Trimming Your Transportation Costs Jul 1, 2006 12:00 PM
, By Mark Del Franco
JobZone
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You've
no doubt already felt the cost increases when it comes to shipping
outbound packages to your consumers. But costs are up not only because
of fuel, but also because the carriers themselves are competing in a
sellers' market. As such, they are using ancillary charges, such as
fuel surcharges, as a way to generate increased revenue. As recently as
five years ago, says Michael Erickson, president of Portland, OR-based
consultancy AFMS Transportation Management Services, carriers had about
30 or so types of surcharges, also known as accessorial charges. Today
he estimates that there are more than 100 varieties of surcharges.
But
Rob Shirley, president of Austin, TX-based consultancy ExpresShip, says
he has identified approximately 200 surcharges. “Anything can be added
to your bill to increase the carrier's margins,” he says, adding that
carrier volumes are up not only because of the economy and just-in-time
inventory practices but also because more people are shopping online.
“Carriers are stretched thin when it comes to transporting shipments,
and forecasts indicate that it's only going to get worse,” Shirley says.
Suppose
you are shipping a package out to a place of business via UPS. If UPS
arrives at the destination and finds that the business is no longer
located in that building, the carrier will log the parcel into its
system as undeliverable and then charge you for an address correction.
Address correction surcharges for air and ground cost $10 at DHL, $10
at UPS, $10 with FedEx Expedited/Ground, and $5 with FedEx Home
Delivery. “Years ago, they didn't have the technology and the systems
to charge for correcting an address,” Erickson says. “The carriers
today have gotten a lot smarter in the way they do business.”
With that in mind, here are some tips to more accurately set your budget for the coming months:
Coordinate
with other departments. See if they can provide their sales volume
forecast by market segment. “If the volume is going to increase in
number, weight, distance, or recipient type, this needs to be in the
logistics budget,” Shirley says.
Evaluate
transportation costs on a monthly and a quarterly basis. Seasonality
factors are a cost spike for every company, so don't have equal
quarterly averages in your budget plan. Watch your carrier-invoiced
costs daily to identify increases that tend to destroy the best-planned
budget. If you see increases that you can't control, attempt to reduce
costs in other areas.
An investment in a
multicarrier shipping system can yield significant savings. It allows
you to choose carriers on a cost/performance basis for each package or
shipment. There are several systems to choose, but not all of them are
carrier independent; in other words, some may favor a specific carrier
or have internal business rules that aren't as flexible as you'd like.
You
can't manage what you can't measure. Considering hiring an audit firm
to gather data from all the carriers you use. They'll ensure that you
pay only your negotiated rates, and only for packages that were
delivered on time. If you have multiple carriers, an audit firm can
consolidate all the data into a single electronic file to review lane
and weight segments, seasonality, on-time delivery, and dozens of other
measurements that you can use when negotiating future carrier contracts
and to ensure that you aren't overpaying under the terms of your
current one.
Use history as your guide. Have your
carriers provide you with historical reports of the services you've
used. Ideally you should be able to gather at least two years' worth of
data. Among the types of data to examine are zone reports, which show
how much volume you ship to each zone, and geotype reports, which break
out what portion of your deliveries go to superrural, rural, suburban,
urban, and superurban locales. The carriers typically charge extra for
deliveries to superrural and rural addresses, so if they account for a
significant portion of your business, you may want to have the waiving
or discounting of those fees as a negotiating point.
Evaluate
regional carriers. There are hundreds of them, many of whom can be more
efficient and more economical within a particular geographic region
than the larger players, Shirley says. If you use UPS for most of your
residential deliveries in rural areas, Shirley says, your costs have
increased 20.3% over the past two years. So if you have a distribution
center in California, you might want to consider Golden State Overnight
or another California carrier for the delivery of rural — and perhaps
all — packages in that state.
Consider drop-shipping
on a Friday to metro markets. According to Shirley, the economics work
best when you factor in weekends, he says, because providers usually
don't count weekends in their delivery cycle. Say you're shipping a
5-lb. package from Kansas City to the New York metropolitan area. You
might want to use a trucking company to haul the package up to New York
and then hand it off to a regional carrier. The regional carrier will
bill that package as a “local” package in Zone 2. That's 80% cheaper
than shipping the package via UPS from Kansas City all with comparable
delivery times, Shirley says.
Fuel conservation no idle matter at UPS
You
wouldn't think something as seemingly inconsequential as avoiding a
left-hand turn would conserve fuel, but United Parcel Service swears by
it. According to spokesperson Steve Holmes, avoiding left turns at
intersections reduces idling. You rarely have to wait to make a right
turn, and you also have the option of “right on red” in most
jurisdictions. “It seems small, but when you multiply it across 91,0000
vehicles making nearly 15 million deliveries every day during the
course of a year, it adds up.”
There
are two other benefits: safety and congestion. It's clearly safer to
take a right turn than a left. And it helps reduce traffic congestion
overall, Holmes adds.
UPS
uses what it calls “package flow technology” — an internally designed
system that works in conjunction with its hand-held driver computers.
The technology helps the parcel carrier minimize the number of miles
traveled on daily routes, Holmes says; it also preroutes the packages
as soon as the data enter its system. “Because 98% of our packages are
processed electronically by shippers, we know what's entering our
system each day, what's still in our system each day, when each package
is going to arrive at a center, when the package is scheduled for
delivery — including time of day — and where it will be delivered.” — MDF
New postal rate case could pack a punch for parcels
As
if fuel and hidden costs on your freight bills weren't enough to
contend with, the impending U.S. Postal Service rate case will likely
also affect outbound shipping costs. The rate case, filed in May, calls
for double-digit price increases for a number of postal services (see
“Making sense of the postal rate case” in the June issue).
“Marketers
are already doing their budgets for 2007, and this rate case is
something of an unknown because not all the information is available,”
says John Callan, vice president, product management for Weston,
FL-based parcel carrier DHL GlobalMail. “This is the most comprehensive
filing that anyone can remember.”
Although
the details won't be finalized until sometime in the fall, the rate
hike proposal definitely puts a greater emphasis on work-sharing and on
automation. As a result, mailers whose pieces do not fit neatly within
the parameters of USPS's machinery will see their costs rise by a
greater percentage than those whose pieces can processed automatically.
As a result, many marketers “may have to evaluate their packaging,” according to Callan. — MDF
