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 2^nd 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 2^nd 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…

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.

Nobody Beats My Shipping Rates

“I have got the best UPS rates in Manhattan.”

“My FedEx rates are better than anyone in my industry.”

“Nobody can get better DHL international rates than I can.”

“The Vice President of FedEx came to our warehouse and said he couldn’t compete with the rates we are getting from UPS.”

“I saw General Motor’s rates and ours were better.”

“I hired a professional parcel negotiator and he couldn’t do any better. In fact, he asked me if I would negotiate rates for his customers.”

“My UPS rates are better than the Federal Government.”

The above statements are ones that I have heard. The people stating them honestly believe them. Do you?

I don’t.

Over the past 30+ years in this industry, I have made friends with many former FedEx and UPS sales people, pricing managers, and executives.

Here is a secret.

The carrier sales people are trained in negotiation strategies and one tactic is to get you to believe that you already have the best rates.

I found an interesting site where I learned about various negotiation tactics, one of them is called Flattery.

This tactic involves making you look good by telling you how clever and intelligent you are. For example, what a great negotiator you are. It makes you feel good about yourself and puts you in a position where you will want to be a friend with them.

I have heard those lines too.

“My UPS rep is my friend; I couldn’t possibly ask him for more.”

“My FedEx rep is the greatest and really went to bat for me.”

You may indeed be friends with your carrier representatives but are you really getting the best rates possible?

How do you know?

Are you 100% confident that you couldn’t do any better?

And, if you could, let’s say even reduce your shipping costs by 10%, what impact would that have on your organization?

Could you compete more effectively?

Increase profits?

UPS did last quarter; they tripled to their profits and reported a fourth-quarter net income of $757 million dollars.

How did you do in comparison?

Save 38% on USPS Priority Mail Flat Rate Boxes

The last several posts about Priority Mail Flat Rate Boxes have stirred up some great observations by readers. The comments below are from Jay Eichler of The Ultimate Thomas Store. Jay is a big seller of licensed Thomas & Friends products on his website, eBay, and Amazon, so he is very knowledgeable about best practices for shipping. As you will read below, his suggestion can save you 38% on shipping USPS Priority Mail Flat Rate Boxes. Thank you Jay!

I invite any of you with best practices to share them with our community by emailing me at mark.taylor@myshippingcoach.com. Together, we can help one another save on shipping and boost our economy.

Here is Jay’s email:

USPS has spent a lot of advertising dollars on getting people to use the flat-rate boxes. In my opinion, for 90% of what is shipped in them (including many of the widgets they use in the commercial), it would be much more economical for the shipper to use the non-flat rate boxes to get a better deal. For example, this past week I won a Yankees thermal jacket on eBay. The seller lived about 100 miles from me, charged me $16.00 for shipping, and shipped in a USPS Medium Flat rate box which cost them $10.70. Had they shipped in a regular Priority Mail box (Box 1095), it would have only cost them $6.67 for the same package. For a seller on eBay, who should be especially conscious of shipping charges with their DSR ratings at stake, this is a huge waste of shipping dollars.

I don’t know if this is something you would want to publish in your blog, but with the latest change in USPS Priority Mail pricing, the Priority Mail Envelope is now cheaper than the Small Flat Rate Box. The one thing I don’t think USPS thought about is that you can fit the box inside of a Flat Rate Envelope. You could actually use two USPS shipping containers, place one inside the other and ship for the lower rate. Using this, why anyone would pay for a Small Flat Rate Box is insane!

Keep up the Good work!

Jay Eichler
The Ultimate Thomas Store

What is the Cheapest Way to Ship a Package?

What is the cheapest way to ship a package? It all depends.

I received the following email from one of my readers. Thank you, you have raised some very good questions. Read my response below in blue:

I invite any of you with questions to email me at mark.taylor@myshippingcoach.com. I may not be able to get back to you for a few days, but I read all my emails and respond.

I stumbled upon your blog and I’ve got to say, it is very helpful.  I am a new Ebay seller and am new to this whole shipping business.  I was wondering if you could answer a question for me.  I use USPS for my shipping; I’ve found it to be cheaper than FedEx and UPS. Priity Mail Flat Rate Options

 

 

	Price	Size
Priority Mail Flat Rate Envelope	$4.90	12-1/2″ x 9-1/2″
Priority Mail Small Flat Rate Box	$4.95	8-5/8″ x 5-3/8″ x 1-5/8″
Priority Mail Medium Flat Rate Box (FRB1)	$10.70	11″ x 8-1/2″ x 5-1/2″
Priority Mail Medium Flat Rate Box (FRB2)	$10.70	13-5/8″ x 11-7/8″ x 3-3/8″
Priority Mail Large Flat Rate Box (Domestic Addresses)	$14.50	12″ x 12″ x 5-1/2″
Priority Mail Large Flat Rate Box (APO/FPO Destinations)	$12.50	12″ x 12″ x 5-1/2″

Here is the priority mail flat rate prices.  What if I want to use my own packaging or some of their other boxes not on the list, such as their shoe box?  How will I know how much it is going to cost?  It is based on weight?  Basically, I just want to know how USPS determines shipping costs.   And, do you have any tips to get the lowest shipping price possible? I ship mostly clothing and shoes, not anything that would be too heavy.  I would like to get them shipped at the lowest possible price.  How can I do that with USPS? Thank you so much!!!

