PARCEL March/April 2022 by MadMen3

9 IDEAS FOR YOUR SHIPPING SOFTWARE SHOPPING SEE PAGE 26

MARCH-APRIL 2022 PARCELindustry.com

TIME TO OPTIMIZE!

IS E-COMMERCE BLURRING THE LINES BETWEEN LTL AND PARCEL? PAGE 7

WHY PARCEL CARRIERS HATE BENCHMARKING (AND YOU SHOULD, TOO) PAGE 24

THE SUPPLY CHAIN GAME: BEST PRACTICES TO INCLUDE IN YOUR CONTINGENCY PLANS PAGE 16

CONTENTS /// Volume 29 | Issue 2

16 18 20 22 28 06 EDITOR’S NOTE Facing Supply Chain Challenges Head-On By Amanda Armendariz

07 SPEND PERSPECTIVES E-Commerce Blurs the Lines Between LTL and Parcel By John Haber

08 SUPPLY CHAIN SUCCESS Your Carrier Base: Single-Source or Diversify? By Andy Johnson

10 PACKAGING Holistic Packaging: Don’t Forget to Count All of the Costs By Kevin Howard

12 OPERATIONAL EFFICIENCIES Putting the Puzzle Pieces Together By Susan Rider

14 REVERSE LOGISTICS What to Consider When Undertaking Cross-Border Returns By Tony Sciarrotta

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16 PLAYING THE SUPPLY CHAIN GAME Best practices to include in your business’s contingency plan By Callum Campbell

18 PACK & SHIP PLAYBOOK Optimizing your fulfillment strategy to capitalize on e-commerce and everevolving customer needs By Mike Purgatorio

20 SHOPPING CART ABANDONMENT: Shipping acumen and e-commerce success are increasingly synonymous By Josh Dunham

22 OPTIMIZING THE REVERSE LOGISTICS PROCESS USING ANALYTICS By Michael Foy

24 PARCEL CARRIERS HATE BENCHMARKING… AND YOU SHOULD, TOO! By Carl Hutchinson

28 CARRIER DIVERSIFICATION: 6 factors to consider during the onboarding process By John Weber

30 PARCEL COUNSEL Sanctions & Parcel Shippers: A Look at the Office of Foreign Assets Control By Brent Wm. Primus, JD

SPONSORED CONTENT 11 ACTIONABLE INTELLIGENCE: ENABLING DATA BACKED DECISIONS 15 WHO SAYS PARCEL SHIPPING SOFTWARE IS BORING? 26 SHOPPING FOR SHIPPING SOFTWARE SOLUTIONS?

SUBSCRIBE FOR FREE! PRESIDENT CHAD GRIEPENTROG PUBLISHER KEN WADDELL EDITOR AMANDA ARMENDARIZ [ amanda.c@rbpub.com ]

AUDIENCE DEVELOPMENT MANAGER RACHEL CHAPMAN [ rachel@rbpub.com ]

CREATIVE DIRECTOR KELLI COOKE ADVERTISING KEN WADDELL (m) 608.235.2212 [ ken.w@rbpub.com ]

PARCEL (ISSN 1081-4035) is published 7 times a year by MadMen3. All material in this magazine is copyrighted 2022 © by MadMen3. All rights reserved. Nothing may be reproduced in whole or in part without written permission from the publisher. Any correspondence sent to PARCEL, MadMen3 or its staff becomes the property of MadMen3. The articles in this magazine represent the views of the authors and not those of MadMen3 or PARCEL. MadMen3 and/or PARCEL expressly disclaim any liability for the products or services sold or otherwise endorsed by advertisers or authors included in this magazine. SUBSCRIPTIONS: Free to qualified recipients: $12 per year to all others in the United States. Subscription rate for Canada or Mexico is $35 for one year and for elsewhere outside of the United States is $55. Back-issue rate is $5. Send subscriptions or change of address to: PARCEL, P.O. Box 259098 Madison WI 53725-9098 Allow six weeks for new subscriptions or address changes. REPRINTS: For high-quality reprints, please contact our exclusive reprint provider, ReprintPros, 949.702.5390, www.ReprintPros.com. P.O. Box 259098 Madison WI 53725-9098 p: 608.241.8777 f: 608.241.8666 PARCELindustry.com

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EDITOR’S PICK

Here are some of the most-read articles on our site in recent weeks. If you haven’t already checked them out, you might want to — there is some great information in there!

EDITOR’SNOTE

FACING SUPPLY CHAIN CHALLENGES HEAD-ON By Amanda Armendariz

he current supply chain landscape is certainly challenging, for both businesses and individuals alike. Whether you’re a homeowner who has just learned that the cost for a home improvement project has skyrocketed (not to mention the materials delayed) or a small-parcel logistics professional who is trying to maintain adequate levels of customer satisfaction in the face of longer order times and increased product costs, one thing is for certain: 2022 hasn’t been any easier on the supply chain than the past couple of roller-coaster years have been.

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Since we’re all in the same boat, customers may be understanding of these issues... to an extent. But if orders continually take too long to arrive, or prices rise above what consumers consider to be reasonable, it’s likely that business will be lost to competitors. It’s important that logistics professionals face these supply chain challenges head-on before they become an even more significant issue. We hope that this issue of PARCEL helps you do just that. We take a look at some of the most common challenges facing your parcel operation, from shopping cart abandonment, to understanding the true cost of your packaging operation, to the question of whether to diversify your carrier base. While there is no one-size-fits-all answer for any of these issues, we hope that the information contained within these pages will help you make the best choices for your individual operation. After all, challenging times call for the right partner by your side, and we want to continue to be seen as your most trusted industry resource. As always, thanks for reading PARCEL.

Carrier Math: How to Turn a 42% Increase in Fuel Cost into a 160% Increase in Revenue By Karl Wheeler

The US Parcel Landscape Is Changing Dramatically… and so Is the Carriers’ Pricing By Mike Erickson

6 Wonderful Reasons Why It’s a Great Time to Invest in Packaging Automation By Emily Newton

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SPENDPERSPECTIVES

E-COMMERCE BLURS THE LINES BETWEEN LTL AND PARCEL By John Haber

he rise in e-commerce is resulting in transportation carriers redrawing networks and offering new services focusing on the last mile. According to the US Census, total e-commerce sales for 2021 were estimated at $870.8 billion, an increase of 14.2% from 2020 and 44.7% from 2019. In terms of the last mile, the growth of e-commerce has come from both big and small packages. Businesses are shipping smaller quantities of freight and parcels more frequently, giving logistics professionals more to manage in increasingly complex networks. And it’s a pricey business for everyone involved. Overwhelmed with the growth in big packages, UPS and FedEx implemented surcharges to mitigate costs associated with handling them. Small parcel sorting facilities are equipped to handle packages up to a specific size and width; however, as more big and bulky items such as exercise equipment, pet food, appliances, and home decorations were purchased online, less-than-truckload (LTL) providers stepped in. “Retail is becoming a bigger part of LTL,” which has historically drawn most of its freight from industrial sources, Satish Jindel, president of the consulting firm, Shipmatrix, told the Journal of Commerce in a 2021 interview. Shipments that may have once required one truckload move are now being broken up into smaller quantities of freight that need to be moved more frequently. As such, there is a graying of the lines between parcel and LTL providers, and it starts in the middle mile.

