Given the current landscape facing shippers, it has become increasingly important for shippers to recognize the new normal and a future with “perpetual peak” surcharges. This environment has presented significant challenges for CFOs and logistic managers trying to forecast shipping costs and budgets. It has become virtually impossible to know your company’s true shipping costs when the carriers apply arbitrary new charges and make them immediately effective.

There are several important actions shippers need to take in 2021 to combat these issues. Shippers should begin by conducting a thorough review of their current carrier agreements. If your carrier agreement was written and implemented several years ago, does it reflect the current surge of new charges the carriers are imposing in 2021? How do shippers really know if they have a best-in-class agreement?

As we have emphasized for many years, contract terms and conditions can be much more important than rate discounts in controlling your overall transportation costs. And, while most shippers have many concessions in their agreements that are favorable, do these have the same impact in 2021?

This is particularly true for “peak season” surcharges. While shippers may have contractual concessions for historical peak surcharge timelines, these concessions may have little or no impact on new surcharges or the rapid rise of current tariff increases to charges like additional handling, oversize, residential charges, or increased volumes.

Not only are the carriers applying “peak season” surcharges during the entire year, but they are also trying to apply volume constraints on many shippers. The carriers are now trying to tie additional charges to seasonal volume, but they are also trying to impose capacity limits on the number of packages they will service in the Q4.

Given these new circumstances, shippers should look to their agreements to see if they are protected from these new carrier practices. Many shippers are looking for contract language to extend surcharge incentives to any future new surcharges, but they are looking for ways to negotiate contract caps on surcharges as well as general rate increases (GRIs).

The second but equally important area may be contractual language to protect shippers from being penalized by growing and increasing their revenues and accompanying shipment volumes.

Do you know how much these charges are impacting your shipping expenditures? The first thing you need to do is conduct a thorough data analysis to see exactly where your shipping dollars are going and your overall average cost per shipment. Pull down this data by month and pay particularly close attention to all the new invoice line items. This is especially important for your fourth-quarter shipping as the carriers dramatically increase these costs during what was the “traditional peak season.”

Renegotiating your current agreement will not be an easy task. Typically, the carrier reps will tell you that you might jeopardize your current concessions and may not reduce your overall costs. They will also tell you that their companies are emphasizing margins over growth and do not really want to handle your business, particularly if you have shipments that DIM, require additional handling, are oversized or residential, or your volume is heavily seasonal.

It is ironic to think that the carriers had been “losing” money on your account while providing service for years. Most times, your shipping characteristics have not materially changed, but the carriers have benefited from your internal growth and success over the years.

One of the best ways to counter this argument is to show the carriers all of the YOY additional costs you have incurred to move the exact same shipments. And remember, there were no peak season surcharges before 2017.

In 2017, there was a six-week period where UPS applied a peak season surcharge of $0.27 for residential deliveries and $24 for large packages. Today, those fourth quarter peak surcharges are $1.15-$6.15 for residential and $60 for large packages.

One of the best ways to illustrate the financial increases have been the dramatic rise in accessorial costs. Let’s take additional handling as an example:

Other commonly applied surcharges are Delivery Area Surcharge (DAS) and Residential Delivery Add-On. For DAS, the increase has been around 14% over the last five years, and the increase for the residential fee has been a whopping 26%. Remember, these increases are in addition to the tariff GRI, which happens every January.

Once shippers do the data analysis to quantify how much more they are paying the carriers in 2021, it will be clear to both you and the carrier that shippers have taken a huge hit to their bottom line.

Your data analysis should also help you identify your greatest pain points and the areas where you have taken the greatest increases. This data is a solid basis to begin discussions with your carrier on how to improve your current agreement and to lower costs.

Another way to leverage your incumbent carrier is to consider bringing in a regional carrier for some of your volumes. Typically, regional carriers offer better rates and much lower accessorial fees. Additionally, they can provide you with additional capacity during your peak period where your volumes and revenues dramatically increase, i.e., Q4.

Our recommendation is that any current agreement should give shippers appropriate discounts for all accessorial costs and that these should be capped YOY. Incentives should also be able to be applied to any new or increased surcharges, and there should be language that protects you from any volume or capacity limitations during the Q4.

If your current agreement does not meet these standards and the new realities of 2021 pricing, it may be time to renegotiate or consider going out to bid with other carriers. Good luck!

Tim Sailor is the founder of Navigo Consulting Group which specializes in contract optimization, distribution analytics, and strategic sourcing. Since 1995, Navigo has reduced its clients shipping costs by 20-30%. Tim has been recognized as a Distinguished Logistics Professional by the American Society of Transportation and Logistics, Inc. and has contributed to the transportation industry for over 35 years. You can reach Tim at Tim@NavigoInc.com. 

We have all heard that knowledge is power. This could not be truer when it comes to managing your transportation expense. In today’s world, the carriers have made it difficult for shippers to get the information and data that they need to effectively manage their carrier contracts and expenditures.

