What You Don’t Know About Shipping Will Cost You Plenty!

When it comes to shipping packages, I am known as the expert (at least in my family). I have been in this industry since 1976—too many years to add up in my head. I can almost intuitively look at a package, guess its weight, and declare what the best carrier and service will be. Who needs rate shopping software?

So, when my wife asked me to ship a “care” package to our 25 year old son in South Carolina, I knew the best way to ship it. I made the following assumptions:

• The package was light—weighing 5 pounds.
• It was being shipped residential.
• It was going a relatively short distance, from New York to Charleston (as compared to a zone 8 which would be cross country).

So, based on what you know about shipping, which carrier would you choose?

My choice was the US Post Office. We all know that the USPS is the best way to ship light-weight, residential packages; right?

I went to www.usps.com and selected the option to calculate postage. Here are the results:

Can you imagine that I was shocked! I couldn’t believe that this package was $20! So, I did the next thing a savvy shipper would do, I went to www.fedex.com to compare rates. Here is what I found:

My cost was $11.86 with FedEx Home Delivery for the same level of service as USPS Priority Mail at $19.50 (with my discount for paying for postage electronically).

I saved $7.64 or 40% by choosing the carrier that I assumed would be more expensive!

Now, my dear readers, who can figure out why this happened? Please comment your thoughts on why the USPS was 40% more for this light-weight residential package. In my next post, I will share the answer. There was a reason my assumption was wrong.

In the meantime, don’t assume that you know because what you don’t know about shipping, could cost you plenty!

5 Challenges Third Party Logistics (3PL) Companies Face Shipping Parcels

Many businesses today have decided to focus on their core competencies. According to Jim Collins, in his book, Good to Great: Why Some Companies Make the Leap… and Others Don’t, companies that are good-to-great companies employ the “Hedgehog Concept” which is based on an understanding of the following:

• What are you deeply passionate about?
• What can you be the best in the world at?
• What drives your economic engine?

If each of the above were circles, the Hedgehog Concept would be at the intersection.

If we bring this concept to warehousing product, fulfillment, and shipping, how many companies could claim to be the best in the world at it? Certainly, a few, like amazon.com or Zappos, are world class; however, many companies choose to outsource this function to a third party logistics company (3PL). A 3PL normally performs all the functions of our warehouse shipper but has some unique requirements. Imagine a warehouse on steroids. 3PL’s often ship thousands of packages a day for many different clients. Some have their warehouses divided for a dedicated section for each client with a separate shipping system in each area, like a mini-storage facility. Others have conveyor belts throughout the warehouse brining the packages to a central shipping area. Almost all of them have multiple shipping stations. Here are few of the problems they face:

1. Since 3PL’s are shipping packages to their customer’s customers, they often charge the freight to their customers account numbers. A 3PL could have hundreds of different account numbers and they need to make sure that packages are shipped correctly. Some do this by having business rules that receive data from the 3PL information technology system to insure that the correct account number is charged.
2. Because 3PL’s ship for a wide variety of clients, they receive their shipping files in a wide variety of formats. They may get an excel spreadsheet or a file with addresses to ship to or they may get an entire order file with line items to pick. They need a shipping system that can import orders in many formats. They could be flat files, xml, ODBC, or other formats. Flexibility is critical.
3. I once spoke to the owner of a 3PL that had over 40 free carrier provided systems. I asked him why he was willing to invest in technology when he had free systems. He told me that it was nearly impossible to keep track of all the data for shipping. Imagine running a $100 million corporation and having to ask your vendors for the data to create a monthly financial statement. He had to ask his carriers how much he was spending and try to compile all the data. He wanted consolidated reporting that would provide him with the information he needed to run his business.
4. Everything that a 3PL does is tracked so that they can bill their customers, so every shipment needs a job number. And there is no room for errors, so job numbers have to be validated.
5. Speed is critical; the fewer keystrokes the better. 3PLs want automation so they can process parcels as quickly as possible.

16 Types of Warehouses that Ship Small Parcels with UPS, FedEx, and Other Carriers

Warehouses that ship small parcels are different than the other types of shippers that I have discussed so far. They ship a much higher volume of packages, from hundreds to thousands of parcels a day. They can be manufacturers, distributors, or third-party logistics companies (3PL). A 3PL is a company that provides outsourced logistics services (more about 3PL’s in a future post).

Small parcels are packages that weigh less than 150 pounds and are typically shipped with UPS, FedEx, DHL, Regional Carriers ( Lone Star Overnight, Eastern Connection, OnTrac,), and the US Post Office. Parcel shippers may also be Less-Than-Truckload (LTL) shippers or full truckload shippers. The way parcels are processed is very different than LTL shipments. Each parcel has a separate tracking number and label. A LTL shipment is usually a pallet with many boxes and shrink-wrapped. The pallet is shipped as a single unit.

Companies that ship small packages send them directly to consumers (business to consumer or B2C) or to businesses (B2B).

Examples of B2C shippers include the following:

• books (Amazon.com)
• apparel and accessories(LandsEnd, Zappos)
• gift baskets and mail order (Harry and David)
• sporting goods (Callaway, TaylorMade)
• electronics (Best Buy)
• medical supplies (Liberty Medical)
• computers (Dell, Apple)
• drugs, vitamins (CVS,GNC)

Examples of B2B include the following:

• industrial supplies (Grainger)
• pharmaceuticals (Merk)
• automotive supplies (Michelin)
• office supplies (Staples)
• fasteners, bolts, rivets (Fastenal)
• electrical components (Westinghouse, Allied)
• industrial valves (Asco, Kingston)
• industrial chemicals (Dow, BASF)

Because of the sheer volume of packages that a typical warehouse sends, these shippers tend to be very sophisticated. Throughput and accuracy are the most important attributes that they look for in processing. Features that warehouse shippers look for include the following:

• Speed
• Multiple user processing
• Integration with Enterprise Resource Planning (ERP) or Warehouse Management Systems (WMS)
• Business rules
• Error checking
• Mode optimization
• Integration with material handling systems, such as conveyors, scales, label printers
• International processing capabilities
• Reports

I will be discussing many of these software features in future posts, so stay tuned.

