Increasing complexity in parcel
It’s time to understand your parcel characteristics as well as how the carriers will view your business. If you can position yourself—and partners—to be a shipper that parcel carriers can serve profitably, you will be rewarded with better discounts and have stronger negotiating leverage.
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The major parcel carriers continue to experience growth supported by upward trends in consumer on-line shopping as well as B2B on-line catalog buying. In the meantime, service promises of two-day and even same-day fulfillment for shippers and buyers is proving to be addictive. And if past practice holds, we’re about to get simultaneous “independent” price increase announcements this spring by the parcel carrier oligarchy.
It’s important for buyers of these services to step up their game in four key areas in order to ring out as much value as possible from the premium highway and air charges the few providers insist upon.
First, shippers need to understand their parcel profile with respect to package “dimensional” rate scales. It’s best to get on the same page with manufacturing and make any necessary/possible packaging adjustments to minimize cube before tendering to the carrier.
Keep the following top of mind:
- Know the dimensions and weight (density) of your packages before they get to the carrier.
- Understand dimensional/weight breaks of each carrier’s contract so that you can optimize the splitting of shipments, timing and consolidation of shipments for the lowest total cost.
- Shippers should have teams working to reduce the cube below the carrier’s threshold if possible.
Remember that the charges for excess dimensional weight will come back to you after the shipment as a part of your invoice, and you will have a dilemma if you have already charged your customer for a shipment based upon an incorrect dimension.
Second, use technology to store and analyze your contract parcel freight rates so you can do some advanced planning and budgeting. When reviewing proposals, anticipate carrier rules and rates for oversized parcels or secure a time-phased rate change to give you time to modify packaging or make other changes.
If your distances are limited, try smaller regional carriers that may have different scales for dimensional/weight of your freight. It’s important to know your various package densities in order to get discounts in the areas most important to you. The carrier will be using sophisticated analytics to study your freight spend—so you need to ramp up the analysis.
Third, auditing services for parcel freight moves have proven to be cost justified for many companies, particularly as parcel spend and complexity rise. Auditing of freight bills in all modes is a common practice and has been done for many years with good results.
Arrange to have digital transaction records from parcel shipments sent to your auditing firm and have them check both rates and delivery performance for the requested service type.
And fourth, once you have the tactical things done, it’s time to think more strategically. For starters, get an understanding if you’re in a great location for service by the selected carriers—because experience has shown that companies with good shipping locations and a well designed routing guide for every parcel ship point can expect better service. In fact, the only way to ensure that the right service levels are being selected to serve your customer is to enforce the use of a routing guide.
Remember that other options may be available. For example, you may want to consider less-than-truckload and truckload shipments, zone skipping, cooperative shipping or the use of a third-party logistics provider that might enjoy better discounts or perhaps freight consolidation opportunities in your area.
In summary, it’s time to understand your parcel characteristics as well as how the carriers will view your business. If you can position yourself—and partners—to be a shipper that parcel carriers can serve profitably, you will be rewarded with better discounts and have stronger negotiating leverage.
About the AuthorPeter Moore Peter Moore is Adjunct Professor of Supply Chain at Georgia College EMBA Program, Program Faculty at the Center for Executive Education at the University of Tennessee, and Adjunct Professor at the University of South Carolina Beaufort. Peter writes from his home in Hilton Head Island, S.C., and can be reached at [email protected]
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