When shippers enter into discussions on renewing or replacing their existing carrier agreements, they are usually told by their representatives that they will give the shipper their best possible deal. Well, what does that mean? And, how do you compare it with the other offers on the table?

Many shippers (and consultants) try to back into the “best deals” by employing benchmarking and/or trying to understand the carriers cost to serve models. I believe that a better approach is to use data and analytics to determine which factors increase your carrier expenditures and dilute contract discounts. After studying and evaluating thousands of different shippers’ carrier costs, we have found that five simple analyses can identify and significantly drive down hidden costs.

Understanding the GRI and Accessorials

The biggest culprit in increasing costs is the carriers’ annual General Rate Increase (GRI). FedEx and UPS announce these GRIs by saying that the annual increase will “average” a certain percentage. The biggest problem with this approach is that the increase is not applied equally across services, weights, zones, and residential deliveries. Since shippers typically have fixed discounts off of tariff rates, most shippers don’t know the true impact to their bottom lines.

This year, the carriers announced a 4.9% increase. However, if you are a residential shipper who ships packages weighing from one to 10 pounds, you took a 7.3% increase. Big difference!

It’s necessary to evaluate net rates for each weight and service level using the carrier-provided net rate sheets. Then, to determine the actual dollar cost to your company, apply the new 2016 net rates to your 2015 actual usage. This will show you to a penny what your increase will be, including the minimum shipment charge. We have also found that negotiating a GRI rate cap will also limit these increases and ensure an equal, across-the-board application of the new rates for all weights and services.

In addition to the GRI net rate increase, the carriers also impose annual increases to their accessorial fees. These increases can also be significant. This year, FedEx increased the Additional Handling Fee by $1.50, or 16.7%. Again, apply the new rate to your 2015 historical usage to get the net increase to your organization. By quantifying the additional costs, it’s possible to go back to the carriers and ask for additional discounts to offset the tariff increase.

We take the same approach to calculating all accessorial fees. Most carrier reporting will break out the accessorial fees and show you annual shipment totals and cost for each surcharge.

Other common accessorials are the DAS fee and Residential fee. DAS fees have increased a total of 13.9% over three years, and residential fees have increased 15.3% over three years.

Once the dollar impact of these charges have been quantified, it’s possible to request additional discounts to offset these increases.

The Dreaded DIM

Dimensional charges have been another area where shippers have taken huge increases and have had difficulty calculating how this impacts their costs. The carriers first began in 2013 by lowering the dimensional factor from 194 to 166. By most estimates, this increased oversize shippers’ costs by 18%. Then, last year, the carriers began to apply dimensional pricing to all packages, including those under one cubic foot.

The first thing to review is the weekly electronic shipment invoicing from the carrier. Focus on two columns: Actual/Original Weight and Billed/Rated Weight. If the invoiced weight is higher than the actual weight, you are getting hit with additional dimensional charges.

The next step is to request that your carriers provide you with an electronic billing format that gives you the length, width, and height for each package. When multiplied together you will see the total cubic inches of each package. Apply the carrier dimensional factor, and you will get the true invoiced weight and cost. Compare this to your packaging and you will then see which boxes incur the highest dimensional weight. With this data, you can establish your incremental costs and may be able to negotiate a non-standard dimensional factor that benefits your company’s unique packaging and shipment mix. We have seen many shippers lower their costs by hundreds of thousands of dollars utilizing this approach.

Don’t Ignore the Minimums

Analyzing the minimum shipment charge can also produce significant savings. For those shippers who are impacted by the Ground minimum shipment charge, they saw YOY total increases of 34.2% over the last five years. Despite how high your discounts are, the carriers state that your net rate can’t fall below a ground, zone 2, one pound package — or $6.94. Most shippers don’t realize how many of their packages are impacted by this rule:

For many shippers, the minimum shipment charge negates ground discounts on average for 30-50% of packages. Essentially these shipments are going out as tariff rates. Once you quantify the impact to your shipping costs, you may be able to negotiate a reduction in the minimum shipment fee. And, as we showed earlier, this will produce more savings than negotiating higher discounts.

The best way to determine the impact of the minimum shipment charge is to quantify the total number of shipments where the charged amount was$6.94 from the carrier invoicing.

Apples to Oranges Comparisons

A fourth area where shippers would benefit from robust analytics is when they are trying to compare different carrier proposal and rate sheets. While it might seem impossible to do this “apples to oranges” comparison, it can be done. Again, start by building a comprehensive data and usage sample. Then, do a NET rate comparison on a shipment by shipment basis. This is far more effective in determining costs than by evaluating discount levels.

Next, do the same exercise for all your accessorial fees. Many times, the low cost bidder may not offer the lowest up front rates, but instead offers accessorial concessions that more than make up for it.

Understanding Automation

Finally, one last analysis shippers can improve upon is when they automate rate shopping and Least Cost Routing (LCR) logic. While this is an effective automated way to process shipments at the lowest cost, it is extremely important to analyze the rates you use to compare and route shipments. If the routing logic is based on inaccurate rates or mismatched services, it may end up costing money instead of producing savings. Not only do the right rates need to be uploaded, but the comparison needs to factor in all the accessorial variables. Finally, LCR needs to be updated every January to reflect the GRI impact.