Both types of providers require a strong fulfillment network close to the final customer. According to Jonathan Kletzel, transportation and logistics partner at consulting firm PwC, “I see LTL as being a critical enabler of local fulfillment for companies that want to compete with some of the national brands. To be successful, they will need to serve local fulfillment through more direct, smaller loads to be able to better manage local inventory, especially for slower-moving SKUs.” Given the current environment of tight capacity and high rates across the supply chain, we’re seeing a rise in retailers investing in logistics capabilities as well as LTL acquisitions by other logistics providers. For example, in 2020, Costco acquired Innovel Solutions, a provider of big and bulky final-mile deliveries and white glove services. Renamed Costco Logistics, Costco’s CFO, Richard Galanti, noted in its March 3, 2022 quarterly earnings call that deliveries were up 22% year over year and represented 85% of its total e-commerce LTL shipments. Meanwhile, truckload provider Knight-Swift Transportation Holdings moved into the LTL space in 2021 by acquiring LTL carrier AAA Cooper Transportation for $1.35 billion. “In seeking our first LTL partner, we had three main requirements — the scale for entry with significant market share, the profitability,

and management depth to operate independently and provide a platform for compelling growth opportunities, and a world-class culture,” KnightSwift CEO, Dave Jackson said in the press release. For shippers, the acquisition of AAA Cooper Transportation means that Knight-Swift now has a portfolio of both truckload and LTL services to manage the distribution of shipments from end-to-end, except for smaller parcels. This is where technology plays a significant role. Major transportation management systems (TMS) are adding small parcel options alongside traditional trucking and other transportation mode options. This, in turn, allows the shipper to compare and determine the best rate and solution that suits their needs. LTL and small parcel solutions are blurring thanks to the growth of e-commerce. Understanding what the different providers bring to the table will be necessary for shippers from a cost and solution perspective.

With over 25 years of supply chain experience, John Haber has helped some of the world’s leading brands drive greater efficiencies through their supply chain operations while reducing transportation, distribution, and fulfillment costs. After a successful UPS career, John founded Spend Management Experts, now part of Transportation Insight.

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SUPPLYCHAINSUCCESS

YOUR CARRIER BASE: SINGLE-SOURCE OR DIVERSIFY? By Andy Johnson

n normal times, conventional wisdom held that a parcel shipping network was best served by utilizing one national provider. Yet, the last 18-24 months have made conventional wisdom for the parcel shipping industry obsolete by pushing the limits of network infrastructure and highlighting the need for alternative strategies. For the foreseeable future, parcel network capacity will remain largely unchanged, and a single carrier solution may no longer work for many shippers. Finding the right balance may seem like a daunting task, but it has never been more critical. Understanding the financial ramifications of these changes and how they impact your service and speed to market will help mitigate much of the risk associated with optimizing your carrier base. Does a Single Carrier Still Make Sense? It’s no secret that all the national carriers have struggled over the past couple of years. In most cases, they’ve charged more for service that would have been considered sub-par only a short time earlier. Yet with all these shortcomings, in some situations, a single-sourced carrier may still be the best fit. The revenue incentive is often the largest discount component in a shipper’s agreement. Diluting your primary carrier’s volume can result in increased transportation costs through a lower revenue tier discount. With other costs surging and inflation at a 40-year high, many shippers cannot justify taking that hit. Due to stronger peak performance in most areas by the national providers and the continued hope the new year will bring relaxed market conditions, some shippers are electing to stay with the status quo. It may sound enticing to bolster a shipping program by adding a new carrier, and may even make sense on paper, but there are also real-world barriers that can impede or

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block the process entirely, most often being a technological barrier. Internal IT resources are some of the most sought after at any company, and integrating with a new carrier’s software and systems can be a challenge. The national carriers will sometimes mitigate the cost impact and help streamline the process, but ultimately it will still require a level of internal support. Regional carriers can potentially be even more challenging with their own sets of issues. Some shippers simply do not have access to this level of internal support. Even if the integration goes smoothly, there is still the issue of operational feasibility. Often small to mid-sized shippers have a limited ability to rate shop between multiple carriers, while even larger companies can struggle with the sortation capabilities needed. In light of these barriers, transitioning away from a single-source solution can present real-world challenges. It is important therefore to evaluate the current state of a parcel program and honestly assess the risks and rewards of a multi-carrier parcel solution. Depending on your findings, the traditional business model may make the most sense. Most significantly, however, the cost savings and operational efficiency once attributed to single-carrier models is no longer as certain. The Multi-Carrier Approach Traditionally, one of the largest barriers to a multi-carrier

shipping program, as previously mentioned, has been the impact to your incumbent carrier’s revenue tier. While this is still a large consideration for most shippers, after seeing peak volumes capped, or in some cases dropped completely, revenue tier discounts have taken a backseat to getting freight off the dock. This is where having access to and understanding your shipping data can have a significant impact on your program. Knowing where you fall in your current revenue tier and understanding how much volume can be shifted to a different carrier with minimal impact to your discount is one of the first considerations many shippers have to make. In some instances, shippers have siphoned off select volume from their primary carrier, bringing on a secondary carrier — even at list rates — just for the sake of business continuity. With the continued strain on the national carriers’ infrastructure and the seemingly endless list of surcharges, utilizing regional and niche carriers has seen a resurgence. Regional carriers have, perhaps, been the biggest beneficiaries of the last 18-24 months, with many shippers clamoring for their assistance. Whether it is taking advantage of delivery density in their network, compensating for a national provider’s poor ontime performance in a specific geography or simply preferring the ease of doing business with a simple two-page agreement, shippers all over the country have been exploring regional carriers and couriers. Speed

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to market is another benefit regional carriers bring to the table, often with final delivery being faster than their larger competitors. And while the need for additional capacity has driven much of the interest in these smaller carriers, some shippers are also seeing cost savings by making the switch. Many regional providers do not invoice the litany of assessorial charges utilized by their national counterparts, and though transportation rates may be higher, there is still the potential for overall programmatic savings. Some retailers have weighed the cost/service benefits and taken advantage of the growing number of postal consolidators. While it is not for everyone, certain low-density/low-velocity packages, such as poly-bagged apparel, are especially suited for this mode. Volume commitments must be met for most postal consolidators, but they remain an effective means of delivery, often with little IT integration needed. Again, there are typically service trade-offs, but by managing the customers’ expectations, leveraging postal consolidators can be an effective way of realizing cost savings while also circumventing volume caps set by national providers.

Maintaining a single national carrier may be an optimal solution for some, while others may realize modest cost savings or faster delivery times with diversified programs. Ultimately, there is no onesize-fits-all approach to the parcel world, and each shipper will have to determine what is best for their program. Service commitments, the cost to serve and even the commodity shipped will continue to drive the changes in each network, with some small- to mid-sized customers being technologically constrained to one carrier while others have the ability and need to experiment with regional capacity. But in either

scenario, understanding the delicate balance between cost and service is paramount. For every action, there is an equal and opposite reaction, and the laws of physics still apply to the 2022 parcel shipping environment.

