Got that sinking feeling? Jeff Siegel explains how to contain international shipping costs

Feb 01, 2004 10:30 PM  By

Roberto Milk knows first-hand the trials and tribulations of trying to keep high shipping charges at bay. He is the CEO of Novica.com, which ships arts, crafts, and tapestries from local artisans in Latin America, West Africa, India, and Southeast Asia to customers, mostly in the United States. It’s a process that could quickly turn prohibitively expensive, even after passing costs on to customers. Novica.com has a couple of thousand mostly small suppliers, and many are in regions so remote that just getting there — let alone getting goods in and out — can be difficult. But, says Milk, his company has a handle on shipping costs, one reason it has not only survived the Internet bust but taken on a high-profile partner in the National Geographic Society. Its strategy combines the conventional, like combining shipments, with the truly innovative, including a multipoint distribution strategy and warehouses in seven geographic regions.

“We’ve found that one of the most important things we can do is to think creatively,” he says. “It’s not enough to worry about cutting costs. Ask yourself, ‘What can you offer to your vendors to help reduce costs?’ Everyone has something to offer.”

That’s because it is possible to cut global shipping costs, whether you’re a small company that deals mainly with overnight packages or a much larger shipper that worries about truckloads of goods. Equally as important, there are sophisticated tips, tricks, and techniques to use — options that give shippers more choices than merely combining shipments.

“All firms, regardless of size, should go through a strategic series of questioning — what are we doing, and why are we doing it,” says Terry Harrison, a professor of supply chain and information systems at Penn State’s Smeal College of Business. “They need to ask themselves, ‘How am I going to get done what needs to get done?’”

COSTLY DECISIONS

Everyone, it seems, spends far too much money on international shipping. Or at least that’s what Mark Taylor has discovered. Taylor, CEO of Taylor Systems Engineering in Plymouth, MI, holds quarterly seminars on cutting shipping costs at trade shows and conventions all over the country. And the seminars are almost always full.

“Yes, it’s a topic people seem to be interested in,” Taylor says with a laugh. “And it doesn’t make any difference whether they’re a large company or if they spend less than $100,000 a year. There are steps everyone can take.”

Perhaps the first thing to do, say the experts, is to sort your shipping needs in two ways — strategic and tactical. Too often, says Taylor, companies just ship things without regard to anything other than getting it where it needs to go. (His favorite example is the overnight package sent to an office in the same building.) What they should be doing, instead, is analyzing what goes where, how it gets there, and who delivers it.

“You have to start at the strategic level,” says Adrian Gonzales, director of the logistics executive council for ARC Advisory Group. “It’s always important, and it’s even more important if you are beginning to look at distribution overseas. I see the process almost like product development. Because, if you make a mistake in the beginning, it is going to be more costly and more difficult to change.”

In this process, say analysts, there is not necessarily a right or wrong answer as much as there are best practices for specific companies with specific needs. These tactics must take into account factors such as shipping volume, international trade agreements, and increased security in the wake of 9/11.

What might make sense for some companies, says Jim Barnes, president of logistics services provider enVista, wouldn’t work for others. He points to foreign warehouses, which are more than adequate for some companies for controlling costs. For others, though, which don’t need to keep high levels of inventory, it might be better to convert the warehouses into freight-forwarding facilities.

In addition, try to see shipping costs as part of the overall fulfillment process, and not as a stand-alone cost that needs to be slashed regardless of consequences. Again, it may make more sense in the long run to spend extra money on shipping if it adds value to fulfillment and makes customers happy. Says Gonzalez: “A strategic analysis sometimes has to take more into account than just cost.”

POINT BY POINT

Once that’s completed, it’s possible to get down to specifics:

  • Consolidate, consolidate, consolidate. Yes, this seems obvious, says Taylor, but it’s still overlooked. Too many companies not only don’t consolidate shipments, but employees aren’t aware who does the shipping (and hence can’t take advantage of volume discounts) and what their rates are. Doing something as simple as adding a third package to a bundle can cut costs by as much as 30%-40%, Taylor says. One key here: It’s invaluable to devise a system (which can be technology-driven or as simple as pen and paper at smaller companies) to enable employees to see what is being shipped, who is shipping it, and what discounts apply.

  • Benchmark. Shipping companies don’t like it when their clients compare costs, and may even go so far as to have them sign confidentiality agreements. This makes it difficult for shippers to know if they’re getting the best deal — which is where third-party consultants can help. They can offer both perspective and other numbers to the discussion, and often more than pay for themselves. Taylor says that one Ohio company cut shipping costs by 16% by using benchmarking data.

  • Be consistent with shippers. Can your shippers count on you? Are you on time? Do your shipments flow like clockwork, whether daily, weekly, or monthly? If they do, that means your shipper can count on a steady cash flow, and that can turn into lower rates for your company. If a shipping company knows what volume it needs to handle and when, it can use its resources more efficiently and pass some of the savings along.

  • Creativity pays off. Shipping is not a one-way relationship. What can you give your shipper that can cut your costs? Novica.com, for example, agreed to participate in a television commercial for one of its Brazilian shippers. The result was not only increased exposure for Novica.com, but reduced rates as part of the deal. “You may not be able to be in a commercial,” says Milk, “but if you think about it, everyone can offer something to reduce costs.”

INFO FLOW

In the end, says Penn State’s Harrison, cutting costs is all about the variety and quality of information and how efficiently that information is transmitted. “More and more, that’s the key enabler,” he says. “The more information you can get about how your supply chain works and how your partners fit into it, the better off you’re going to be. There is no doubt about that. You need to get better information across functions, and you need to get better information to allow you to make strategic use of your inventory.”

Which is something Milk and Novica.com have learned. It doesn’t matter how many mountains need to be climbed or how many jungles need to be traversed. What matters is that you have a plan to make sure your goods can be shipped in the most cost-effective manner possible. Anyone for a Peruvian Ayacucho rug?

Jeff Siegel is a Dallas-based freelance writer whose articles have appeared in Forbes, American Way, and a variety of other magazines.

Sample Shipping Profiles
Great Good Fair
Annual expense $2.1 million $3.0 million $1.2 million
Packages per week 4,448 5,889 2,030
Average weight 21.40 lbs. 17.02 lbs. 2.68 lbs.
Average zone (length of haul) 4.61 6.4 5.5
Percentage residential delivery < 1% 11.80% 88.10%
Source: Tabb Burton, transportation analyst, enVista Corp.