The cost to ship a package depends on the weight, zip code, and dimensions, among other factors. For USPS you can ship in your own box, or in a Priority Mail box that you can get for free. Priority Mail Flat Rate Boxes can be the best way, but not necessarily. It all depends. Let’s look at a few examples:

• You have a 2-pound package that is shipping to a zone 2 (someplace close). If it fits into the Priority Mail Small Flat Rate Box, you can ship it for $4.95. BUT, if you put it in another box, it would only be $4.90. If you used the bigger Priority Mail Large Flat Rate Box, you could pay $14.50—way more money!
  
• If you have a 5-pound box, the rating becomes more complex. For a Zone 5, you would pay $11.76. It would be cheaper not to use the Priority Mail Large Flat Rate Box. But the same package going to Zone 8 (cross country) would be $16.37, so it would be cheaper to the Priority Mail Large Flat Rate Box. Now, I could ship that same box with FedEx Home Delivery for $10.59 and save $5.78 with the rates I get from FedEx (email me and I will tell you how).
  

The bottom line is this: no carrier is the cheapest carrier for every kind of package. The USPS does a great job and is the cheapest for package shipping to residences that weigh less than 2 pounds. My advice is to compare carriers and services.

If You Ship Items Worth Over $100; This Secret Can Save You Big!

Do you ship items worth over $100?

What happens if that item is not delivered and your customer complains?

If you are an Amazon seller, you are bound by Amazon.com’s A-to-Z Guarantee and the money is automatically refunded to the customer. Most likely, you will refund the customer or ship another item, but you lose your profit and bear the costs of your product and the shipping costs.

The US Post Office, UPS, FedEx, and DHL all offer various forms of insurance if your package is lost or damaged. With these carriers a shipment is automatically protected up to $100 for loss or damage, but if you require more protection than you need to declare a higher value for protection. FedEx and UPS call it “Declared Value”. DHL calls theirs “Shipment Value Protection. The US Post Office offers insurance as well.

The formula works pretty much the same even though the rates are different if you have a retail or commercial account.

For example, for customers with Retail Rates, UPS charges $0.90 for each $100.00 (or portion of $100.00) of the total value declared, with a minimum charge of $1.80. If you had a package that was worth $500, you would subtract the $100 that is included and have $400 or 4 units x $0.90 for a cost of $3.60.

If you shipped 10 packages a month of this value, you would be paying $36 just for insurance!

FedEx charges $.70 per $100 of value with a minimum charge of $2.10.

The USPS starts with the first dollar that you declare, has a minimum of $1.75. For $100 package, the cost is $2.25.

Now here is a secret that many eBay sellers and online merchants don’t know. There are third party insurance companies that will insure your packages for 50% less than the carriers charge.

Here are the rates from one third-party insurance provider: (Full Disclosure—I would receive a small referral fee if you use this service)

• UPS/FedEx Ground $.30 per $100
• USPS Priority Mail with Delivery Confirmation $.50 per $100

This is a HUGE savings. For a $200 package with FedEx, the cost would be $.60 instead of $2.10—a savings of 71%!

For USPS, that $100 package is only $.50 instead of $2.25, a savings of 78%!

How to Beat the High Cost of Parcel Shipping!

I have been working in the mailing and parcel industry since 1976—34 years! I am still surprised at what I see and hear. If you don’t know what you are doing, you can waste a ton of money. The worst part is that the carriers don’t make it easy for you, the small parcel shipper, to do it right. In fact, it almost seems like they confuse you on purpose. Let me give you an example, let’s say that you want to ship a package on Monday and get it to your customer by Wednesday. Which service would you use? Many would choose a service like UPS 2^nd Day Air or FedEx 2 Day service. Others might use US Post Office Priority Mail. What if you want to be sure that it gets there and choose the most economical service?

What is the best way to ship this package: UPS, FedEx, or US Post Office?

I went online to FedEx.com, USPS.com, and UPS.com and researched shipping a 5 pound package being shipped from Plymouth MI to a residence in Lawrence KS.

Here are the results of my analysis:

• The most expensive choice was UPS 2^nd Day Air for $27.91—guaranteed.
• FedEx 2Day would get my package there for $27.58—guaranteed. (almost the same)
• USPS Priority Mail was only $11.76. This would save me 57% but it is not guaranteed.
• But wait, if you look at the display below, you would see that FedEx Home Delivery would get it there in “2 Business Days.”
  
• Why do they have to make me figure out that 2 Business Days is Wednesday! Why do they make it so hard!
  
