You’ve invested in the best technology and have the right people on board; still, no system or person is perfect. In my 10+ years as a shipping consultant, I’ve seen my share of problems; however, three mistakes continue to stubbornly crop up. Chances are your company is making one or more of these. Fortunately, identifying them isn't difficult.
Despite the fact that ground shipments have the same service guarantees as express / air shipments, many shippers still pay a premium for an expedited service when ground will arrive just as fast (time-definite services such as “a.m.” delivery excepted). The misconception is that the premium service gets superior treatment from the carrier(s) in terms of transit time. In fact, both UPS and FedEx have highly reliable ground networks whose on-time performance often beats that of their respective air networks which are more prone to weather disruptions. This becomes a very expensive mistake as 3-day or 2-day services cost 2 to 3 times as much as the same package shipped via a ground service - even with outstanding expedited discounts. An overnight shipment (afternoon delivery) can be 5 to 6 times more expensive. I once had a client who shipped a disproportionate amount of their parcels via a 3-day service despite the fact than many of their orders would be delivered in 1 to 2 days by ground. In the six months that we studied, they paid a premium in excess of $50,000 (on a $1.25M spend for the period). Even after bringing the issue to their attention, it took some time before they made a change. The belief that a 3-day expedited guarantee was a safer bet than a 3-day ground guarantee was that deeply ingrained.
Some companies to which I’ve raised this concern are indeed aware of it. E-commerce companies in particular feel that they are boxed into a corner since, if a customer selects 2-Day service for instance (and presumably pays a premium for it), the seller is obligated to ship the order using the premium service even if the package would be delivered overnight by ground. But what if instead of offering a delivery service selection, your shopping cart offered a delivery day selection? Orders desired to be delivered in 2-days can be processed using the lowest cost service guaranteed to get it there. Special programming is needed naturally, but may be well worth it in order to eliminate the wasted expense for both your company and your customers.
The first step in correcting this issue is to understand that it’s happening in the first place. Fortunately, this is fairly simple to uncover. Knowing the general relationship between shipping zones and ground transit days is the first step:
Zones 2 & 3 – 1 day Zone 4 – 2 days Zones 5 & 6 – 3 days Zones 7 & 8 – 4 to 5 days
Next, compare those guidelines to your carrier invoices (pulling the data into a spreadsheet simplifies this greatly). As an example, review your 2 Day usage. Is there a fair amount destined to zones 2-4? If yes, you're likely paying a premium. Whether the amount is enough to warrant a process change is a business decision, but at least there's awareness. Most decent TMS or manifesting solutions offer a "Best Way" functionality which should address this issue.
Note – the relationship between ground transit time and zone isn’t perfect, but is intended to be a guide to identify a potential $50K problem.
FedEx Ground Instead of Home Delivery
This is an issue that I’ve addressed in prior posts and speaking engagements, but still occurs frequently enough to raise again. Unlike UPS which has a unified network for all parcel modes, FedEx maintains independent ones for Express, Ground (commercial), and Home Delivery (ground residential). The purpose for separate ground services is to maintain efficiencies on the B2B shipments which benefit from higher delivery density (parcels per delivery stop) compared to B2C. This doesn’t prevent residential deliveries from getting tendered to their Ground network. The problem for you? Surcharges associated with residential shipments (e.g. Residential Surcharge, Delivery Area Surcharges) are more expensive via FedEx Ground than when tendered to the Home Delivery network. To add insult to injury, any discounts for these surcharges are (with rare exception) only applicable to Home Delivery shipments which increases the cost differential. To illustrate, the residential surcharges for FedEx Ground and Home Delivery are currently $4.40 and $3.80 respectively. If you happen to have, say… a 20% discount on the surcharge, the discount would only apply to the Home Delivery Residential Surcharge making it $3.04 instead of $3.80. This is $1.36 less than one shipped FedEx Ground.
…for each and every residential parcel shipped this way.
Multiply this by hundreds or thousands of orders per day and you can see the dilemma. This doesn’t even include a similar differential for the roughly fifteen percent of shipments subject to a Delivery Area Surcharge. Ouch!
Like the short-zone air issue, this is easily detected with a simple review of your FedEx invoices. If you see a high frequency of residential surcharges along side FedEx Ground shipments, problem identified. The solution may be as simple as activating or adding an address validation functionality to your TMS or manifest system. FedEx’s native software has this capability and is easily implemented. A few will still fall through the cracks, but this typically solves it.
In the past, some shippers had a large disparity between their FedEx Ground discounts and Home Delivery discounts which resulted in residential FedEx Ground shipments being less expensive despite the surcharge differential. This isn’t very common nowadays, but worth exploring before making operational changes.
Declared Value Usage
Most people equate Declared Value with insurance. It’s not, but it quacks enough like insurance to forgive those who use the terms interchangeably. The concern isn’t the misuse of the terminology (I’d be happy to explain in a sidebar conversation), but its usage (or over-usage to be precise). Now, everyone has their own tolerance level for loss, and that isn’t a decision that I will attempt to influence. Some companies self-insure. Others have a predefined order-value level at which they purchase additional coverage. What many don’t know (or forget) is that each parcel is automatically covered up to $100 of value. No indication of value is required by the shipper to take advantage of it. Regardless, I cannot tell you how many times I’ve seen shipments “declared” for $105.00 (or $5.00 of additional coverage). Back to my point about risk tolerance – it’s unlikely that a anyone is chewing their fingernails over the potential loss of $5.00. It’s even harder to fathom this is the case when the additional coverage costs about $3.00 (i.e. paying $3.00 to protect $5.00). Worse yet, I’ve even seen shipments (yes, plural) declared for $101.00 – meaning the cost of the coverage exceeded the actual coverage.
What’s the #1 response when I bring this to a client’s attention: “We shouldn’t be using Declared Value in the first place.” These companies have alternative coverage – whether it’s self-insuring, a cargo or business insurance policy, or third-party parcel insurance policy – and were unaware that they were using Declared Value at all. The reasons for why it’s occurring are too numerous to list, but identifying the problem is easily spotted in the carrier invoices. If you’re using a parcel audit service that has reporting functionality (most do), this becomes even easier since the provider has already done the heavy lifting of consolidating your data.
Again, the intent here isn’t to dissuade anyone from using Declared Value. It has its purpose. Just be aware of the extent of its usage and that its being used in accordance to your company’s risk management guidelines
The common element?
Each of the aforementioned issues fly under the radar which is why, despite the monumental amount of information at our fingertips and the ability to bring such issues to light, we continue to consistently see them . In a perfect world, UPS and FedEx would be bringing these issues to you proactively; unfortunately, even the most well-intentioned reps often lack an understanding of such pitfalls or have the necessary visibility to the information.
...but now you have both.
For assistance with determining whether or not your company is experiencing any of the above challenges or to learn how our parcel audit or contract negotiation services can lower your company’s shipping costs, please visit our contact page.