portillo’s!” So I’m glad we were able to make that happen for them (even if that did mean sabotaging my healthy eating streak with a slice—or

CONFERENCE REFRESHMENTS & NETWORKING BREAKS Some of the best networking took place during our scheduled conference refreshment breaks throughout the three days.

NETWORK LEARNING GROUP A unique opportunity for PARCEL Forum attendees was the Network Learning Group.

Away from the crowd, attendees could discuss real challenges and problem-solve as a group.

SOME TOP TIPS GATHERED THROUGHOUT THE CONFERENCE, AS SUBMITTED

BY ATTENDEES AND SPEAKERS ON OUR MOBILE APP: UPS and FedEx raise prices every year, but the “average” increases are misleading. It’s important for shippers to compare year-over-year tariffs and use that to their advantage when negotiating contracts.

Go for a percentage off minimums in contracts instead of a set dollar amount off minimums.

Know the difference between innovation and improvement, and know when each are needed.

When attempting to avoid the Dim weight impact, shippers can’t rest on divisor relief alone; control cost through contract and supply chain optimization.

two—of their famous chocolate cake).

Our second stop was Cintas’ distribution center. Cintas is an industry leader in supplying corporate identity uniform programs in addition to many other products. The distribution center we visited is one of eight in North America. The warehouse has three miles of conveyor, and about 25,000 pieces in an average of 2,200 boxes are shipped daily. It was interesting to see all aspects of Cintas’ warehouse; the tour focused not only on the nitty gritty of warehouse logistics, but the tour guides also touched on how Cintas handled staffing issues and implemented ways to improve worker morale and produc-

tivity. A huge thanks to Pampered Chef and Cintas for organizing these valuable tours for our attendees!

On Monday night, we were treated to a cruise on Lake Michigan, courtesy of Neopost. The event was made even better by the unseasonably warm weather.

Staff and attendees alike had a wonderful time mingling and eating as they enjoyed the view. This was a first-time event for us, but based on the wonderful feedback we got, I have a feeling it will be on the itinerary next time the event is in Chicago.

TUESDAY Tuesday started off with lots of energy,

When selecting a WMS, look at the revenue stream of the developing company; if it's heavy on customization/modification/ consultations, it likely isn't going to offer what you need without heavy modification.

Vibration amplification is an interesting consideration for packaging specification.

First address predictability and profile your customer when deciding on offering free shipping.

excitement and quite a bit of laughter, as the networking breakfast (sponsored

by AFS) featured an ice-breaker game in which participants were asked to anonymously write down one interesting tidbit about themselves, and then their tablemates were asked to guess whom they thought the tidbit was regarding. Some of the facts attendees shared about themselves were quite entertaining! The breakfast finished up with a brief trivia game that focused on different aspects of the parcel shipping landscape.

Conference attendees then headed off to their respective sessions. I was able to sit in on more of these sessions than I have at any other conference, and I have to say, I was blown away by the knowledge of the speakers, the engagement of the audience and the relevance of the topics discussed. Itâ&#x20AC;&#x2122;s no wonder that many of our attendees told me that if they took even one idea that they learned from the conference and implemented it at their organization, it more than paid for the cost of attending. Add in the fact that the average attendee probably took at least three or four solid actionable items away from the Forum this year, and you can see why our event is consistently a hit.

Tuesdayâ&#x20AC;&#x2122;s Keynote Luncheon was phenomenal. Our sponsors, Spend Manage-

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ment Experts, brought in a wonderful speaker, economist Dr. Donald Ratajczak. Economics was probably one of my least favorite courses in college (but one I had to suffer through in order to get my minor in business), but I have a feeling that if I had had a professor like Dr. Ratajczak, I would have looked at the subject completely differently. In less than an hour, he touched on so many key economic principles and how the current economic landscape is reacting to external forces. His speech was engaging, entertaining and fascinating.

At the conclusion of his speech, we presented the first-ever PARCEL Forum Game-Changer Award. Our winner, Red Hat Inc. Logistics Team, had a submission that blew us away in terms of truly epitomizing what being a game-changer is all about. As we heard about their rebranding initiatives, tactics to reduce shipping spend and the process to select a TMS, it was clear to us that their organization was a worthy recipient of the new award. PARCEL Media will be doing a full article on them in the January/ February issue, so stay tuned for that!

An honorable mention was awarded to BRG Sports Logistics Team.

After the keynote luncheon concluded, attendees flocked to our exhibit

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The soldout exhibit floor featured 6.5 hours of dedicated, noncompete time which allowed attendees to spend quality time with the companies they wanted to see.

PARCEL Forum '15 Exhibit Hall featured 17 firsttime exhibitors.

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A HUGE THANK YOU TO OUR CORPORATE PARTNERS AND SPONSORS: CORPORATE PARTNERS

SPONSORS

Reduce Your Shipping Costs Talent • Technology

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VIPP LOUNGE The Very Important Parcel Person Lounge was a great place to discuss business in a laid-back atmosphere away from the hustle and bustle of the exhibit hall. Sponsoring companies could invite attendees for hors d’oeuvres to discuss challenges and solutions.

hall, and the floor stayed hopping for the entire four hours. It was so wonderful to see so many great conversations and networking taking place!

Tuesday night is always marked by our Grand Reception, sponsored by our friends at the USPS. As always, the food and drinks were flowing freely, and attendees were busy connecting and chatting throughout the entire party. In fact, we noticed many conversations carried on after the end of the reception as attendees continued to network in the hotel lobby or the Big Bar. Networking is a key component of this show, as it delivers just as much value as the educational sessions, so the staff was thrilled to see people taking advantage of the ability to converse with their colleagues.

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HOPE YOU CAN JOIN US IN DALLAS, SEPTEMBER 12-14, 2016.

WWW.PARCELFORUM.COM

WEDNESDAY On our final day of the event, we were pleased to see so many sessions still well-attended. It’s a true testament to the quality of our show that attendees don’t see the last day as an excuse to duck out early. Our final two wrap-up sessions featured industry expert Susan Rider who presented the top tips that attendees had gleaned throughout the Forum and submitted through our new mobile app and our PARCEL Forum Advisors who did a Q&A with attendees—a true peer-to-peer highlight of the Forum.

To those who attended, exhibited, and sponsored, thank you. We couldn’t put on an event of this magnitude without you.

And we hope to see you all (and those who weren’t able to attend this year!) next year, September 12-14, 2016, in Dallas, TX.