4 Ways Shippers Can Keep Parcel Costs in Check
A lot has certainly changed in a year. Following a dismal 2009, stock valuations at FedEx and UPS are approaching 2008 highs. Given the current environment, it's hard to remember that only a year ago FedEx froze bonuses and management salaries, rationalized networks, and suspended 401K contributions along with other measures to control costs.
However, 2011 promises to be a banner year for shareholders. This is the result of many factors, including an improving economy, disciplined yield management, lack of domestic competition, globalization and other positive trends. With no true third player in the marketplace, FedEx and UPS represent a "duopoly." The days of price wars are over, as both carriers have no interest at gaining market share at the cost of margin erosion.
Pricing has rationalized and rates will continue to rise as evidenced by the 2011 general rate increases. Base rates are up 6 percent to 10 percent; accessorial charges like delivery area surcharges and residential surcharges are up 9 percent to 11 percent; and the new domestic dimensional divisor of 166 (139 for export) amounts to a 15 percent to 20 percent increase for many shippers.
Still, there are several ways shippers can keep parcel costs in check. Here are four:
1. Leverage the fact that FedEx and UPS are now multimodal transportation providers. If you use these carriers exclusively for domestic parcel service but have other transportation needs (e.g., less-than-truckload shipping, truckload shipping, international forwarding, ocean transport, etc.), your combined volumes may enhance your overall discounts.
2. Residential shippers should explore deferred services like FedEx SmartPost, UPS Mail Innovation, UPS Basic, Newgistics and other USPS Parcel Select providers. These services leverage private carriers’ core transportation expertise with the Postal Service's final mile residential delivery expertise. Transit times are competitive with rates that are less than ground delivery, with fewer accessorial charges.
3. Consider using regional carriers or the USPS for a percentage of your traffic. Priority Mail is a terrific product that offers two day to three day delivery at competitive rates and no accessorial charges for lightweight shipments. Volume shippers are entitled to Commercial Plus discounts or even negotiated pricing. But you don't have to be a large shipper to realize savings. Compare USPS Flat Rate products with private carrier pricing. Companies like USS Logistics are authorized USPS resellers that can pass along significant savings.
4. Seek help. There are many qualified freight auditors, consulting companies and third-party logistics providers that can identify and recover bottom-line savings. Shippers surveyed in Morgan Stanley's Annual Best Practices Survey reported savings of more than 49 percent by using third-party resources.
I've talked a lot about rising costs and bad news for shippers. The good news is that service levels — already at all-time highs — will continue to improve in 2011. The more profitable the business, the greater the ability to invest in people, infrastructure, technology, sorting facilities, aircraft, trucks and delivery vehicles, maintenance facilities, contingency plans, and so on.
As always, let me know if I can help!
Rob Martinez is the CEO of Shipware LLC, a professional services firm that transforms businesses through intelligent distribution solutions and strategies. Rob has helped some of the world’s most recognizable brands reduce parcel shipping costs an average of 25 percent through contract negotiations, rate benchmarking, modal optimization, invoice audit and other savings vehicles. A cum laude graduate of UCLA, Rob has 20 years of transportation industry experience, including executive positions at DHL and Stamps.com, in addition to his work as an outside consultant since 2001.