TIME TO REVIEW YOUR 4TH-QUARTER SHIPPING
Now that Black Friday, Cyber Monday, the holidays, and fourth-quarter surge are over, you can take a deep sigh of relief that you got through it. Many companies see 40% of their annual revenues achieved in the fourth quarter — and experience all of the operational challenges that accompany these increases.
All aspects of a company’s operations are challenged, from warehousing, customer service, IT, and inventory. Shipping is perhaps the most impacted dealing with the volume surcharges.
Right now is the best time to review your fourth-quarter distribution costs and quantify the impact to your YOY shipping costs. The first thing you should look at is how your fourth-quarter expenditures and usage match up to the rest of your yearly carrier expenditures. Many times, carrier agreements and pricing are based on annual spend, not fourth-quarter spend. We have found that many shippers have different characteristics and costs during the fourth quarter.
As an example, shippers may be forced to utilize express services during Christmas to meet service requirements. Depending on when Christmas falls, the delivery cut-off for ground delivery changes. As a result, many shippers upgrade to two-day delivery while still offering free shipping. Here is an example of the increased costs for upgrading to two-day air:
That is more than a 100% increase from the standard ground charges. Note also the significant increases to all the accessorial charges. Not only should you ensure that you have the best Express incentives, but you may want to check that your accessorial discounts apply both for Ground and Express services.
Not only should you compare base rates and accessorial differences, but you may also need to compare dimensional rates. While most oversize shippers have some customized DIM factors for ground, the carriers commonly do not apply these factors to Express shipments. As most of you know, the tariff DIM factor has gone down from 194 to the current 139 over the last several years. For one shipper we spoke to, their billed weight went from 16 pounds for a ground shipment to 24 pounds for a two-day Air shipment. The average cost per shipment jumped from $12.23 to $42.98.
And Don’t Forget…
Another unique aspect to fourth-quarter shipping is that the carriers are now applying peak season surcharges. Especially targeted are shippers with large, oversize shipments as well as shipments requiring additional handling.
UPS is applying an additional peak season package charge of $0.27-$0.99 to all shipments as well as significant increases in additional handling and large packages.
While FedEx is not currently applying a package surcharge rate, they have also taken major increases in accessorial charges, adding $3.20 to additional handling and a whopping $27.50 to oversize charges.
One large FedEx shipper we recently spoke to noted that their additional handling fees jumped by more than 100% in December and increased their costs by more than $40,000.
What’s a Shipper to Do?
While peak surcharges are probably here to stay, we have seen several approaches to reduce or waive these surcharges. Knowing your volumes is key, as well as being able to forecast it well before the start of the fourth quarter. And, it is particularly helpful if you can demonstrate that your volumes are consistent thorough out the year and don’t necessarily spike in the fourth quarter.
Communicating with your local carrier operations people is also important. Sharing information like daily volumes helps the carriers control costs by providing the right number of trailers and controlling package flow through their terminals. Getting operational buy-in goes a long way when you request concessions from carrier sales representatives.
Another approach is to quantify all of the additional costs of the peak season surcharges. With this information, you might be able to go back to your carriers and ask for incremental discounts throughout the year for additional handling, oversize fees, and other accessorial fees. These savings could offset the higher fourth-quarter costs.
The lessons learned from your review can be applied to your year-long parcel expenditures. There is a lot of value to this review, especially when you communicate the results to your carriers. Here’s to a great and successful 2019!
Tim Sailor is the founder of Navigo Consulting Group which specializes in contract optimization, distribution analytics, and strategic sourcing. Since 1995, Navigo has reduced its clients’ shipping costs by 20-30%. Tim has been recognized as a Distinguished Logistics Professional by the American Society of Transportation and Logistics, Inc. and has contributed to the transportation industry for over 30 years. You can reach Tim at 562.621.0830 or Tim@NavigoInc.com.
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