How Are You Losing Money in Shipping?

Are you throwing your shipping dollars down the toilet?

As you may recall from the last post, I met with a client that was surprised when she discovered that she was losing over \$100,000 a year in shipping. It did not seem possible because they were billing their customers for shipping at the published rate that the carrier charged. Let me provide a specific example, they shipped a package UPS 2nd Day Air and the published charge was \$34.25; the billed charge was \$26.71 because they have negotiated a 22% discount with UPS (which is poor but we will leave that for another time). So logically, you would think that they made a \$7.54 profit on shipping this package, which would be great. However, on the UPS invoice there was an adjustment of \$19.16. This additional charge shows up on the invoice after the package the shipped and after the customer was invoiced. So the result was that instead of making \$7.54, this company lost \$11.62 on this package!

Let’s look deeper and discover how and why they are losing money.

The first step is to review the carrier’s detailed invoices. In our example, we see that UPS made an adjustment. This additional charge shows that the package was re-rated at 14 pounds and it says Dimensions =20 x 15 x 9. What that means is that this package was charged based on the dimensions, not the weight. Let’s look further.

The next area to examine is what the shipping system computed for the shipping charge. In this case, my client has a UPS WorldShip software program for processing shipments, sometimes referred to as a shipment execution system or a manifest system. You can generate a report from this system or lookup a specific transaction. We researched the UPS 2nd Day Air package in question and saw that according to the UPS shipping system, it cost \$34.25. So what was the difference? Why was my client charged \$19.16 more?

Two reasons:

1. The person that shipped the package did not enter the dimensions of the package and the parcel carrier based its charge on the package dimensions. For details on how parcel carriers compute this type of  charge, see my previous post, A Quick & Easy Way to Calculate Dimensional Weight. These type of errors occur because the person does not know to enter the dimensions or skipped it for some reason. It is generally a process error or training issue. If they had entered the dimensions, the system would have computed the correct base charge, but there was another problem.
2. The UPS WorldShip did not add the 7% fuel surcharge to the published charge. Why? Because it was not setup properly so that the fuel surcharge is added to the base charge; this requires a knowledgeable person to configure the shipping system and to constantly maintain it!

The consequence was that my client was not really charging their customers the correct published charges because the shipping system was not properly calculating the rates due to setup and processing errors. The customers are invoiced based on data from the shipping system, not the actual invoices. Accessorial charges come after the customer has been charged. In this case, it was 33%of the published rate!

How to audit your parcel shipping:

1. Review the Delivery Service Invoice item by item from your carrier; find all shipping charge corrections or adjustments.
2. Research all adjustments by comparing the invoiced amounts to the charges in the shipping system.
3. Find out why they are different and fix the system, create a process, and or train the operator.

To be continued…