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About the Author

Cliff Holste is Supply Chain Digest's Material Handling Editor. With more than 30 years experience in designing and implementing material handling and order picking systems in distribution, Holste has worked with dozens of large and smaller companies to improve distribution performance.

Logistics News

By Cliff Holste

February 11, 2015



Logistics News: Factors Driving Small Parcel Shipping Volume

Shoppers have more Buying Options - Companies need more Shipping Options


Holste Says:

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A prevalent strategy is for shippers to form strong relationships with carriers in an effort to mitigate the effects of a volatile, highly competitive globalizing market.
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Previous Columns by Cliff Holste

Logistics News : Shippers Take Advantage of Donating Excess Inventory to Non-Profit Organizations

Logistics News : Will DC Automation Drive Some Shippers to 3PL Service Providers?

Logistics News : Can a Custom Built DC Cost Less Than A General Purpose Building?

Logistics News : E-Commerce Verses Conventional Order Fulfillment

Logistics News : When Is The "Best" Time To Upgrade DC Operations?

More

 

One of the main drivers of small parcel volume is ecommerce. However, in spite of all the attention it receives, ecommerce is still only about 6% of overall U.S. retail sales - a relatively small slice. According to the latest available data, 2014 ecommerce sales worldwide increased nearly 20% over 2013 to about $1.471 trillion. Industry analysts predict that as internet usage continues to mature across the world, ecommerce growth will slow over time, settling around 10% by the end of 2018. However, with sales reaching an estimated $2.356 trillion in 2018, a 10% growth rate still represents more than $200 billion new dollars that year.


It is clear that the rapid ascent of ecommerce has impacted today’s global supply chains and logistics environment in more dynamic and challenging ways than ever before. Next
day and even same day delivery is fast becoming a factor. U.S. companies use all sorts of methods to manage parcel shipment strategies and execution.

Some dedicate all, or nearly all, of their business with one regional carrier. Others use multiple carriers, with dedicated systems provided by each carrier. Still others are looking at greater use of global parcel carriers.

A prevalent strategy is for shippers to form strong relationships with carriers in an effort to mitigate the effects of a volatile, highly competitive globalizing market. These relationships are often seen to take precedence over the all-important factor of cost containment. It’s understandable that in an unstable market companies need to feel comfortable that a carrier will be there with the capacity needed to support rapidly growing volumes.

In that regard, it’s interesting to note that (as was recently reported in SCDigest's Weekly eCommerce and eFulfillment Bulletin) UPS will raise shipping rates for the 2015 peak season. Justifying this increase UPS pointer to the very high costs from investment in people, trucks, aircraft and software to avoid a repeat in 2014 of the 2013 delivery snafu, in which millions of packages did not make it under the tree by Christmas day as promised, in the face of a huge surge in volumes.

 

Moving to a Multi-Carrier Approach

Shippers want to know how they can determine if they are at or near a “tipping point” at which the move to one of several independent, multi-carrier, enterprise class, parcel management systems might be a smart bet. After doing some digging, we were able to assemble the following list of (10) indicators which could assist in this analysis:

1. Moderate or greater levels of parcel shipments: Clearly, any company doing a moderate level or greater of parcel shipments has an opportunity to reduce costs and achieve solid return on investment from a multi-carrier approach.

At what level of shipments does this opportunity really start to make sense? It will vary somewhat based on specifics of a company’s shipment profile, but as a rule of thumb, average daily volumes above 150-200 packages per day generally provide solid opportunity. Companies who are much above those levels can drive substantial savings.

2. Multiple parcel shipping points domestically and internationally: The greater the total number of shipping points, the more a company tends to benefit from process standardization and leverage of a unified technology platform to drive shipping decisions, provide track and trace capabilities across the enterprise, and use shipping data to improve carrier negotiations and improve shipping strategies.

3. Complex product mix including varying sizes, weights, dimensions, hazardous, regulated items: The more complex a company’s SKU base is in terms of attributes like those listed above, the more challenging it is to find the optimal carrier and service, including accessories, across a large number of shipments. Stated frankly, shippers that do not use intelligent multi-carrier systems risking paying significantly higher rates for many of these non-standard shipping units.

4. Rapidly growing ecommerce business: The vast majority of web-based orders will be shipped parcel. Sometimes, companies think it is simpler to use a single parcel carrier in the grand scope of getting ecommerce strategies off the ground. Or, the ecommerce efforts start slowly, where a single carrier strategy makes sense, and that approach just continues through inertia even as volumes scale.

