It “Fees” Like I’m Getting Screwed!

July 31, 2010

By Guest Blogger, Jim LeRose, http://www.agilenycmetro.com/

I did my due diligence by checking flights at Kayak.com. Then I booked with the least costly airline to Ft. Lauderdale, which also happened to be my preferred carrier, and at that time I thought I had paid for my flights in full. Little did I know…when I checked in months later, I would get hit with $212 in fees for the first checked bag per-passenger. That amount represented 15.4% of my total travel expense! It “fees” like I’m getting screwed!

Wall Street investors and airline executives are laughing all the way to the bank and at you while they snatch a lot more of your money then you expect. CNN reported the airlines are getting billions from these new fees and now the US government is being asked to step in.

I say, what’s the difference between what the airlines are doing vs. what UPS/FedEx are doing to their customers? Answer – not a thing. “Fees” like you’re getting screwed too? You don’t have to take it.

Here’s an example; Last week I met with one of my best customers who discovered from an audit report that I prepared, his company is paying around $2,000 per month just for address correction fees with UPS. This is a fee that penalizes a shipper for not providing the correct information on their shipping labels. Many of these fees were incorrect addresses for shipments sent to the same customers repeatedly while others are for incorrectly spelled street names. This prompted further investigation and more analytics. He quickly realized his undisclosed fees for items such as; dimensional, oversize, delivery surcharges, residential, Saturday delivery etc. totaled 13.7% of a 3m total transportation spend. That means they we’re paying $411,000 extra to the carrier without knowing. Within months we cut this number in half and saved over $200,000 per year in unrecoverable fees. This is not an isolated incident. What’s puzzling is why so many companies either don’t care enough to do anything about it or simply think there’s nothing they can do.

What can be done about big businesses tricking their customers into paying more?

When it comes to flying, from now on I recommend you travel wearing one layer of clothing for each day you will be away, i.e. seven layers of clothing for a one-week trip, and avoid checking bags. Simply remove one layer each day. I admit this solution may be a bit flawed, as it may be slightly difficult to move about the cabin, it can only be used during extremely cold winter travel but it may help the goal of reducing fees.

As you can probably tell I may not know much about reducing fees for air travel but when it comes to UPS/FedEx, there’s plenty I know and a lot you can do!

Here are five simple suggestions to lower or eliminate carrier fees…

  1. Get a reputable auditing company auditing your UPS/FedEx invoices immediately! You will get reports every month. Analyze the monthly reports so you can identify the overcharges. Overall my customers report the value of the information in these reports far exceeds the money saved from the actual refunds the auditors get for your company. You have to realize you have a problem before you can fix it and there’s no better way to identify the areas of overpayment then by using a 3rd party auditor.
  2. Get new shipping technology (Transportation Management System – TMS) deployed at your company that will disclose these fees prior to shipping and help you save money in other areas. The free stuff such as: UPS Worldship / CampusShip / FedEx Ship Manager etc. aren’t designed to help you spend less – that’s why they are free. Today’s TMS systems can save 15% or more on your annual UPS/FedEx spend.
  3. Get started using the USPS for residential shipments and/or low weight items. Their service has vastly improved and you may not know this but FedEx airlifts freight for Priority service.
  4. Get an accurate shipping cost exposed in your shopping cart. You must be able to expose the final cost of shipping in the cart so you don’t get whacked with unrecoverable charges later.
  5. Get a professional to help you negotiate lower fees or have them completely removed from your contract. Beware carriers have just announced they will NOT cooperate with the 3rd party negotiator of your choice so you will have to work with one behind the scenes.

Check out these links to see the current list of fees charges by your carrier:

I hope this information helps you Ship Better and Save Money.

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What is a DIM Factor?

July 5, 2010

Every shipping department and mailroom needs a measuring tape and a scale. The reason is that in order to calculate the correct postage or shipping charges, you have to know the DIM factor.

A DIM Factor is an acronym for Dimensional Weight Factor. It is a mathematical factor for calculating the dimensional weight of a package. UPS, FedEx, DHL, the US Post Office, and some regional carriers use dimensions as a factor in determining the cost to send a package. For example, the USPS has a DIM factor of 1 cubic foot or 12″ x 12″ x 12″. If a package exceeds a cubic foot in volume, instead of the weight of the package, they use the volume of the package to rate it.

Here are the steps for a 12 ” x 12″ x 13″ package:

  1. Multiply 12 x 12 x 13 = 1,872.
  2. Next, divide the total by 194. 1,872/194=9.65.
  3. Round up the result to the next whole number to get the dimensional weight of the package. 9.65 = 10 pounds.
  4. If the dimension exceeds the actual weight, you would use this number to calculate the shipping charges. So, in this case, even if you had a 5 pound box, (which is what happened to me) you will be charged for a 10 pound box.