Andy Johnson is Project Manager, enVista. With 15 years of experience, Andy has worked extensively in supply chain and managed transportation. His background includes sitting on both sides of the table, allowing him to anticipate what most shippers need to drive results and what many carriers are looking for in a good partner.

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PACKAGING

HOLISTIC PACKAGING: DON’T FORGET TO COUNT ALL OF THE COSTS By Kevin Howard

n Asia, ocean containers are commonly loaded with single boxes. This certainly minimizes the cost per box for shipping charges, but this practice can lead to costly consequences for the receiver of these shipments. In India and Asia, workers are often paid less than $1/ hour (and perhaps half this) to load individual boxes into containers. The goal is to jam as many boxes as possible into the ocean container, floor to ceiling and wall-to-wall. With an army of low-paid workers to perform this task, loading can go quickly. In contrast, the situation is very different at the receiving end. First of all, the loaded costs for warehouse workers in the US will be $20-$40/hour, depending on whether they are getting benefits or not. Unloading one box at a time is slow. If the load is mixed, then workers must separate the products onto pallets, keeping like units together. I have personally witnessed up to four workers needing six to eight hours to fully unload ocean containers. Though the hourly wages are certainly one cost, there’s an additional cost that often gets lost: demurrage charges. These charges occur when an ocean container lands on shore but doesn’t get emptied within a certain amount of time. The slowness of unloading boxes one at a time and then sorting them causes massive delays. International warehouses that receive loads only from overseas can have weeks of ocean containers parked in various lots all over Los Angeles, paying both demurrage and storage charges. Part of the problem is how companies are “siloed” by departments, with no true cost czar

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considering all of the costs of the supply chain, while well-meaning employees attempt to attain the minimum cost possible for their area of focus. As a result, the shipping manager may be very proud of the lowest shipping cost per box, but that didn’t consider the true landed cost of that product. Balancing Costs Attaining the overall lowest cost sometimes leads to higher costs for some aspects of the business. In this case, one possibility would be for the shipper to unitize boxes together, preferably on a slip sheet and with stretch wrap. The boxes should be sized to fit a footprint slightly smaller than a standard US 48 x 40 pallet. Why? Because US pallets leave empty space in ocean containers, getting 20-21 footprints per 40-foot container, but wasting space between footprints. Companies focused on landed costs will use the internal dimensions of ocean containers to help dictate the size of boxes and unitized loads. If the load is slightly smaller than US pallets, then it’s possible to get 22-26 footprints per container, wasting very little space, and making it easy for the US workers to simply place the load onto a standard pallet once extracted from the ocean container. Using plastic slip sheets is far better than using a pallet from Asia since it takes virtually no vertical space, is a fraction of the cost of a

pallet, is made from 100% recycled content and can be recycled again, or even sold back to the slip sheet manufacturer. Unloading an ocean container of boxes that are on slip sheets takes about 30 minutes by one forklift driver. In fact, if slip sheets are used, then the sender of the ocean container also saves on labor, requiring only a single worker to fully load the container. Remember, just because labor is cheap in some places doesn’t mean you shouldn’t be as efficient as possible. If push-pull equipment isn’t available, then standard clamp trucks could also work, though your packaging will need to be designed and tested for side-to-side compression. Overall, only a small percentage of boxes might be left out of an ocean container that has unitized loads vs individual boxes, but the overall savings, let alone speed of business, will benefit from such foresight. It should be noted that slip sheets work well, but only when the two ends of the supply chain are positioned to accommodate this method of material handling.

Kevin Howard is a consultant with and owner of Packnomics LLC. His focus is on distribution packaging design and testing. He can be reached at kevin. howard@packnomics.com. Visit www.packnomics.com for more information.

APPLICATION ARTICLE

Actionable Intelligence: Enabling Data Backed Decisions Intelligent Audit’s proprietary shipping software and services create a single source of truth for transportation spend management and performance. Supply chain disruption is everywhere, but it shouldn’t affect your ability to stay strategic. However, it should encourage shippers of all sizes to implement new processes and standards that will help fight disruption through data-driven decisionmaking. That’s how Intelligent Audit enables shippers with a robust solution that hits every target, every time, and at every moment. Freight Audit & Recovery Intelligent Audit takes a data-driven and hyper-focused approach to freight audit and recovery. Its proprietary software and machine learning algorithms combined in one platform to help identify and manage service-related issues, track surcharges, monitor dimensional rates, maintain carrier compliance, account for accessorials, and manage overarching costs. Business Intelligence & Analytics Real-time, on-demand, and normalized data is critical to making any decision, such as choosing the most optimized service or analyzing what carrier to add to your network at what costs. Actionable information drives these conversations to take the guesswork out of the equation. Finance & Accounting Tools Intelligent Audit leaves nothing to chance, providing accrual reports to highlight what’s been shipped out but not yet invoiced. Automating GL coding and cost allocations down

to the SKU lets finance teams understand the total landed costs of shipped goods. Together, this helps users optimize payment cycles, avoid missed payments, build better shipper creditworthiness, and enable new carrier onboarding faster and more efficiently. Logistics Network Optimization Network modeling can quantify your decisions before making them. In addition, Intelligent Audit can run “what-if” scenarios by utilizing historical data, empowering the logistics team to make informed strategic decisions. For example, shippers can analyze the cost impact if they switch services, change carriers, zone skipped, etc., and any effect on customer experience. Freight Payment Leveraging TriumphPay, a federally regulated banking institution, to handle all carrier payments simplifies payment schedules while reducing back office costs. Data helps you partner with carriers who provide excellent service while also paying them on time for what’s due. Client Success Services Intelligent Audit partners with shippers to help them achieve their strategic goals, acting as an extension of the customer’s team. Highly educated account managers empowered by billions of dollars worth of data can: Implement best practices and processes to identify operational changes that would reduce costs, and improve customer experience. Additionally, assist in continuous process improvement strategies such as reducing average zones by optimizing ship from points to obtain a larger ground footprint. Together, that helped Intelligent Audit’s more than 2,800 customers, including 20% of the Fortune 50, auditing more than 1.1 billion shipments, equating to over $31 billion in transportation spend last year alone. By using Intelligent Audit, today’s shippers can truly attain a higher form of intelligence by partnering with a technology-first freight audit provider. Join the team of higher-level freight experts by requesting a consultation at info@intelligentaudit.com.

www.intelligentaudit.com info@intelligentaudit.com 201.880.1110

OPERATIONALEFFICIENCIES

PUTTING THE PUZZLE PIECES TOGETHER By Susan Rider

rices are rising, good talent (or any talent!) is hard to find, and the demand for just about everything is increasing. Associates are getting tired of overtime, and it feels like you’re operating on a shoestring. Sound familiar? It is a challenging time, to be sure. There are some things you can do today to get organized and get your facility back on track. Think of the four walls of your operation as a giant jigsaw puzzle. All the pieces must fit together strategically to make it complete. Spending lots of money to increase your throughput in order picking when your shipping dock already has more than it can handle doesn’t make sense. Moving a bottleneck from one area to another simply doesn’t work. Following are some tips to help you make a list of all your opportunities and start prioritizing your needs before the next fiscal year budget so you can justify and get the tools you need to increase your volumes and do more orders with fewer people. The first place to begin is to ensure you have someone in your organization that knows good distribution practices (that may or may not be you). If you don’t really believe you have the right talent, find someone from outside. Sometimes fresh eyes can truly find the golden nuggets in your operation to make it run better and with fewer interruptions.