Once you have done these analyses and established your shipping expenditures, you are in a better position to request concessions from the carriers that will impact and lower costs in the areas that impact you most. These savings will go right back to your bottom line.

Tim Sailor is the founder of Navigo Consulting Group, which specializes in contract optimization, distribution analytics, and strategic sourcing. As a 10-year speaker at PARCEL Forum, Tim will be presenting “101: Top 5 Transportation Data Analyses that Get Results.” You can reach Tim at 562.621.0830 or Tim@NavigoInc.com.

FedEx has announced its general rate increase (GRI) for 2019, bumping up its ground, express and home delivery services by an average of 4.9% as of Jan. 7, while also adding some holiday season surcharges and increasing others next year. Rival UPS has yet to announce its 2019 rates.

Between Nov. 19 and Dec. 24, FedEx is adding a $3.20 additional handling surcharge on U.S. express and ground services and international ground services. It is also adding a $150 unauthorized package charge during the same period for U.S. and international ground, and a $27.50 oversized charge on U.S. and international ground and U.S. express services.

FedEx Freight, the company’s less-than-truckload (LTL) division, is increasing its rates an average of 5.9% as of Jan. 7. UPS has advised customers to make other plans for LTL shipments as of last week in the event of a potential Teamsters strike.

The company said FedEx SmartPost, its last-mile service handled by the U.S. Postal Service, will be increasing in 2019 as well, although a figure was not given.

These increases are in addition to an increase in FedEx’s additional handling surcharge on packages weighing more than 70 lbs. from $12 to $20 as of Sept. 3, for U.S. and international ground and express services, and increases in its fuel surcharges as of Sept. 10. More FedEx surcharge increases as of Jan. 7, including for same-day service, are detailed here.

Tim Sailor, owner of Navigo Consulting Group, said the FedEx GRI was in line with past years, but added most shippers don’t understand the impact to their year-over-year costs as the increases vary by service level, weight and zone.

“What has been an increasing trend is for the carriers to implement surcharge increases during the year and not wait for the January GRI,” Sailor said. “2017 was rough as the carriers increased additional handling, added peak season surcharges, and a new third-party surcharge, just to name a few.”

President Trump has taken a break from favorite targets like Little Rocket Man to turn his Twitter fire and ire on the U.S. Postal Service, blasting the agency for not charging enough on parcel delivery, in particular singling out major client Amazon, as the USPS continues to hemorrhage cash.

“Why is the United States Post Office, which is losing many billions of dollars a year, while charging Amazon and others so little to deliver their packages, making Amazon richer and the Post Office dumber and poorer? Should be charging MUCH MORE!”, Trump opined on Twitter. The USPS and Amazon have not commented on the tweet.

It should be noted that Trump is a frequent critic of the Washington Post, which is owned by Amazon CEO Jeff Bezos, and that both publication and owner have been in the crosshairs of the tweeter-in-chief.

As you might expect, Trump’s tweet has created a storm of reaction and reignited the debate over the USPS’s future and how to fix it. Letter volume continues to drop even as parcel shipping enjoys double-digit growth at USPS, and the massive pre-funding of retiree pensions leave it perpetually in the red. The USPS’s 2017 net loss was $2.7 billion, its 11th straight year in negative territory.

An April 2017 research note from Citigroup estimated the USPS would have to raise its average parcel delivery rate by 40% or $1.40 in order to reflect the true cost of delivery. Of course, such a move would be far outside the range of PRC approval, and even if granted would cause a massive flight of retail and ecommerce customers to competitors such as UPS and FedEx.

The volume of first-class mail handled by the USPS was 19.7 billion in 2016, down 4.8% from 2015 and less than half of the 42.3 billion items it handled in 2007; itâ€s also down 40% from a peak in 2000. At the same time parcel volume was up 16% to 5.2 billion in 2016.

There will be some relief coming in 2018, although not nearly enough to fix the balance sheet problem. Last month the Postal Regulatory Authority allowed the USPS to raise the cost of a first-class stamp, now at 49 cents, to 2% above the rate of inflation, which a 2006 law used as a cap for its increases. This is expected to eventually raise the cost of parcel shipping as well as magazines, prescriptions and other forms of mail.

Regarding Amazon, the USPS has been accused in the recent past of providing the world’s top ecommerce shipper with special rates and thus creating an unfair advantage against other retailers, a charge that both deny. The USPS has been making deliveries for Amazon and other major retailers seven days a week, a practice that is stepped up around the holidays.

Tim Sailor, owner of parcel advisory Navigo Consulting, said Trump could do a lot to help the USPS cure its woes by pushing Congress to approve the Postal Reform Act, which has been loitering in the halls for over a year. Among other things, it would free the USPS from some of the burden of pre-funded pensions by switching some retirees to Medicare. Critics believe the reform doesn’t go far enough and is a Band-Aid on a bleeding wound.