For more information on how USPS calculates dimensional rate, click http://www.usps.com/prices/USPS_prices_dw_pop.html

For UPS, click http://www.ups.com/content/us/en/resources/prepare/dim_weight.html#How+To+Measure+the+Cubic+Size+of+Your+Package

For the FedEx dimensional weight calculator, click http://fedex.com/be/tools/dimweight.html

For the DHL dimensional weight calculator, click http://www.dhl-usa.com/IntlSvcs/dimweight/dimweight.asp?nav=Inttools/DimWeiCal

The USPS has a different factor than UPS and FedEx for domestic packages. You should compare rates between carriers based on package dimensions. For USPS, if the result exceeds 1,728 inches, you must use the dimensional weight. For UPS and FedEx, if the result exceeds 5,184 inches, you pay the dimensional weight.

Domestic is different than International. Here are the current factors:

  • Domestic you divide by 194
  • International you divide by 166

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

May 16, 2010

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!


Shipping Myth: More Money Does Not Necessarily Mean Faster Service

April 30, 2010

Many of us grew up with the expression, “You get what you pay for.” This was meant to be a lesson to not be cheap. If you buy inexpensive junk, you couldn’t expect it to last long or perform as well. While this may be true in some areas, it certainly is NOT true when it comes to shipping. I can’t tell you the amount of waste that I have seen from shippers, who pay more, sometimes 10 times more, with the false belief that it will get there faster!

I have a peculiar hobby. I love to look at invoices and ask provocative questions. I was reviewing a FedEx invoice of a client the other day and saw the following:

  • A FedEx 3Day Freight shipment from San Francisco to Los Angeles for $745. I asked the logistics manager why he chose FedEx 3Day Freight for this shipment as was told, “We had to get it there in three days and did not want to take any chances. This customer would have been very angry if the shipment was late.” I checked and found that there were several Less Than Truckload (LTL) carriers that would have delivered the same shipment for $125 with a one day guarantee. He paid 6 times more because he thought that by paying more would be faster service.
  • I was in another client’s office and watched this Corporate Headquarters mailroom processing UPS 2nd Air packages. There were 100 packages in a pile on the floor, all being sent UPS 2nd Day Air and I asked why these packages being sent this way. The answer was that they received a corporate discount on UPS 2nd Day Air of 50% and that they wanted to be sure that all their sales people received this package by the weekend. Just for fun (and with permission from my client), I went through the stack and found 40 packages that were being sent in the tri-state area (NY, NJ, CT). All 40 packages could have been shipped ground and were guaranteed to be there by the end of the next day. (They were shipping on Wednesday and they were guaranteed to be there by 5:00PM on Thursday). The cost for ground was $8.00 per package. Their cost for UPS 2nd Day Air with their 50%, $11 with a guaranteed delivery of Friday—one day longer. So they paid 30% more and wasted over $320 with the false belief that because it was air, it would be faster.

The bottom line is that more money in shipping does not necessarily mean faster service! What can you do about it? Compare prices and delivery. Don’t assume.


The Top Complaint About UPS and FedEx

April 24, 2010

What do you hate about your parcel carrier? The number one complaint about UPS and FedEx was accessorial charges. (Morgan Stanley Parcel Annual Best Practices 2009 Survey)

Accessorial charges are better known as surcharges, additional charges, ancillary fees, or adjustments. There are more than 90 of these add-on charges! Here is a link to the UPS 2010 Surcharge and Accessorial Price Increases.

The survey also found that in 2009, 11.5% of the overall transportation costs were for accessorial charges. What are these charges? Here are the top ten:

  1. Fuel Surcharges
  2. Address corrections
  3. Residential delivery
  4. Delivery Area Surcharges
  5. Rural Area Surcharges
  6. Dimensional charges
  7. Saturday delivery
  8. Declared value (insurance)
  9. Additional Handling
  10. Large Package

The big reason why businesses hate these charges is that most of these additional charges are not included in the published price and are added to your bill after you have shipped the package, making it difficult if not impossible to recoup from your customers. If you are processing your packages using technology, you have to correctly maintain your technology and enter all the data fields. As you may recall from my last blog entry, How Are You Losing Money in Shipping?, one of the reasons a client was losing over $100,000 a year in shipping because the person processing the packages was not entering the dimensions of the packages in the carrier’s shipping system.

How can this happen you wonder?

In this particular case, the problem was that my client had outsourced her shipping to a third party logistics company. I called them to find out why they were not entering the dimensions and was told that they didn’t do it because dimensional rating was only for air shipments, not ground. They are wrong! This was a company that bragged about their expertise in shipping packages that had been doing this for 30 years and they did not know that UPS and FedEx charge based on the dimensions of the package for ground shipments as well as air! Here is the link to how to compute a dimensional weight, A Quick & Easy Way to Calculate Dimensional Weight and also here is a link, Parcel Shipping Ain’t Easy, to a very funny video about it. My client was depending on an expert and the expert didn’t know that they didn’t know!


How Are You Losing Money in Shipping?

April 10, 2010

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…


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

March 30, 2010

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.