Ten Software Features for Internet Retailers Shipping UPS, USPS and FedEx

The fifth category of parcel shippers is an Internet Retailer. This could be a SOHO with a website that markets products over the internet or a power seller on eBay. It could also be a retail store that also markets their products online. The difference here is volume. Internet Retailers ship every day. Volumes can range from a dozen packages to a hundred plus parcels a day. Technology becomes critical to making their lives easier. They utilize programs like Blackthorne Pro, Auctiva, and Channel Advisor to automate their auctions, images, orders, and fulfillment. When it comes to shipping, technology that can increase productivity is important. The following are features and functionality that appeals to Internet Retailers:

1. Internet Retailers want shipping functionality integrated with the software that they use to process orders. They don’t want to have to type or cut and paste shipping addresses from one software program into another.
2. The ideal shipping technology provides the most cost effective service and carrier for each package. This can be accomplished through business rules or comparing prices based on delivery requirements.
3. The capacity to ship with multiple carriers. These shippers realize that no carrier is the least expensive in all categories. They want to be able to ship with several carriers. They need to print USPS First Class, Priority Mail and Media Mail labels with Delivery Confirmation. They want PC Postage capabilities and also need to be able to ship packages via UPS, DHL, and FedEx.
4. Technology that can cut costs and eliminate errors is valued such as features like address validation and checking whether or not an address is a residence or business that can reduce accessorial charges.
5. The ability to ship parcels to international locations is essential.
6. Batch processing is indispensable. Internet Retailers want to be able to produce shipping labels in mass rather than one at a time.
7. The capacity to have multiple users is significant; this is the first category that may have employees to help in the shipping process.
8. Tracking of packages is important to this segment; they are committed to customer service and want to easily respond to customer inquiries; they want to know when a package was delivered.
9. Internet Retailers also want to pro-actively notify their customers when a package has shipped, the carrier, and the tracking number. They want shipping software that can send an email automatically to a customer with all the details.
10. Finally, the Internet Retailer wants reports on shipping volume, average weight per package, average cost per package, dollars spent for each service and carrier, and so forth.

eBay Shipping Tips

 

The third kind of parcel shipper is the eBay type shipper. This is a person that sells products part time via eBay or some other internet site. According to a June 2006 survey conducted by ACNielsen International Research, there are approximately 1.3 million sellers around the world who use eBay as their primary or secondary source of income. Ina Steiner of Auction Byte says that there are 1.3 million amazon sellers. This is a significant amount of the market. These part time shippers typically ship anywhere from a few packages a week to dozens per day.

One of the challenges that eBay shippers face is reducing shipping charges. Buyers of products look for the lowest cost and savvy sellers that know how to ship inexpensively will get more business than sellers that naively ship packages using the wrong service or for higher rates. In my survey of eBay shippers at two eBay Live conventions, 6 out of every 10 people that ship on eBay pay too much for shipping. I spoke about this on a segment of SBTV, called eBay Shipping Tips.

Typical mistakes that these kinds of shippers make are the following:

• They pay retail for shipping; UPS offers programs for eBay shippers to save up to 31% off retail rates. Even the US Post Office (USPS) provides discounts and freebies, like free Delivery Confirmation to shippers that use on-line technology for processing their shipments.
• They don’t manage the weight of their packages. Sometimes, cutting an ounce or two of packing material can substantially reduce the cost of shipping.
• Most part-time shippers put all their eggs in one basket; by this I mean that they only use one carrier such as UPS or USPS. According to market research, most eBay shippers use the US Post Office as their carrier because of the convenience. They assume that the cheapest way to send a package is Parcel Post (it is not always). While the USPS is a great carrier and frequently is the lowest costs, these shippers can significantly cut their shipping expenses by comparing rates and service options of multiple carriers.

Free shipping is the most competitive way to sell on eBay; to do that and remain profitable use a carrier and service that is the most economical.

Save Hundreds of Thousands of Dollars on Parcel Shipping

Is your shipping fragmented amongst different systems? Do you realize it could be costing you hundreds of thousands of dollars?

A Logistics News article, “The 10 Indicators You May Need a Multi-carrier Shipping System“, speaks to a major problem that many companies face. Reason #6 is “Fragmented parcel processes and automation through multiple departmental solutions.”

Here is the problem: companies have a sophisticated intelligent parcel shipping system in the warehouse and they don’t use it throughout their company. The front office processes overnight envelopes using the carrier’s website. The mailroom has a carrier’s free shipping system. The corporate office uses a different carrier system. The process for shipping is fragmented throughout the organization.

The result is that nobody has a handle on all the shipping costs and huge sums of money of money are wasted. I have seen many examples where the warehouse manager or VP of logistics has negotiated a great discount from a carrier for the warehouse and other offices of the same company are paying 50% more to ship with a different carrier. One hand doesn’t know what the other is doing.

According to the article, “The total savings opportunities from gaining visibility to these volumes across the enterprise and optimizing decisions about the best shipping method can be huge, and often much more than anyone in the company fully understands. Savings in the hundreds of thousands or even millions of dollars per year are not uncommon for large companies.”

The solution is to utilize shipping technology that can work with your entire company, regardless of location.