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1. First, review your technology. Do you have a WMS? If not, going from a non-WMS facility to a WMS facility will, as a rule of thumb, give you a minimum of 30% increase in productivity overall. There is a very important caveat; you need to change your operation to fit the WMS and not deploy over bad practices. If you do have a WMS, great! Make note of the last year it was updated. Get with IT and make sure the system is still viable and the hardware and software are not approaching end of life. As you review every department, make a note of software enhancements that would improve the efficiencies of each. 2. The first area of the jigsaw puzzle is receiving. Meet with the receiving manager, get a list of what he or she feels they need to make the dock run better. Then, talk to some of the tenured people in the department and ask them. (Who knows; you may just uncover a simple fix to a software upgrade that no one noticed and that could save minutes in receiving each item!) If you are fortunate to have a new person with distribution experience, ask that person also. From that point, map out the process. Review it with your team and see what steps, if any, can be removed or what steps, if any, need to be added to increase accuracy. Be

careful of the “we’ve always done it this way” mindset or adding a step when a specific problem happened one time two years ago. In other words, don’t add steps unless it is really warranted.

Sometimes fresh eyes can truly find the golden nuggets in your operation to make it run better and with fewer interruptions. 3. Follow the same formula for putaway and replenishment. 4. The next puzzle piece — and one of the most important — is order picking. Follow the same process but observe the order pickers. What do they spend most of their time doing? How much time in the morning goes by before they actually start picking (I have seen 30 to 40 minutes taken up by finding their box cutters, shipping containers, RF guns, tools, etc.) This is non-productive time and can be easily fixed with better

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preparation. If the order picker spends time opening boxes, taking away trash, or unclogging flow rack, you have opportunity. Most of the better-run facilities have the replenisher cut the boxes before they are put in the rack and take the trash out of the area so the pickers can spend their time picking. If your pickers spend any time waiting, bingo! You have opportunity that usually can be easily fixed. 5. Next, go to packaging. One of the keys here is ergonomics. Eliminate twisting and turning. Try to put all tools at golden zone level. In some companies, you can avoid an additional QA check, while others may need it. Follow the same process noted earlier before heading to shipping. 6. Shipping also entails reviewing your policies. Are you taking advantage of zone skipping or any of the newer

features the shippers are offering? Does your flow make sense? Is the shipping station close to the dock? As you go through every area within the four walls, make sure the flow makes sense and keep in mind the two most important rules: Reduce walk times and reduce touch times All these steps and tips are taking in consideration that you or a staff member are doing this yourself. But if you are like most facilities, you are already working 120%, so there will not be any time.

This is when an outside team may assist. If you hire a consultant that already knows the best practices, many of these steps can be eliminated because they will be able to recognize and prioritize needs quickly with one walk-through, giving you your end result much faster. Don’t spend a dime to save a penny!

Susan Rider, President of Rider & Associates, Supply Chain Consultant, and Executive Life Coach can be reached at susanrider@msn.com.

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REVERSELOGISTICS

WHAT TO CONSIDER WHEN UNDERTAKING CROSS-BORDER RETURNS By Tony Sciarrotta

espite upheavals in global supply chains, cross-border e-commerce remains strong. According to the cross-border e-commerce service provider, Global-e, cross-border e-commerce sales grew 21% in 2020 compared to 2019, while payments processor Worldpay found that 55% of online shoppers made a cross-border purchase in 2021. According to a survey conducted by a direct-to-consumer (DTC) provider, ESW, most survey respondents (26%) indicated that they shopped on international e-commerce websites because they paid less for products purchased internationally compared to purchases made domestically. While cost savings is a definite plus, the logistics of transporting items from origin to the last mile globally is expensive. Imagine if the customer didn’t like the item for some reason and wanted to return it — that’s even more expensive for the shipper. According to another survey from a technology provider, a guaranteed free returns policy was the leading encouragement for consumers to make an online purchase from a company in another country. Just like there’s no such thing as “free shipping,” returns are not free either. But it is essential to make the

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process as easy and hassle-free as possible. When building out a cross-border e-commerce strategy, a shipper needs to ensure that they have a fair and balanced returns policy, so no one is at a disadvantage based on the customer’s or shipper’s country of residence. One option is to create a web-based returns portal for shoppers, allowing them to print their labels and track their returns throughout the refund process. Include returns packaging with the original parcel and make booking a return quick and painless, allowing the customer to track their returns through the refund process so that the refund is initiated as soon as the return is collected from the customer. In addition, shippers need to build relationships with supply chain partners who have regional and/or in-country return centers. A shipper can speed up the refund process by performing the product inspection and refund process locally. Also, this will allow the shipper to consolidate packages for bulk return to the home facility, saving transportation costs. Understanding countries’ customs duties and regulatory requirements are essential so that items are shipped in such a way as to ensure there are no delivery delays. This is where partnering with the right supply chain providers becomes even more important. Shippers need to understand individual country

requirements. For example, consumers have up to 14 days to send back or exchange purchased goods before incurring charges in the European Union. In China, online shoppers have only seven days to decide whether or not to keep their items. There’s a lot to keep in mind when handling cross-border returns. Processing cross-border returns is more expensive than the original outbound shipping cost. Upon re-entering the US, the goods are now considered an import and subject to applicable taxes and duties. A solution around this could be to establish secondary marketplaces such as online auction websites in various countries to sell bulk returned, excess, or liquidation inventory instead of shipping them back to the retailer’s home country. Managing domestic returns is difficult enough for retailers, but it’s double the difficulty when cross-border returns are included. Partnering with the right supply chain providers and specialized reverse logistics service providers is necessary due to intricacies such as taxes, duties, country-specific requirements, and more that are involved.

Tony Sciarrotta is Executive Director of the Reverse Logistics Association.