The reality is that the profitability of an ecommerce channel can be dramatically impacted by the overall shipping costs. In addition, shipping policies can be used as a competitive weapon, and dynamically changed depending on seasonal, promotional and other factors. What’s clear, however, is that having the lowest possible shipping costs gives a company the greatest flexibility to use aggressive shipping strategies with the minimal impact to profitability.

5. Growing export business: Increasing levels of global trade generally and, more recently, the anticipated falling value of the US dollar, have led a surge in export volumes from the US to the rest of the globe. Whatever cost and logistics complexity are faced by domestic parcel shippers, those factors are increased several fold for international shipments.

There are certainly plenty of economists out there who will tell you that the dollar is headed for a fall. If the rest of the world stops buying our IOUs, the Treasury Department would have to keep raising interest rates until it could find buyers. That could, in theory, throw the U.S. economy into tailspin.

But for all its vulnerability, the U.S. dollar is still the most powerful currency in the world. And one big reason is that the U.S. economy is still the most resilient in the world – clawing its way back from 2008.

6. Fragmented parcel processes and automation through multiple departmental solutions: This scenario holds true for a large number of companies today – parcel shipping is managed in multiple places, from the mail room to the distribution center to the plant and more. Often, a wide array of technology support and systems is involved, from almost zero automation to the carrier-provided systems and often a hodge-podge of other local solutions.

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. Industry experts agree that savings in the hundreds of thousands or even millions of dollars per year are not uncommon for large companies.

7. Plans for a new ERP or Warehouse Management System: While many companies understand the benefits of multi-carrier shipping strategies and enabling technology, sometimes the timing never seems quite right to make an operational change.

Clearly, the implementation of a new Enterprise Resource Planning (ERP) system, which generally includes order management functionality, or a new Warehouse Management System (WMS) can provide the perfect opportunity to also upgrade parcel shipping strategies and support. But keep in mind, it is usually up to the shipper to drive this strategy – the ERP or WMS provider is unlikely to push the analysis itself.

8. Plans for distribution automation: Similar to number 7, the potential for automating the parcel processing process can also provide the right tipping point for looking at multi-carrier solutions – and indeed may require advanced processing capabilities to meet desired throughput levels.

With growing parcel shipping volumes, many companies are finding downstream packing stations to be a bottleneck in fulfillment operations. Automation is one answer, in which an identifying bar code (and maybe soon an RFID tag) is read on a high-speed conveyor line. That triggers a look-up of the order, and a carrier and service decision for that package is made dynamically. After the optimal decision is made, the data is sent to an automatic print-and-apply machine on the conveyor, which prints the correct carrier-compliant label and applies it automatically to the parcel.

9. Little or no “parcel planning”: Many companies treat parcel shipping as an execution activity only, missing significant savings from doing a better job of looking at orders earlier in the process and optimizing packing and shipment strategies.

With dimensional weight pricing, you will be paying more to ship products. Companies using oversized boxes for their shipments are going to see the biggest increases. Using an oversized box has always been seen as inefficient or worse, but now it is going to cost more in real dollars, right up front. Simply passing the dimensional weight increase on to your customer is going to be seen for what it is: A Price increase.

For example, there may be opportunities to “bundle” different packages going to the same destination. There can also be opportunities to evaluate trade-offs between LTL and parcel shipping. And companies with large parcel volumes can also often benefit from “zone skipping” strategies, in which full truckloads of parcel are shipped say to California, and the total cost of the TL freight, plus now lower parcel costs, offers significant savings.

Technology is required to enable this enhanced level of parcel planning, and the savings available from improved planning alone often can cost justify a new solution.

10. Significant vendor inbound or drop shipments: Many shippers fail to leverage the volumes they are generating from supplier inbound shipments or the increasing trend towards using supplier drop shipments for customer orders. However, that leverage can only be achieved if the shipper also controls the final shipping decision, providing vendors for inbound or customer shipments with the routing instructions (carrier and service) as appropriate for the order details and internal or customer shipping requirements.

 

Final Thoughts

Many companies, of course, will recognize themselves as having one or, more likely, many of these indicators, making them good candidates to access whether a move to multi-carrier strategies and supporting technology makes good business and financial sense.

 

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