“The pension fix makes sense; singling out Amazon does not,” Sailor said. “My belief is that Amazon has lower shipping costs because of volume and work share discounts. Also, their shipments have lower costs because they have predominately regional deliveries and inductions, not as many Zone 8 national shipments that UPS SurePost and FedEx SmartPost have.” The latter are last-mile services that USPS provides for the major carriers.

Jerry Hempstead, principal of Hempstead Consulting, agreed with Trump that the USPS could charge more for the Parcel Select last-mile services it provides for FedEx and UPS as well as DHL eCommerce and Newgistics, now part of Pitney Bowes. But by tinkering with those agreements and their negotiated discount rates, it would risk a migration of volume as carriers seek other means of handling the last mile, including doing it themselves.

“So in some respects the president is right in that the USPS has subsidized some of the financial success of (the carriers) and most likely could have charged more,” Hempstead said. “But there is a tipping point where the costs of accomplishing the last mile delivery by other means is less and the USPS will be scrambling to replace that lost revenue as well.”

As of Jan. 27, Priority Mail Express rates from USPS increased 3.9%, while Priority Mail saw an average increase of 5.9%, higher for those using commercial-plus pricing. First Class Package Service for items under 1 lb. saw the biggest jump, at an average of 11.9%, while implementing zone-based pricing for the first time.

On the positive side, Parcel Select Ground rates – used by both UPS and FedEx for last-mile services – went down by an average of 1.3%, while Media Mail went up just 2.9%. Also, the USPS delayed implementation of a reduction in its dimensional weight divisor from 194 to 166 until June 23, to allow shippers more time to adjust. A lower divisor means more packages that “DIM out” and get hit with a higher billed weight.

Rob Zaleski, digital content and brand manager for shipping software firm ShippingEasy, said his company is not seeing merchant shippers fleeing from USPS to UPS and FedEx as a result of the postal rate spike, since both implemented average general rate increases (GRIs) of 4.9% for 2019, in addition to numerous accessorial and fuel surcharge increases. ShippingEasy publishes an annual guide to shipping rates from the major carriers.

“A lot of times you find the USPS rates are still coming in under the carriers,” Zaleski said. “Especially if a shipper has some leeway in delivery times, Priority Mail wins, either flat rate or a regular rate box is often way under FedEx and UPS. We’re not seeing a mad dash away from USPS, but people are definitely upset that rates are going up again.”

To illustrate the impact of the new USPS pricing, Zaleski said an 11 oz. package shipped from Houston to Miami, which cost $3.66 last year, is now a Zone 5 shipment costing $3.96. Also, a 5 oz. package going from New York to Los Angeles increased from $2.79 to $3.63.

“Shipping from LA, half the country is now Zone 5 or above,” Zaleski said. “LA shippers are definitely seeing an uptick in costs. Shippers are trying to minimize excess packaging or use smaller boxes, any way they can cut down the weight to lessen the effect. The good news is that Zones 1 and 2 are pretty similar to 2018.”

Shippers will also face a major adjustment when the USPS DIM factor is adjusted down in June, Zaleski said, something they’ve grown accustomed to with UPS and FedEx.

“They have to be smarter and find ways to fit products into boxes as closely as possible,” he said. “When possible, they should use flat rate or regular rate boxes and see substantial savings. The more DIM goes down, the more it’s costing them – it’s something they haven’t had to think about as much with the USPS.”

Tim Sailor, owner of Navigo Consulting Group, said USPS was basically trying to mirror moves that UPS and FedEx were making, having held off on major increases for several years.

“The increases are right in line with what FedEx and UPS are doing, and where they’ve taking the marketplace,” Sailor said. “I’ve always been a firm believer that the USPS needs to be part of any shipper’s distribution mix. They’re effective in a number of areas, starting with First Class mail.

Sailor said in one recent client project, 45% of the company’s shipping volume was under 1 lb., so by converting to First Class it was able to save almost 60% on its shipping costs.

While First Class Package Service is going up an average of 11.9%, that increase will be substantially higher for shippers with higher zone profiles, according to an analysis by Gordon Glazer of Shipware.

“Shippers with a high Zone 8 profile, very common with only a single distribution center on one of the coasts, will see a 21% increase,” Glazer wrote. “This will entice those to consider opening a second DC or use third-party fulfillment options. For example, Amazon should see an increase in its FBA programs.”

Now that Black Friday, Cyber Monday, the holidays, and fourth-quarter surge are over, you can take a deep sigh of relief that you got through it. Many companies see 40% of their annual revenues achieved in the fourth quarter — and experience all of the operational challenges that accompany these increases.

All aspects of a company’s operations are challenged, from warehousing, customer service, IT, and inventory. Shipping is perhaps the most impacted dealing with the volume surcharges.

