CEO Wakeup Call! What You Don’t Know About Shipping Can Be Costing You.

I know how hard it is to be a CEO; I ran my own company for 20 years. There are so many balls in the air and too little time. It is difficult, if not impossible to take a deep dive in any area. There is a hidden cost that if you don’t know about, will cost your company significantly. It is the cost of shipping. Shipping can be easily masqueraded from your view.

I recently had a CEO tell me that she felt guilty because she was overcharging her customers on shipping. When I took a close look at what was happening in her company and showed her, she was shocked to learn that she was losing $100,000 a year.

Here is what happened.

Many businesses bill their customers for shipping; some even add shipping and handling charges. Most companies will invoice the UPS and FedEx published rates and believe that they are making a profit on shipping because their logistics manager has negotiated a discount with the carrier. This was her case and why she believed she was making a profit.

We looked at her financial statements–the go to place where a CEO judges how the company is doing. On her income statement, there was a revenue line for shipping and it was named, shipping (recouped). The $200,000 listed looked very positive. CEOs love the top line.

I inquired what about this and she told me that it was the profit that they made on shipping. On further examination, we discovered that it was the total amount of revenue (not profit) for shipping that was invoiced. So, when a customer is invoiced for the goods, they also invoiced their customer for shipping and kept track of that amount in their chart of accounts. (This is a good practice; some companies don’t keep track of it separately and it is hidden from inspection.)

We then looked at where the payments to UPS were showing up on her income statement. Those costs were buried in the Cost of Goods Sold.

The total–$300,000.

“How is that possible?” she exclaimed.

She was losing over $100,000 a year on shipping and had no idea.

Stay tuned and you can learn what we discovered.

Here is a Great Tip on How to Save Money on Shipping

My post last week about guaranteed service refunds triggered a number of responses. Steve Thomas, the warehouse manager at Polek and Polek, a leading distributor of copier parts, fax supplies, and printer products, told me how he gets his money back on packages that are not delivered as promised.

Steve sets up every package he ships with an email notification from UPS to inform him of any exceptions. Exception notifications indicate anything that may cause a delay in the delivery of the package. This way he gets an email when a package has been mis-routed or is going to be late. After he is notified, he calls the carrier and asks for a refund. (You can even set it up so that another person gets notified, so you can delegate this task to someone else such as an accounting clerk). UPS and FedEx both offer this service for no charge. Steve saved his company over $2,000 last year by simply doing this.

You can set up your shipping system to notify you of exceptions by selecting the box to be notified. See below for an example.

Steve, thank you so much for sharing your advice!

What are you doing to save money in your shipping department? Please let me know and I will post your suggestions for the benefit of all shippers. You can email me at mark.taylor@myshippingcoach.com.

What Every Shipper Ought to Know About Shipping Refunds, Guaranteed Service Refunds, & Parcel Auditors

You have a guarantee. UPS and FedEx absolutely positively guarantee that your package will be delivered on time or your money back.

There are dozens of parcel recovery companies that are offering to get your money back for parcels that don’t get delivered on time. Should you do it?

Companies like this have been around for a while and there are a few items that shippers ought to know.

1. Parcel auditors generally charge 50% of the actual savings they generate. So if you have a $20 package that was late, they will keep $10. However, most will negotiate based on your volume. Some will take 30% of the savings.
2. Carriers are late about 3% of the time. 97-98% of the time, they are on time. UPS and FedEx do a great job. And, when they are late, it does not mean that the package qualifies for a discount. There are a lot of exceptions, including weather.
3. You must make the request within 15 days that the package was received.
4. UPS & FedEx have put provisions in their agreements that give them the right to charge you for tracking and refund requests. From page 18 of the service guide, “UPS reserves the right to assess a shipper an additional charge of $3 per request for each Package Tracking/Tracing and Refund Request initiate by or at the request of the shipper. This charge will not be assessed for the first 50 package tracking requests per calendar week, or for a quantity of package-tracking request equal to or less than 20% of the shipper’s package volume for that week, whichever is greater. This charge will not be assessed for a quantity of package-tracing requests equal to or less than two percent of the shipper’s package volume for that week. UPS also reserves the right to assess the shipper a charge in the effective UPS Rates for Service Guarantee refund requests when the subject package was delivered in accordance with the applicable UPS Service Guarantee in the effective UPS Tariff/Terms and Conditions of Service.”
5. In addition, if the request was made by a third party, such as a parcel auditing company, they don’t have to give it back. “UPS reserves the right to refuse any request for a credit or refund when such request is either (a) made by, or (b) based on information obtained by, a party other than the payer of the shipping charges.” (p 30) “At the sole discretion of FedEx, the money-back guarantee may not be honored when the request is made by, or the information utilized to determine the status of the package is determined by, a third party other than the payer of the charges.” (p 138)

There are a few options that I would suggest.

1. Get reports from your carriers that show what percentage of your packages were delivered late. If it does end up being 2 or 3 percent, when you are negotiating, ask for an additional 2-3 percent discount.
2. Many shipping systems can track and generate reports of packages that are late. Sort it by dollar amount and have one of your own clerks request refunds on the packages that cost a lot of money. This way you get 100% of the money back.
3. Have your accounting clerk review the invoices from the carriers. Ask for them electronically and determine which ones were late. Talk to your carrier representative about which reports can help you.

I know that this is a controversial subject and I invite your feedback. What are you doing about promises that have not been fulfilled about your packages?