• I could pay $11.85 and it would be guaranteed. Looks like the best deal, but why pay retail if I could get a discount?
• I checked my discounted rates and saw that it was only $9.21, 22% less than retail. (email me and I will tell you how to get this discount)

Look at how much difference there is between rates. If I didn’t know what I was doing, I could have paid as much as $27.91!

I saved $18.70 on one package, or 67%.

Even Small Parcel Shippers Can Save 50% or More!

Wow! It sure does cost a lot to ship a small package. Even though I advise people on shipping packages, the truth is that I don’t personally ship that much, maybe a couple of packages a month. So, when I do ship something, like I did over the weekend, I experienced firsthand the surprise and frustration of small parcel shippers. Here is what I saw and learned when I shipped several items.

• My first observation was that the retail cost to ship an envelope across the country (from New York City to Beverly Hills, CA) was exactly the same for FedEx Priority Overnight and UPS Next Day Air. I knew that the prices for ground shipments were the same but I did not realize that it was also true for express shipments.
• Of course I was shocked that the price was $32.05! I can’t believe that anyone pays that much.
• Of course, I was glad that I only paid $14.11 with the discounted rate that I was able to obtain because of my industry knowledge. I saved 56%!
• I wondered how people that don’t know where to get a discount feel about paying so much to send an overnight letter. If you email me at mark.taylor@myshippingcoach.com, I will be happy to share with you how I received that rate.

My second package was 2.2 pounds that I was sending to my son in Texas.

• I went to USPS.com to get the rates. I was surprised that this small package was going to cost me $9.95 to send Priority Mail.
• I saw that I can save $.60 by shipping it online and get Delivery Confirmation for free, saving another $.70 for a total savings of 13%.
• I wished that it could fit into Priority Mail® Small Flat Rate Box for only $4.85 online.
• While it could have fit into the Priority Mail® Medium Flat Rate Box, that would have cost $10.20 online or $.85 more.
• I wondered if people sometimes made the mistake of thinking that the Flat Rate Boxes were always the cheapest way to ship something.
• I then went to FedEx.com to compare prices. The retail rate for FedEx Home Delivery was $11.50.
• But my discounted rate was only $8.57, 25% less than retail!
• I thought about all the people I see standing in line at Kinko’s to ship a package and pay more; I wondered how they compete with bigger companies if they were businesspeople.

Reduce Parcel Shipping Costs; Get Your Money Back for Service Failures

In today’s fast-paced world of e-commerce, instantaneous communications and unscrupulous deadlines, demands on the shipping industry have never been greater. At the same time, customer expectations, fueled by the promises of the major carriers, continue to grow. Bottom line: Packages have to get there; on time; every time.

In PARCEL
magazine’s 2009 Best Practices Survey, service failures were one of the top five complaints that shippers had about their primary carrier.

UPS and FedEx dominate the industry to the tune of nearly $100 billion annually in combined net sales by promising to absolutely, positively deliver packages on time for their customers. But, are they holding true to their word? While the carriers guarantee every package will be delivered on time, in reality they are actually late 3% of the time for no verifiable reason at all; they don’t fall within the “beyond our control” exceptions such as bad weather or shut down airports. Moreover, the carriers make it both complicated and time-intensive to claim refunds, especially for companies shipping dozens of packages a day. As a result, a mind-boggling $2 billion of guaranteed refunds go unclaimed each year!

This money represents a failure to meet a performance bond; it is supposed to be returned to the customer, as recompense for the shipping customer¹s inability to meet a delivery promise to its own customer. But how many of you have ever seen a carrier “volunteer” a credit on your shipping invoice for any late-delivered packages?

The only means by which shippers can actually confirm on-time deliveries is to track their packages; and despite first impressions, that is the last thing the carriers want you doing.

Worse, in practice, the carriers are imposing an expensive, time consuming, intricate claims gauntlet in order to secure an allowable refund. Try it sometime. It isn’t easy. The drill goes something like this:

1. You must supply full shipping information, not just the tracking number, but the consignee’s name and address; city, state and zip; date package was shipped out; and package weight.
2. Next, you must determine the actual promised delivery for the class of service you purchased, then match it against actual delivery. This takes a search of disjointed sources and the ability to interpret color-coded ground maps, the carrier¹s service guide or information accessed through the Internet. You supply the time and money and staffing for this not as easy as it sounds exercise.
3. Now, you present your claim through the carrier¹s 1-800 number, which typically takes from 5 to 15 minutes per package.
4. Sit back, relax, you’ve earned it. If the refund shows up on your next weekly invoice.

What can you do about this?

1. Track your packages and call manually for late deliveries.
2. Invest in computerized shipping software that can track your packages for on-time delivery.
3. Hire a third party to get refunds on your behalf (they typically charge half).
4. Re-negotiate your contract and ask for a better discount based on your percentage of service failures.

Shippers should hold small parcel carriers to their word, namely, their guarantees that: “your packages will arrive on time or your money back.”