Right now is the best time to review your fourth-quarter distribution costs and quantify the impact to your YOY shipping costs. The first thing you should look at is how your fourth-quarter expenditures and usage match up to the rest of your yearly carrier expenditures. Many times, carrier agreements and pricing are based on annual spend, not fourth-quarter spend. We have found that many shippers have different characteristics and costs during the fourth quarter.

As an example, shippers may be forced to utilize express services during Christmas to meet service requirements. Depending on when Christmas falls, the delivery cut-off for ground delivery changes. As a result, many shippers upgrade to two-day delivery while still offering free shipping. Here is an example of the increased costs for upgrading to two-day air:

That is more than a 100% increase from the standard ground charges. Note also the significant increases to all the accessorial charges. Not only should you ensure that you have the best Express incentives, but you may want to check that your accessorial discounts apply both for Ground and Express services.

Not only should you compare base rates and accessorial differences, but you may also need to compare dimensional rates. While most oversize shippers have some customized DIM factors for ground, the carriers commonly do not apply these factors to Express shipments. As most of you know, the tariff DIM factor has gone down from 194 to the current 139 over the last several years. For one shipper we spoke to, their billed weight went from 16 pounds for a ground shipment to 24 pounds for a two-day Air shipment. The average cost per shipment jumped from $12.23 to $42.98.

And Don’t Forget…

Another unique aspect to fourth-quarter shipping is that the carriers are now applying peak season surcharges. Especially targeted are shippers with large, oversize shipments as well as shipments requiring additional handling.

UPS is applying an additional peak season package charge of $0.27-$0.99 to all shipments as well as significant increases in additional handling and large packages.

While FedEx is not currently applying a package surcharge rate, they have also taken major increases in accessorial charges, adding $3.20 to additional handling and a whopping $27.50 to oversize charges.

One large FedEx shipper we recently spoke to noted that their additional handling fees jumped by more than 100% in December and increased their costs by more than $40,000.

What’s a Shipper to Do?

While peak surcharges are probably here to stay, we have seen several approaches to reduce or waive these surcharges. Knowing your volumes is key, as well as being able to forecast it well before the start of the fourth quarter. And, it is particularly helpful if you can demonstrate that your volumes are consistent thorough out the year and don’t necessarily spike in the fourth quarter.

Communicating with your local carrier operations people is also important. Sharing information like daily volumes helps the carriers control costs by providing the right number of trailers and controlling package flow through their terminals. Getting operational buy-in goes a long way when you request concessions from carrier sales representatives.

Another approach is to quantify all of the additional costs of the peak season surcharges. With this information, you might be able to go back to your carriers and ask for incremental discounts throughout the year for additional handling, oversize fees, and other accessorial fees. These savings could offset the higher fourth-quarter costs.

The lessons learned from your review can be applied to your year-long parcel expenditures. There is a lot of value to this review, especially when you communicate the results to your carriers. Here’s to a great and successful 2019!

Tim Sailor is the founder of Navigo Consulting Group which specializes in contract optimization, distribution analytics, and strategic sourcing. Since 1995, Navigo has reduced its clients’ shipping costs by 20-30%. Tim has been recognized as a Distinguished Logistics Professional by the American Society of Transportation and Logistics, Inc. and has contributed to the transportation industry for over 30 years. You can reach Tim at 562.621.0830 or Tim@NavigoInc.com.

While most shippers have become accustomed to the carriers announcing record general rate increases (GRI) and new surcharges, 2021 will be in a class of its own. More than any other year, it is especially important for shippers to take a forward-looking view. Not only have the carriers already announced significant 2021 rate increases, they have also fundamentally changed how they view the current marketplace. And, none of these factors will help shippers in their efforts to control costs.

In our current COVID19 environment, the carriers have been handling a record number of e-commerce shipments, turning every month into a Q4 peak shipping environment. Not only has this strained their operational capacities, but it has forced the carriers into evaluating the profitability of every shippers’ agreement and has put more emphasis on margin improvement over volume growth.

We have seen a lot of evidence of the new carrier approach in the current Q4. Shippers are complaining of peak season surcharge waivers being revoked as well as carrier discussions on limiting volumes between mid-November and the end of the year. Additionally, the carriers are being very strict in applying all peak season surcharges to the vast majority of shippers.

Against this backdrop, shippers are also finding it difficult to renegotiate current agreements or explore options with non-incumbent carriers. There have been many instances of the carriers walking away from new opportunities and freezing any new or incremental volumes during the fourth quarter. One carrier executive was quoted as saying that their role has “moved from VP of Business Development to VP of Business Deferment.”

A Look Ahead

What should shippers do to prepare for 2021? Well, beginning now, most companies should budget for potentially increased shipping expenses. In order to mitigate these hits to your shipping budget and overall costs, you should take a close look at your current agreement to ensure that it is aligned with this current environment.

While all shippers will be impacted by these challenges, some shippers will be especially affected by the current environment. If you are a primarily a residential shipper, or a seasonal shipper, or have large and/or oversize shipments, you will have to be even more vigilant in your oversight.

