Develop Better Shipping Plans

The following is a checklist to help you develop cost-effective and customer service-oriented shipping plans.

The direct-to-consumer in-dustry finds itself at a crossroads in terms of shipping and handling (S&H) policies and charges. Specifically, some studies show consumers are refusing to place orders if the S&H charges are perceived to be out of line with those charged by competitors.

But S&H is a necessity for most catalogers. It often represents 8 percent to 10 percent of a catalog’s average order and net sales, and it offsets some of the pick-and-pack labor, outbound freight charges, and packing materials needed to ship consumers their orders. Indeed, for most catalogers S&H is one of the top five business expenses.

In recent years, expedited carriers such as UPS and FedEx increased their rates 3.5 percent annually. But catalogers’ actual charges may be more, because residential surcharges, rural delivery and other accessorial (or add-on) charges increased more than 3.5 percent. What’s more, the last U.S. Postal Service Priority Mail increase took away a low-cost way to ship packages less than 3 pounds.

The fallout from the S&H issue has been formidable. Some class-action lawsuits have been filed against merchants regarding their S&H charges. And earlier this year, The Direct Marketing Association circulated for industry response a proposed policy that called excessive S&H charges unethical.

What should you do about S&H charges for your catalog’s customers? How can you decrease your costs and increase the service you offer? Given the seriousness of these issues, it’s imperative that you make a cost-effective, customer service-oriented shipping strategy a high priority. Following is a checklist that can help.

Get Organized

1. Establish your S&H project team. Shipping strategies should not be the domain of just your fulfillment personnel. Set up a team with employees from marketing, customer service and sales. While only one person should lead the negotiations, require team members to collect the ideas and requirements of your entire organization.

Know your business model’s shipping characteristics. Develop a profile of your outbound shipping. Include in it the following:
- marketing orders;
- shipped orders;
- packages shipped;
- back-order rates;
- ship alones;
- historical orders;
- package-shipped volumes by month with seasonal data;
- level of service used (e.g., next-day, two-day, ground) and why;
- zone distribution;
- weight distribution; and
- number of business, residential, rural and urban deliveries.

2. Once you’ve identified your catalog’s usual shipping characteristics, determine your growth projections by year for three years and any changes in merchandise mix anticipated. Dig out the facts — many times assumptions are made that, over time, prove flawed and change the actual (vs. budgeted) costs.

Your carriers will have their own data-collection forms, and the above data sets are what they’ll use to develop a pricing proposal for you. By analyzing these data, you also may determine opportunities for improvement. For example, catalogers are putting more emphasis on forecasting, inventory management and initial order fill rate to better serve customers and reduce back-order costs.

3. Determine customer presentation and packing requirements. Does the shipping method you use impact your image in your customer’s mind (e.g., FedEx vs. a mailbox delivery)? Is one carrier more liberal with free packing materials than another? Does your carrier offer options that can decrease product breakage and thus ensure that customers’ orders arrive in good condition?

4. Determine your delivery-service requirements. In most instances, it’s important to have the package in office or home within seven days (unless, of course, the customer requested an even more expedited plan). However, with the recent increases in shipping rates and other services, be sure you’re not over-servicing for the customer’s expectations. After all, the most important thing is to deliver on what you promise in terms of delivery dates. Are there other expectations that can be adjusted without damaging the relationship or losing the sale? Are you open to switching to alternate vendors and shipping methods?

5. Fulfill orders closer to your customers. If you expect to expand fulfillment capabilities, decide if multiple centers or a move to your customer’s demographic center will reduce delivery zones, times and costs. Can you locate a new distribution center at a hub that allows a later cut-off on order-processing times, enabling you to ship more same-day orders? This strategy can help boost your return on investment for your fulfillment center.

Know Your Carriers and Their Pricing Structures

1. Understand the value and importance of your business to your carriers. Many catalogs are in less densely populated areas and often represent major volume for the shippers servicing that region. Will your business qualify as a national or key account? What are the local market conditions and competition for volume?

2. Understand carriers’ pricing and negotiating tactics. Try to do as much of an apples-to-apples comparison as possible. For example, undeliverable packages are returned free of charge by UPS, while FedEx charges a three-day rate for air returns. Does one carrier discount residential deliveries? Rural surcharges vary by carriers but are assessed even in high-population urban centers (i.e., high-crime areas). FedEx separates pickups by service level for residential, commercial and air/international.

In short, it’s critical to your bottom line to learn how carriers charge and what’s discountable and negotiable.

3. Know where the hidden costs lie. Hundred-weight service, oversized/dimensional packages, residential and rural surcharges, master packing or shipment pricing options, declared-value coverage, carrier-guarantee waivers, service-failure refunds, address corrections, minimum per-package charges — a carrier’s proposal may list the pricing for all of these charges. But your analysis may understate such charges if you don’t take a comprehensive look at your past freight bills.

4. Get current carriers’ management reports. Carriers typically don’t offer these unless you ask for them, but in them you’ll find a treasure trove of information about your account. These reports generally show year-to-date package volume and billings (revenue) by month this year and last year.

5. Get the credit you’re due. It’s getting harder to collect on errors from carriers. So set up a program to audit freight bills and service-failure refunds. Carriers may negotiate out your ability to audit their bills electronically by limiting the size of batches or reducing discounts. But you can hire specialists who will work on a gain-share basis to help you achieve some savings.

6. Determine where various methods and plans fit into your strategy. Small-package carriers, LTL, truck load, air freight, consolidators and USPS: Where do they fit into your strategy? Can you leverage inbound and outbound strategies with the carriers?

7. Integrate electronically with your carriers. Today, carriers expect you to interface electronically to their systems. If you don’t, it can get expensive in terms of errors, delays and carrier costs.

8. Implement one of the online tools currently available. These include shipping-cost calculators, package-tracking systems, online reporting of shipping activity and carrier management, system alerts of weather delays, and much more. These programs allow your customers to track their packages via your Web site, thus reducing calls to your customer service department.

Select the Carrier

1. Request proposals. With your project team, determine order, shipped and return package volume growth projections by year for three years, and your shipping characteristics. Should the proposal address inbound and outbound freight? What service-level plans do you need? Give carriers a specific format for the request for proposal (RFP). For example, request the payment terms, response date and sample agreement. From your existing carrier you probably can get an impact statement of how its proposed rates will increase your costs, because it will have the detailed shipping characteristics for your company.

2. Select the carrier. Design a decision matrix to get a comparison of vendors’ RFP responses. Caution: Carriers won’t answer the questions in an orderly way that will allow easy comparison from a pricing perspective. Generally they’ll give you a price list. You’ll have to develop a pro-forma cost by year, including all hidden and accessorial costs for the expected contract life.

3. Consider using a transportation consultant. An expert can assist in the negotiations of carrier rates, service and freight bill audits. They know the recent competitive and market developments; can determine the net effective rates based on actual shipping characteristics; know what’s discountable; can analyze the rates and impacts of accessorial charges; and know how to read and interpret carrier management reports. With all of these data, they can model carrier proposals versus your unique shipping characteristics. Because they’re paid from your savings, the up-front cost studies and negotiations don’t come out of your pocket.

Curt Barry is president of consultancy F. Curtis Barry & Co., which develops fulfillment and shipping strategies for multichannel companies. Contact him at (804) 740-8743, or e-mail: cbarry@fcbco.com.