APPLICATION ARTICLE

Who Says Parcel Shipping Software Is Boring? It’s evident that e-commerce and online shopping are not going anywhere. After a 10% increase in 2021 holiday e-commerce sales, consumer spending continues to grow in 2022. But the news isn’t all good. Delays are still rippling through as businesses around the world face problems with products and materials because of supply chain bottlenecks like warehouse crunches, labor shortages, and capacity constraints. While these problems may not be solved overnight, automated shipping software can help smooth the valleys and peaks, and for many of our fellow supply chain and logistics professionals — that keeps us all on the edge of our seats. You’ll get whiplash from how fast your shipments are. Speed is the name of the game in today’s shipping environment. Customer expectations are growing and providing fast delivery options has proven to be not just something consumers want — it is what they expect. A well-integrated parcel shipping software will not only automate the shipping process but do it in minimal time. Compliant carrier engines expedite the process efficiently and with control, resulting in millisecond transaction times. Faster processing speeds culminate in shorter delivery times, but they aren’t the only way to shorten the time in transit. Additional fulfillment centers offer more options for decreasing the distance from pickup to delivery. When shippers utilize all of their inventory sources (DC, 3PL, stores, manufacturers) in an omnichannel fulfillment strategy, they can keep the focus on improving the overall Customer Experience (CX) and exceeding delivery expectations. You’ll be doing cartwheels from how much money you are saving. The pandemic pushed a surge in transportation costs, putting pressure on many businesses who are already dealing with higher wages and higher raw-material prices. With these higher transportation costs in mind, managing your supply chain spend is key for making a difference on your bottom line. Whether it’s the middle of a busy peak season or you are just looking for a more organized approach to tracking carrier

rates, shipping software is the best solution for minimizing transportation spend. Innovative functionalities, like Advanced Date Shopping, calculate the best service for delivery that meets or exceeds customer expectations (imagine being able to promise delivery dates) to establish cost-efficiencies for your business. An extensive carrier portfolio means you can manage carrier capacity constraints and surcharges from a variety of national, regional, and same-day carriers. You’ll have time to finally take the vacation you’ve been putting off. The pandemic was a global disruption across health and education systems, businesses, and trade unlike any other in the past 100 years. Those who were prepared or could adapt via a flexible technology stack found success even in trying times. Many found that efficiency was key for keeping their supply chain effective and stable. Scalability in number of packages, whether that daily volume is 5,000 or 1,000,000+, is an efficiency marker. In addition to volume, a dynamic shipping solution can adapt to the sophisticated nuances of your business, including any complex business rules that it may require. Only a fully customizable solution that integrates into your Enterprise Software Stack (ESS) can automate shipping decisions while incorporating relevant information in real time, without interrupting the productivity of the supply chain. The final piece for preparation is understanding and compiling the transportation Business Intelligence (BI) living within your shipping data. Optimizing BI with real-time insights and end-to-end visibility on all shipments leads to higher efficiency through cost savings and shorter time-in-transit, enabling deep customizations and enhancing processes throughout the rest of your ESS, empowering supply chain stakeholders across the organization. In the end, logistics makes the world go round. Logistics and the supply chain affect so much of our day-today lives and with all the different channels that the supply chain touches, how could shipping software ever be boring? To learn more about the industry-leader in automated multi-carrier parcel shipping software, connect with the experts at ProShip and supercharge your supply chain today!

www.proshipinc.com sales@proshipinc.com 800.353.7774

PLAYING THE SUPPLY CHAIN GAME Best practices to include in your business’s contingency plan By Callum Campbell

upply chain volatility is one of the top challenges retailers have faced in the last 12 months. I’m sure no retailer needs reminding of how the past two years of the pandemic have led to an unprecedented strain on supply chains and accelerated a major shift in consumer shopping behaviors. As a business owner, you must be ready for all situations, even the unexpected ones. And while planning for an unknown crisis might feel impossible, there are many ways you can proactively crisis-proof your business to ensure resilience in the face of any challenge. That’s why you need a contingency plan. Here are four tactics to incorporate into your business’s contingency plan so you can be ready to face any supply chain challenge in the year to come. Prep Your Inventory Sales are great. The more the merrier, but only if you have the inventory to fulfill them. The fact is, surges in sales happen. Unexpected Amazon Buy Box wins, retail holidays, weather changes, even seasonal peaks — they all drive demand for products. And while having safety stock can help to offset some of these impacts, businesses should factor in these shifts as part of their annual plans.

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The easiest way to do this is through demand forecasting, which utilizes predictive analytics to enable businesses to understand and predict demand so that they can optimize inventory and ensure they always carry the correct amount of stock. Understanding how a company’s demand fluctuates prevents issues like overstocking and stock outs, both of which can be a financial drain for your business. Critical business decisions, such as annual turnover, profit margins, and cash flow, are also all highly dependent on accurate demand forecasting. Engaging with demand forecasting techniques allows businesses to optimize inventory management and stock control much more effectively. As a result, it’s likely that inventory turnover rates will increase, and any associated carrying costs will decrease due to ensuring the right amount of stock at all times. Automate, Automate, Automate Automation is undoubtedly a critical component to running a successful business. Not only can automation free up precious time to focus on higher-value work, it also grants companies flexibility to react to a crisis quickly. Order management automation is a no-brainer here. By automating the entire customer journey, companies will increase efficiency, save time, and identify and address any bottlenecks in their workflow. But another major area that businesses should consider automating is their marketing. While companies may try to expand their customer base to counteract a crisis, getting existing customers to repurchase is more cost-effective than trying and converting new customers. By connecting the company website analytics system with its email management tool, businesses can target the right people at the right time based on their specific behavior and previous purchases. From a post-order follow up to an abandoned cart sequence, automated email sequences will be sure to increase company sales with little effort.

Maximize Your Warehouse Space Knowing to stock more inventory is only half the battle. What happens if a company has limited warehouse space?

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Selling conditions during the pandemic led many retailers to pivot their operations to keep up with demand. In fact, four out of five retailers indicated that their business repurposed physical store space to help with e-commerce fulfillment, according to Linnworks’ report “The Great eCommerce Acceleration.” And only a third have reverted the facilities back to physical stores. But optimizing warehouse space may only get you so far. As an alternative, companies should consider options like a thirdparty logistics provider (3PL) as an end-to-end fulfillment solution. A 3PL provides benefits including reducing operating expenses and freeing up more time for retailers so they can focus on growing their businesses. Companies should consider fulfillment options as well. Instead of spending time and money fulfilling your orders yourself, businesses could outsource and often get cheaper rates — not to mention the time saved. Depending on the fulfillment company, they may even be able to store their products in their warehouses, allowing you to downsize your premises and save even more money. Develop Strong Relationships with Your Supplier Suppliers sometimes run out of a product or, even worse, discontinue it entirely — and it’s often out of the business’s control. So how does a company navigate these challenges? Prioritize supplier relationship management (SRM). SRM has one broad goal: to streamline and improve the processes between a buyer and its suppliers. In essence, developing relationships with suppliers consists of any set of activities that is completed by an online business to identify, measure, and improve the performance of suppliers and support the continuous improvement of its products or services. Just like customer relationship management (CRM) tactics, an effective SRM process helps companies to build mutually beneficial relationships with suppliers and create strategic growth. According to the Chartered Institute of Procurement and Supply (CIPS), when businesses are aligned with suppliers and treat them as partners, “both businesses will experience higher success rates, decreased risks and enhanced collaboration and innovation.” In turn, companies are less likely to be blindsided when products are no longer available. By combining these tactics, businesses have the foundation of a strong contingency plan to help them navigate even the worst of supply chain woes this year.