Our top recommendations for shippers are to work with their carriers on the most effective residential services, initiate 2021 peak season projections, and focus all aspects of their current shipping characteristics where costs have been exponentially rising.

Although it has not been officially announced as of the time of this writing, there is a lot of evidence that FedEx will be moving away from offering shippers a cost-efficient SmartPost service. Residential shippers need to look at their reliance on SmartPost as the lowest cost way to deliver shipments to their customers. Any new or existing agreements need to incorporate aggressive residential ground rates with the lowest possible residential surcharges. Historically, the cost differential between SmartPost and Home Delivery

has been between 10-30%. Most of this difference is attributed to higher surcharges like residential add-on and higher Delivery Area Surcharges. When negotiating or comparing residential rates, focus on upfront discounts, minimum charge costs, and achieving the lowest possible surcharges.

This may also be an ideal time to explore alternative carriers and sourcing options. Regional carriers often offer lower rates and more competitive surcharge discounts. And, if you have any existing relationship and volume history with these carriers, they could be an excellent option in the Q4 if UPS and FedEx try again to implement volume restrictions in 2021.

One note of caution to this approach. Make sure that any volume or revenue that would move to an alternative carrier does not impact your overall shipping costs. Most primary carrier contracts have volume incentives, which may penalize shippers if they fall below projected tiers. We have also seen carrier agreements with significant monetary claw backs for discounts during prior years of an existing agreement if volumes move away from the primary incumbent carrier.

Additionally, shippers should have peak season discussions with their carriers at the beginning of the year. In 2020, most volume shippers were caught off guard with the way carriers calculated volume commitments as well as the additional costs if they exceeded prior history or expected volumes. Not only will early commitments from the carriers help shippers with operational planning, but they can be a critical to forecasting and budgeting.

While the carriers’ look at the overall characteristic of a shipper’s profile, they have been increasingly focused on shippers with large, oversized, or dimensional shipments. Since 2019, the carriers have increased costs of additional handling by 18.5-27.5%, oversize shipments by 44.4%, and have been resistant to extending better dimensional concessions. Additionally, these surcharges have become especially costly during the Q4 peak season.

Shippers can challenge the carriers on these issues by pointing out that these large increases do not necessarily correspond to the increase in the carriers’ cost to serve. Also, it is important to put these increases in the context of overall surcharge costs, which have also been steadily rising as much as or more than base tariff increases.

Over the years, we have seen many market ebbs and flows and witnessed the impact to shippers. Today’s environment is no different. There will be opportunities for shippers that do their homework, understand their shipping characteristics and data, and actively engage the carriers to provide incentives and agreements that promote long-term relationships. Good luck!

Tim Sailor is the founder of Navigo Consulting Group, which specializes in contract optimization, distribution analytics, and strategic sourcing. Since 1995, Navigo has reduced its clients’ shipping costs by 20- 30%. Tim has been recognized as a Distinguished Logistics Professional by the American Society of Transportation and Logistics, Inc. and has contributed to the transportation industry for over 30 years. You can reach Tim at Tim@NavigoInc.com.

 

Ecommerce and omnichannel are moving at a torrid pace. To stay ahead of the game and not get eaten alive by the competition, operations and fulfillment teams have to continually develop tactics and strategies to shorten delivery times while managing costs – not an easy trick!

Where do you go to learn what other companies in ecommerce and omnichannel have successfully evaluated and implemented? Ecommerce Operations Summit 2019, April 9-11 in Columbus, OH –with its 100+ speakers, roundtables and exhibitors – is totally geared to all things DTC. It’s the perfect venue to validate your fulfillment strategies, find cost saving ideas and improve the customer experience.

Here are 4 ways we have found the conference works for our company and clients:

#1: Learn About Practical Solutions

Theory is great but show me the practical application, problem evaluation, costs and benefits. That’s what we all want to see. Here are 3 examples that can have a major impact on your business. Review the full agenda and you’ll see many more:

Fulfillment Network Expansion: The Pros and Cons

Reducing the time to get orders to customers and shipping cost are two key factors in customer purchase decisions. While not for every company, one solution is to expand your network of fulfillment nodes (multiple facilities). Many ecommerce businesses rule this out because of the costs not only in terms of capital but also labor and inventory. But how do you compete with Amazon and other major companies when that’s their strategy? In our presentation two of our clients – Crutchfield Corp. and Cleaner’s Supply – will give you an inside look at their real-life analysis. B2B Cleaner’s Supply implemented a multi-DC approach over 10 years ago with good sales and customer service success.

Our opinion: Our objective is for you to understand the costs and benefits of multi-facility distribution, the challenges and how to overcome them, and when a 3PL approach is the way to go. FLEXE will discuss how temporary warehouse facilities may be an option in this strategy.

The panel includes moderator Brian Barry, President of F. Curtis Barry & Company; George Wade, Business Process Improvement Project Manager, Crutchfield Corp.; Mike Lucas, Vice President of Distribution for Cleaner’s Supply and Adrian Grigg, VP of Business Development at FLEXE.

Navigating Multi-Carrier Rate Shopping to Meet Customer Delivery Promises

Ecommerce companies are finding it increasingly important to optimize shipping in order to improve the customer experience and drive repeat purchases, brand loyalty and profitability. To achieve this, you need to give customers fast, flexible shipping options at checkout, enabled by a back-end tool that rate shops carriers. This session addresses three types of rate shopping: Basic, time in transit and Advanced Date Shopping (ADS). The presenters will explore the implications for different types of rate shopping to enable you to meet delivery promises, delight customers and reduce shipping costs.

Our opinion: Enterprise shipping systems make shipping data available for analysis, improve international shipping and documentation prep, provide central control of multi-facility rate shopping and reduce maintenance. The expo floor will greatly assist with your understanding of these systems and their capabilities, as well.

Presenters include Justin Cramer, Global Project Management Director, ProShip, and Ashley Liebke, President and CEO, Vision Media Group LLC.

Analyzing Carrier Accessorial Costs: Know the Impact on Your Bottom Line

Carriers continue to add new surcharges and increase existing ones, and there aren’t caps on these added costs. Accessorial costs can now add 20% or more to shipping expenditures. This session will include examples of how shippers can mitigate these increases and strategies designed to address spiraling accessorial costs.

Speakers Tim Sailor and Stephanie Laverty of Navigo Consulting Group will give you practical ways to quantify and lower accessorials through negotiation methods that can improve your bottom line.

Our opinion: Many companies can be more analytical about their freight charges. Once understood, what changes can your company make? Truly a high priority area.

#2: Meet Vendors to Discuss Projects

We have always found vendors to be great resources to provide a perspective on potential solutions for projects you’re working on. By our count the expo hall at Ecommerce Operations Summit spans 14 categories of providers including:

• 3PLs
• Call center solutions
• WMS
• OMS
• Shipping and data analytic systems
• Some of the largest automation integrators Consultants in a variety of specialties
• Freight and parcel spend management
• Packaging, labeling and supplies

#3: Take Part in High-Value Roundtables

We find the conference’s breakfast roundtables to be a valuable experience. Some conference speakers host a roundtable, but it isn’t a rehash of their session. The roundtables represent a chance to have a dialog among your peers on a range of hot-button subjects and trends. Exchange business cards and network later.

#4: Expand Your Team Knowledge

Give your entire operations and fulfillment team exposure to DTC topics and solutions, validate your fulfillment strategy and develop ways to improve the customer experience and reduce costs. Cover the entire conference rather than selected sessions.

FedEx announced its 2021 rate schedule, including once again an average 4.9% increase for its ground, express and home delivery services starting Jan. 4, lower than some observers had expected, and the addition of a late fee for unpaid invoices, which UPS has had in place for years.

As of Jan. 18, 2021, FedEx will levy an additional handling surcharge of $16 for any ground or express package that measures greater than 48 inches along its longest side, greater than 30 inches along its second-longest side, and weighs more than 50 lbs. (U.S. express) or 70 lbs. (international express and ground). The fee had been $15.

Starting Jan. 1, 2021, a 6% late fee will be assessed on both express and ground customers who fail to pay their invoice within agreed upon terms. UPS levies a 6% fee on invoices that are 14 or more days late; it was first introduced in 2009.

Delivery area surcharges are increasing between 15 cents and 50 cents per package for both commercial and residential deliveries handled by FedEx ground and express services.

Tim Sailor, owner of Navigo Consulting Group, pointed out that while FedEx’s 2021 general rate increase (GRI) is the standard 4.9%, that average varies by weight class. For instance, the average for packages in the 1-5 lb. range — representing the vast majority of ecommerce deliveries — will go up an average of 6.6%, while those weighing 6-10 lbs. will go up 5%. Heavier packages in the 11-20 lb. and 21-30 lb. ranges will see increases closer to the GRI, 4.8% and 4.7%, respectively.

FedEx freight is also instituting a new high cost service area surcharge that applies to shipments to certain ZIP codes, although the list has not yet been made public. It’s also adding an international out-of-delivery-area surcharge or an international out-of-pickup-area surcharge for customers in remote areas using its international express freight services. The list of ZIP codes for the latter services can be found here.

As of Feb. 1, 2021, there will be a change to how fuel surcharges are calculated for domestic FedEx freight services, which will now be assessed per pound of a shipment, based on weekly fuel spot rates.

In August, FedEx added surcharges for an expected blowout peak holiday season, adding up to $2 per package for the SmartPost final mile service and up to $5 per package for the next-day Express service. UPS and the U.S. Postal Service had already announced their peak pricing.

Regarding the new late fee, Sailor advised FedEx shippers to review their payment history and outstanding balances before the end of the year, and to push for a waiver, which may be tough to get. For its part, Sailor said UPS applies any new payments to the oldest outstanding invoice no matter how the payment is designated. It’s not known how FedEx will handling its process.