Callum Campbell is the CEO of Linnworks, a leading SaaS commerce platform that works with brands like Ford, Casio, Belkin, and Ten Thousand. As CEO, Callum is responsible for ensuring Linnworks empowers brands to grow their businesses online. Before becoming CEO of Linnworks in 2017, Callum founded Autonative, a global automotive e-commerce software and services business, where he currently sits as a board member. For more information and tactics to incorporate into a business contingency plan, check out the Resource Hub from Linnworks at www.linnworks.com/resources. MARCH-APRIL 2022  PARCELindustry.com 17

pain points. Solutions such as automated end-of-line packaging equipment and picking robotics can not only help to fill the labor gap but increase throughput. In turn, more products can get out the door and in the hands of consumers. Software is also becoming a vital complement to said equipment. Warehouse Management Systems (WMS) are becoming the key to generating strategic data and then leveraging it to maintain and grow operations. This means monitoring equipment and labor utilization, material forecasting, inventory management, and more.

PACK & SHIP PLAYBOOK

Optimizing your fulfillment strategy to capitalize on e-commerce and ever-evolving customer needs

By Mike Purgatorio

-commerce is projected to cross the $1 trillion mark in the United States this year — for the first time ever. While that powerful statistic breeds an endless array of opportunities for businesses, it’s also riddled with inherent challenges. Shipping ports continue to resemble overcrowded parking lots, and every point in the supply chain is plagued by critical bottlenecks. On top of that, labor shortages are further complicating operations. All that said, today’s consumers don’t care about any of the above. They expect faster shipping, a positive customer experience, and the highest level of sustainability. While that’s certainly a tall order for any company, taking a more strategic approach to fulfillment can help businesses better weather the storm at hand, and set themselves up for a successful future. Now is the time to examine end-of-line packaging choices (both materials and

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equipment), fulfillment workflows, and overall supply chain strategy to meet the growing demands of customers. Review/Analyze Current Packing Approach Start with a thorough analysis of existing procedures and end-of-line packaging. What solutions are currently being utilized? How are they performing? This includes evaluating everything from packs per minute, material consumption, ergonomics, and overall workflow efficiency. Are these solutions ultimately allowing you to hit your key performance indicators (KPI)? Then from a macro perspective, do these solutions fit well, and function efficiently, in your overall operation? Taking Speed and Efficiency to the Next Level As mentioned earlier, labor shortages are at the top of nearly every company’s

Simplifying the Last Mile Ninety-six percent of surveyed consumers consider “fast delivery” to mean same-day delivery. Furthermore, 80% want same-day shipping, while 61% are looking to receive their packages even faster — within one to three hours of placing an order. Those expectations are putting undeniable stress on businesses, which means it’s time to consider growing their fulfillment network — either internally or via a third-party logistics company. Investing in decentralized micro-fulfillment centers in the geographic areas that are closest to customers, and adopting a ship-from-store model, if applicable, can help simplify “last mile.” As a result, a company can shorten its shipping times and lower costs. Within those smaller facilities, packaging equipment must then possess a smaller footprint, and be incredibly versatile in terms of the packaging produced. On-demand, end-of-line packaging systems that create void fill and cushioning materials can offer those very advantages, creating packaging only when you need it, and in a variety of sizes to fit product needs. Going Green Consumers want a company to source sustainable packaging and make recycling easy. According to Food Dive, 54% of consumers take sustainable packaging into consideration when selecting a product. Miller Recycling also noted that 80% of adults said they would recycle plastic more frequently if they had additional facilities and/or guidance, with 60% agreeing that they

SUBSCRIBE FOR FREE! do not know how to recycle some types of plastic packaging. In order to meet customer sustainability expectations, companies need to:  Develop a clear sustainability vision and measurable goals for public/ internal use  Utilize sustainable protective packaging solutions with recycled content and recyclability (both store-drop off and curbside recyclable)  Strategically communicate product and packaging recycling best practices  Partner with suppliers that offer How2Recycle certified materials, which clearly label recycling directives Damages Significantly Impact Profits Shipping-related damages can have a profound impact on profits. Companies oftentimes fail to consider the costs of returns, which include the unnecessary expense associated with product replacement, labor, packaging, and freight. Businesses should lean on packaging suppliers to evaluate

current materials and suggest the right prescription of cushioning, void fill, and block/brace options to ensure products arrive undamaged. Making the right choices up front minimizes the costs associated with reverse logistics. Premium Customer Experience Drives Repeat Business Another important deliverable is to provide a customer experience that is premium and on-brand. Packaging components can play a critical role in helping make that happen. Research tells us that parcel packaging truly impacts consumer perception. According to a study administered by Pregis and the University of Wisconsin, a premium packaged product was perceived as being 32% more valuable than a product outfitted in economy packaging. On top of that, 52% of consumers are likely to make repeat purchases if they get premium packaging from an online retailer. Providing a quality experience doesn’t have to be challenging. Here are some

simple examples of how packaging components can be used to amplify product value:  Printing to amplify company branding  Tape design/internal printing on box  Color variability to enhance unboxing experience  Material choices that support sustainability  Parcel packaging protects, primary packaging delights Consider which works best for your business, and then use those factors to deliver a top-notch experience for your consumers.

Mike Purgatorio is Segment Marketing Manager, Pregis. Mike leverages vital industry data to develop and implement go-to-market strategies across Pregis’ key verticals. Through these efforts, Pregis is able to provide endof-line packaging solutions and services that strategically support the ever-evolving needs of its diverse customer base.

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SHOPPING CART ABANDONMENT:

SHIPPING ACUMEN AND E-COMMERCE SUCCESS ARE INCREASINGLY SYNONYMOUS

BY JOSH DUNHAM

he pandemic accelerated consumers’ adoption of e-commerce, and although online sales decreased slightly over the same period last year, the latest Census Bureau statistics for the fourth quarter of 2021 confirm what most shippers already know: Although fluctuations occur, e-commerce success and business success are increasingly synonymous for retailers of all kinds. According to the latest estimates from the Census Bureau of the US Department of Commerce announced on February 18, 2022, e-commerce sales adjusted

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for seasonal variations in the fourth quarter of 2021 accounted for nearly 13% (12.9%) of total sales, or $218.5 billion. Notably, total retail sales in 2021 increased 17.9% from 2020 and accounted for 13.2% of total sales. Perhaps not surprisingly given these figures, there is a corresponding and direct correlation between the price consumers pay for shipping, delivery times, online sales volume, and businesses’ top line revenue. Amazon revolutionized how people shop online and simultaneously created new expectations for shipping. Now next-day delivery and even same-day delivery for certain product segments are the norm. Simultaneously, expectations around shipping costs have also changed dramatically. In a global online

marketplace where e-commerce and omnichannel retailers compete, shipping costs have become a differentiator and competitive advantage that consumers are now sensitive to and factor into their buying decisions. Consequently, consumers increasingly will not stand for what they see as high or exorbitant shipping costs — a reality made all the more important for businesses during a time when the shipping price they are often competing with is “free.” There’s No Such Thing as Free Of course, as shippers, we know that “free” is a relative concept. In reality, there is no such thing as free shipping. Moving a parcel from one place to another requires time, effort, energy, and equipment — all things that are