“Depending how far in arrears you are (with UPS), the 6% get applied to all balances until you are current,” Sailor said. “So, depending on your outstanding balance (with FedEx), you may need to frontload big payments until you’re caught up to avoid the late fee. Historically, FedEx has been much more flexible than UPS, usually offering large shippers extended payment terms, and no collection efforts until one day after 30 days past due.”

Sailor said one fast-growing client using UPS as its primary carrier sees the late fee as a cost of doing business. “They calculated that paying the late fee was was okay and just another way to finance new inventory” he said.

Jerry Hempstead, principal of Hempstead Consulting, said in addition to the addition of the late fee, the increase in the ground minimum rate from $8.23 to $8.47 per parcel will hurt ecommerce shippers. No matter how much of a discount has been negotiated, shippers can’t be billed below the minimum.

“The ground minimum is a big deal as most shippers have negotiated a flat dollar amount discount, which means they eat all of the increase vs. having a percentage discount which mitigates some of the pain,” Hempstead said.

Many things have changed in the past year, but one thing that is constant has been rising shipping costs. With today’s current market, the addition of more peak surcharges, decreased delivery performance, and new capacity limits, the environment seems to favor the major carriers. With that being said, we are seeing more shippers who are looking for options to level the playing field and showing more interest in utilizing regional carriers. When implemented correctly, using multiple sourcing between major and regional carriers can allow shippers to gain greater control of their shipping strategies, increase package volume flexibility, improve transit times, and lower shipping expenditures. On page 20, we discussed how to decide whether or not a multi-carrier strategy was right for you, and this article will continue the conversation by showing how to successfully integrate regional carriers into your carrier base if that is the direction you decided to go.

There are a number of key considerations, including geographical reach, delivery coverage, transit times, delivery performance, and pickups that must meet your company’s requirements. Additionally, you will want to check for shipment limitations that the major carriers may not have, such as weight limit of 50 pounds, dimensions over a certain size, prohibited items, and oversize or non-machinable packages.

The next step is to dive into is shipping rates, both base rates and surcharges. Regional carriers may offer competitive shipment rates with fewer and lower surcharges than the major carriers. Unlike the major carriers, some of the regional carriers do not have fees for commercial signature confirmation, daily pickup fees, and audit fees.

Regional carriers typically also offer lower surcharges in commonly used areas like residential surcharge, additional handling, declared value, and delivery area surcharges. Secondly, they may also have better transit times within their unique network and may be able to deliver your shipments faster and at a lower cost. There are additional benefits offered with regionals, such as late ground pickups, better DIM divisors, expanded next day ground deliveries, service flexibility, and more personalized customer service (just to name a few).

A final consideration is to see how incorporating a regional carrier is going to impact the overall spend with your primary carrier. Begin by reviewing your existing agreement for volume commitments and potential penalties. Look to see if your current discounts are up front or if they are linked to your portfolio tier / earned discounts. As a matter of practice, most UPS and FedEx agreements are designed to ensure that all the volume and revenue is not given to another carrier.

Secondly, pull historical invoice data or ask your carrier for a 52-week report showing gross spend. Make sure that this is a representative view of your shipping footprint. This will help quantify how much volume you may be able to move to a regional carrier without incurring increased costs with your primary carrier.

Once you have determined out how many shipments would be eligible for a regional carrier, put together a representative data file and provide it to the regional carriers for a bid response. This way, they will respond with a proposal that is tailored specifically to your shipment characteristics: weight, zone distribution, dimensions, residential/commercial mix, etc. Be sure to identify if you are a seasonal shipper in your data sample as well. Many shippers, especially heavy peak season shippers, ran into capacity limits in quarter 4 2020. Major carriers were overwhelmed with packages and put volume restrictions in place. This forced many shippers to look to regional carriers to pick up the packages that were over the limits set by their primary carrier.

After you implement a regional carrier agreement, you need to ensure that you have the necessary automation to create a guide for least cost routing. Consider all of the factors when setting rules for your TMS. Are you comparing the fully landed costs, including the shipment cost and all surcharges? Be sure to use a final billed weight based on dimensions and not just actual weight. Also update the cost tables to include any peak surcharges that were previously not in place. Think of transit times and how fast your package needs to get to its destination. Will it get there faster with your primary or regional carrier? Least cost routing rules will also need to include limitations like location, package size/weight, and peak shipment quantities. Additionally, some customers can override these rules if they have preferences for one carrier over the other.

Bringing in regional carriers can help improve service performance, lower shipping costs, and give you additional package capacity during your peak season. If you can’t make this solution work with your current carrier agreement, it may be time to re-evaluate your current agreements and negotiate a new agreement that will give you the flexibility to realize the benefits of a multi-carrier solution up front.

For the last 13 years, Stephanie Martin has been a senior analyst for Navigo Consulting Group. Her data driven approach has provided shippers with a keen understanding of their requirements and costs, and has given them opportunities to save and optimize millions of dollars in excess shipping costs. Stephanie can be reached at Stephanie@NavigoInc.com.

This article originally appeared in the September/October, 2021 issue of PARCEL.