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costly. The question then is how much of the shipping outlay your organization can absorb in order to be successful in the competition to complete sales in that pivotal moment when shoppers learn how much it will cost them to receive the items they selected. The answer will differ for every organization, but two things are certain: First, shopping cart abandonment is perhaps the worst of losses because it’s often the final step in the process. In most cases, everything else worked. You attracted a buyer to your site, you provided them with what they wanted, and you delivered an e-commerce experience that prompted them to make a selection. Secondly, one thing likely caused them to change their mind: your shipping cost. As a shipper, the important role you play in your organization’s success online can no longer be overstated. Nor can you abdicate that responsibility. That’s why it’s never been more important for you to strategically approach your shipping contracts and costs. It has also never been more challenging. Most businesses will be surprised to find when they receive their Q1 2022 bill that their carrier will be asking them to pay more for their shipping this year than ever before. Look at what is occurring with our two largest carriers in the US. In the fall, both FedEx and UPS announced a 5.9% general rate increase (GRI) for 2022. In response, many shippers added six percent to their annual cost projections for their parcel shipments and called it done. On the surface, this logic and approach would seem sound, but unfortunately, the GRI for 2022 did not include the myriad new surcharges, fees, and rules FedEx and UPS introduced last year. We asked our data scientists to run a model that applied these new rates, terms, and conditions to the millions of parcel shipments our customers made last year in order to provide a real-world view into how shipping costs will increase this year. What we found will radically impact many companies. Consider these sobering findings:

 Fewer than three percent of companies will see a 5.9% or less increase in their parcel shipping costs in 2022;  UPS’s 5.9% rate increase will actually equate to an average increase of 10.25%;  FedEx’s 5.9% rate increase will actually equate to an average increase of 12.86%; and  Notably, small businesses that used FedEx Ground Economy, formerly SmartPost and typically the least expensive option, will see an average increase of 26%! In contrast, but not surprisingly, FedEx and UPS have never done better. FedEx had a record year and in Q4 of 2021, UPS achieved its most profitable quarter ever. This reflects a simple fact: Most companies can no longer simply pass their shipping cost along to consumers. To minimize shopping cart abandonment, shippers must act. What Can You Do About It? The single most important step you can take to avoid shopping cart abandonment is to offer lower shipping costs and better terms than the competition. And the single most effective way to do that is to renegotiate your shipping contract. Now is the time to negotiate. There is only one alternative — absorb the largest shipping cost increases ever passed onto customers by FedEx and UPS. What Do You Need to Negotiate Effectively? To negotiate, you need shipping intelligence. Negotiating without it isn’t negotiating at all, it’s guesswork. Shipping intelligence, like other forms of business intelligence, is combining shipping data with analytics, visualization, benchmarking, modeling, and simulation to make informed business decisions. If you don’t have the tools in place to attain this intelligence, now is the time to gain them. You absolutely have to know your shipping profile better than the carrier for a successful negotiation.

How Can You Negotiate Effectively? Ideally, your negotiations will enjoy the support of your organization’s senior-most leaders, but if they do not understand the importance of shipping acumen and its impact on online sales, now is the time to educate them. Then, make sure you have the following information before meeting with your carrier rep to provide them with the business case required to secure more favorable terms and conditions. (Additional information on how to successfully negotiate can be found in the article “How to Negotiate Your Contracts in 2022 and Beyond” on page 16 in the November/December issue of PARCEL.) It’s also critical to:  Know what is negotiable and what is not;  Audit your invoices;  Know your shipping profile;  Follow the money in your negotiation;  Negotiate surcharges aggressively for 2022;  Explore flat rate shipping options and negotiate capacity guarantees; and  Be prepared to change carriers if needed. Shippers have the opportunity to dramatically decrease shopping cart abandonment and to impact e-commerce efforts and success. Now is the time to renegotiate your existing shipping contracts and to create a baseline for constant improvement in the future. It’s also a time of great opportunity. Shipping acumen was always crucial. Now is the time to ensure that it’s appreciated enterpriseand organization-wide.

Josh Dunham is the CEO and co-founder of Reveel, founded in 2006. Reveel’s Shipping Intelligence Platform is a Software-as-a-Service based analytics, contract analysis and negotiation solution that helps customers ensure they are always receiving the best parcel shipping rates. MARCH-APRIL 2022  PARCELindustry.com 21

OPTIMIZING THE REVERSE LOGISTICS PROCESS USING ANALYTICS

By Michael Foy

ong gone are the days of a simple returns label in a box for the transportation team to own, and a finance manager to give their quarterly returns forecast before moving on. Whether you are an emerging brand or a large, multichannel e-commerce merchant, you should be looking at ways to prevent total return costs from cannibalizing your 2022 margins before it is too late. Linear return policies and basic returns dispositioning are no longer en vogue. Intelligence-based returns processing is rapidly becoming the norm as returns move to the forefront of productivity improvements. So, what is intelligence-based returns? Some call it AI or machine

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learning, while others call it advanced customer score carding or returns analytical algorithms. The bottom line is that optimal returns processing has become too complex for mere mortals. Humans can no longer be taking all the data points of a return and deciding the optimal paths; nor can they do so with the life expectancy of returns. There are two critical data points in the journey that many retailers are aggressively analyzing as the need to curtail margin erosion becomes paramount. Data Point 1: The customer’s point of return Data Point 2: Post-journey events (After the return has made a full journey back to a warehouse or store and inspection is completed)

Applying mathematics to these data points — combined with your rules engine — can deliver predictive and prescriptive analytics that maximize value recovery and preserve profitability. Years ago, Amazon appeared to be the first to start leveraging basic algorithms to determine which items should be returned based on price and processing return costs versus issuing a refund without requiring the customer to actually return the merchandise. That concept has now evolved using many more additional data points, including your shopping behaviors and returns history. There are many key data elements of the return that factor into returns optimization through effective decision support models and systems. Simply considering transportation costs and unit cost to determine the feasibility of a return is no longer a best practice. Here is a sample of different data elements that can be factored into the “keep-orship” decision:  Distance from the customer to the returns warehouse  Physical handling cost of a particular item, i.e., labor, space, inspection, and put-away costs for that SKU  Specific customer history of returning (the percentage of their previous returns that are resalable)  Condition history for that item from an “everyone that returned” perspective  Current demand for the item: Is the item still a fast mover once it gets back to inventory (factoring in seasonality)?  Current price of item versus historical purchase prices to determine the potential for additional dilution These factors, and many more, can serve as criteria for real-time, programmatic decision making. These criteria can be further shaped by individual customers, product mix, category, seasonality, and more. The end game is applying predictive mathematics to determine if processing a return is feasible on a case-by-case basis. You can make it as complex or simple as needed, based on your customers and

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products, but the key is to let analytics do the heavy lifting.

Multichannel merchants are now faced with optimizing returns to yield the most margin and minimize holding costs. This could include another physical store location that is running low on a particular item, quick liquidation sale, a specialized warehouse that processes only one category versus other goods, an outlet store versus a primary store, internally on a clearance site, etc. Ultimately, this is accomplished by applying predictive analytics to minimize processing and transportation costs and get returned goods back into commerce as quickly as possible — at the greatest price point. Again, not an easy feat by any means, but it’s possible to take internet sales pricing histories, your own product history sales, channel demand, and seasonality and program these

Multichannel merchants are now faced with optimizing returns to yield the most margin and minimize holding costs. The other critical point for advanced returns analytics is at the warehouse or physical store after inspection has taken place. In the past, this also has been a linear rule on where the return should be shipped. However, now it is time to use these types of variables to optimize return routes and increase focus on demand. Doing so will free up storage and decrease inventory carrying costs.

factors into a decision-support system to optimize returns based on conditions and forecasting. The data is clear and plentiful. The post-purchase experience is the industry’s new measure for effective competitive positioning. Meanwhile, as you fight for customer satisfaction, the costs of returns are escalating with the rise in fuel prices, inflation, and labor. Using advanced analytics can provide very granular insights, enabling merchants to increase productivity at the customer and SKU levels. This will help maximize value recovery and provide the required insights for shaping return policies while improving customer loyalty.

Michael Foy is Director of Business Development for Inmar Intelligence. He can be reached at michael.foy@inmar.com.

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PARCEL CARRIERS HATE BENCHMARKING… AND YOU SHOULD, TOO BY CARL HUTCHINSON

enchmarking. We hear that word all of the time in business in an array of strategic, project management, performance evaluation, and process improvement discussions. So that we have the same frame of reference under which to operate, a quick refresher: Wikipedia defines benchmarking as “the practice of comparing business processes and performance metrics to industry bests and best practices from other companies." Although benchmarking can be an effective tool in helping companies improve many areas of their business, in regard to pricing and rates in the parcel world, benchmarking can be very misleading and actually harm a shipper's relationships with their carriers. Benchmarking becomes problematic when evaluating a pricing agreement because the factors that make up the carriers’ cost to serve vary so significantly that it is highly unlikely that a carrier will offer the same pricing to any two shippers. This simple reality makes it impossible to compare contracts (i.e., "benchmark.") The inability to use benchmarking as a metric to effectively renegotiate a contract will hold true whether using the amount spent with the carrier, the number of packages shipped, or even using an agreement from another shipper within the same industry for comparison. A shipper comparing themselves to another will either feel

they are not being treated well by the carrier, leading to contention, or they will unknowingly leave dollars on the table that they may have been able to keep. The cost for a carrier to move shipments directly relates to the specific characteristics of the shipper's packages. Carriers have some very basic discounts they can apply based on the amount spent; however, an agreement with these basic discounts will only be competitive for the smallest shippers. Once a shipper spends $50,000 a year or more on parcel shipping, a carrier will want to tailor their proposal and ask for shipping details in order to be more aggressive and competitive. Shippers should always provide all details requested so carriers can fully determine their true cost to optimize the pricing agreement. It is vital to note that if another carrier is in consideration, the detail provided should not include what the shipper pays their current provider. However, the carrier will need origin and destination ZIP Codes, services used, actual weight, dimensions, residential indication, and the time period for the sample. A few simple examples will help highlight the pitfalls of benchmarking for pricing. Each one will focus on only one or two aspects of shipment characteristics to better illustrate. In reality, the number of characteristics evaluated can, and will, compound the complexity exponentially. Example 1. The transportation manager at Company A spends $1M

per year on small parcel. She moves to Company B, which also spends $1M per year for small parcel. At Company A, she invested significant time negotiating with her carrier and felt she had a strong agreement in place. Once settled in at her new company, she reviews their carrier agreement, thinking it should be similar to what she had negotiated for Company A, only to find that discounts are much smaller. She determines that she can help Company B achieve an agreement similar to what she negotiated for Company A and show her new company her skills at driving down costs. Working with her carrier representatives, she receives proposals that improve the agreement a little but do not approach the levels of her agreement at Company A. She gets frustrated and starts to really hammer her current carrier, threatening to leave and pushing the other carrier, saying they don’t seem anxious to “win” her business. Negotiations get tense and all parties are frustrated. Let's look at why this might have occurred.  Company A manufactures auto parts, mainly metal fasteners such as screws, bolts, and clamps. Packages are typically less than a cubic foot and weigh between 15 and 25 pounds each.  Company B also manufactures auto parts, mainly plastic and rubber molded parts such as air filter boxes, hoses, and door trim. Packages typically measure between two to

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three cubic feet and weigh between five and 10 pounds.  Carriers will have a higher cost to serve Shipper B because their packages consume more space in the carrier's vehicles while returning lower revenue for each package since rate is determined by weight. If Company A were to send 100 shipments in one day, they would likely fit them in one package car. However, if Company B were to send 100 shipments, it might necessitate a second pick up. As a result, the cost to serve Company A is significantly lower, so the carrier can offer much better discounts. Also, consider if the manager moved in the reverse direction, from Company B to Company A. She might find that the agreement at Company A was very similar to what she had negotiated at Company B. She would probably feel that Company A's contract was competitive and not push much with the carrier, not realizing that she missed out on the opportunity to drive costs down. In either scenario, benchmarking, based on the dollar amount spent, does not help the process. Example 2. Company C and Company D both ship shoes and roughly spend about the same amount on parcel shipping. The operation managers at both companies meet up at several industry conferences and frequently communicate about many topics, including shipping. The managers determine that

both typically ship one pair of shoes at a time, and packages are similar in size and weight. Attempting to benchmark with each other, they have learned that Company C has a lower average rate for shipping a pair of shoes. Like Example 1, the manager from Company D tries to work with the carriers to hit the benchmark set by Company C with little success. The carrier representative assures the manager that they are fighting for company D but will not budge on the shipping fees. The carrier rep is not even sure why. Our view from the carrier perspective (which most sales representatives will not know) shows the following:  Company D ships mainly to individual consumers who receive one pair of shoes at a time delivered to their homes. The carrier's driver drives a significant distance to deliver just one package. Therefore, the total cost of the delivery must be attributed to that single package.  Company C ships mainly to retail shoe stores located in shopping malls. Even if they only ship one package at a time, there are typically packages from other shoe companies delivered at the same store at the same time. Therefore, the cost of delivery is spread over multiple packages. In addition, the cost of that delivery is lower because the carrier's driver usually delivers to multiple stores in the mall without having to move his vehicle.

As with example 1, there is a difference depending on which manager works with the carriers. Benchmarking based on characteristics that seem similar to most people actually are not comparable to the carrier (in this case, what carriers call "delivery density.") In summary, because of the large number of factors that influence a carrier's cost to serve shippers, such as pick-up density, delivery density, weight, zone, cube, ground feed, air feed, and many more, pricing for small parcel does not lend itself to the practice of benchmarking. Effective pricing can only be done based on an individual shipper’s characteristics. Truly understanding specifics, and more importantly, how they match up with cost drivers for carriers, is essential for developing a strong business case to have a meaningful pricing negotiation that is productive for both shipper and carrier.

Carl Hutchinson has over 35 years in the transportation and logistics industry, both domestic US and international. Carl is Co-Founder and Chief Analytics Officer of iDrive Logistics, helping clients with spend management in all areas of the supply chain including USPS, parcel, LTL, fulfillment, warehousing, international, and more. Carl can be reached at 678.294.5724 or carl@ idrivelogistics.com. MARCH-APRIL 2022  PARCELindustry.com 25