White Paper Seven Practical Tips To Eliminating Hidden Shipping Costs Advanced Distribution Solutions, Inc. www.adsionline.com Tel. (877) 755 2374 Copyright Advanced Distribution Solutions, Inc. 1
Seven Tips to Eliminating Hidden Shipping Costs Many companies have significantly reduced their shipping costs by implementing a multi carrier shipping solution that allows them to compare carrier rates and automate document production. However, you can realize even greater savings by ensuring that your shipping system is configured to pre- empt many common issues that result in hidden freight costs. On the following pages, you ll find a number of practical improvements to generate a rapid return on investment (ROI). ROI Tip #1: Use Address Correction Software When is the last time you checked your freight bill to analyze up- charges related to incorrect shipping addresses? Address inaccuracies represent an area of hidden cost that doesn t get the attention it deserves. Left unattended, the dollars can quickly add up. One expert, Satish Jindel, founder and president of Pittsburgh- based SJ Consulting Group, estimates that parcel shipping errors add 5% to 7% to a shipper s annual freight bill. Given that companies collectively spend some $55 billion a year on domestic parcel services, those mistakes translate into serious money. 1 Costs related to incorrect delivery addresses can be huge and accumulate in several ways: Incorrect Delivery Addresses Say, for example, that a customer accidentally types in an incorrect street address for its ship- to address. Generally, the carrier will fix the issue with the delivery address but you ll pay for that service. We ve seen charges that range from $11.00 per package, up to $77.00 in charges for all packages in the incorrectly addressed shipment. Residential Deliveries Erroneously Classified as Commercial A common and costly error occurs when residential deliveries are erroneously classified as commercial deliveries. Again, the carrier may fix it, but at a cost of $2.50 per package. If your company pays for the freight and adds it to the customer invoice, you ve just lost the opportunity to pass the additional cost to the customer. Increased Customer Service Costs Besides carrier charges, you as the shipper bear additional internal labor costs every time your customer service and shipping department employees interrupt their daily routine to resolve address- related problems. Unhappy Customers and Cancelled Orders Delivery address problems also lead to frustrated customers, order cancellations, even the loss of a customer. An interruption or delay makes it too easy for that impulse shopper to decide that they don t really need the product after all. 1 Six Steps To Cutting Your Parcel Shipping Costs, http://www.shippingsidekick.com/news.wml?id=331 Copyright Advanced Distribution Solutions, Inc. 2
Solution: Address Verification Technology The easiest way to prevent additional charges and lost customers is to add address verification software to your supply chain system. It can be installed at multiple points in the workflow, on the ERP or order entry system or your multi carrier shipping software system. Numerous software tools are available to pre- empt this problem before the carrier arrives to pick up the shipment. A shipping system specialist can help you decipher your options and decide which tools best fit your needs. Considerations: Does your current shipping system allow you to designate shipments as residential or commercial? Does it validate addresses at the street level, city, zip code level? Does your shipping software detect multiple or near duplicate address matches? Does it allow the user to view and/or choose address details? What is the address validation source used by your shipping system? For example, ADSI s system is CASS Certified TM by the USPS. CASS supplies information verifying the submitted address is written correctly and falls within a USPS- approved address range. Does your multi carrier shipping software require Delivery Point Validation (DPV)? DPV enables you to verify that an address actually exists. The bottom line? This seemingly small problem adds up to huge costs for many companies. If you are absorbing extra shipping costs due to incorrect delivery addresses, address verification software can eliminate the problems. ROI Tip #2: Add the U.S. Postal Service to Your Multi Carrier Shipping System As many shippers are finding out, postal shipping via the U.S. Postal Service is an extremely cost- effective solution for small parcel delivery requirements. The U.S. Postal Service also offers a number of cost- cutting benefits for small parcel shippers: Flat- rate products to simplify shipping Priority Mail Flat Rate service is a simple, timesaving alternative for both domestic and international shipments. Designed for shipments up to 70 lbs., there s no weighing, no looking up zones and no calculating postage. Multiple box sizes are available to accommodate a wide range of products. No fuel surcharges With fuel costs still elevated, business shippers have a strong interest in this USPS advantage. The USPS does not add on fuel surcharges. Saturday and residential delivery at no extra charge Currently the USPS delivers packages on Saturday at no additional cost, giving you up to 52 extra surcharge- free delivery days a year. The USPS doesn t charge extra for residential delivery Compared to other carriers, who charge $2.50 or more per delivery, the savings can really add up. Largest delivery network in the U.S. The USPS has the largest delivery network in the U.S. and is the only carrier that delivers to PO Box and APO/FPO military addresses. Comprehensive delivery tracking The USPS has significantly enhanced its delivery tracking capabilities for postal shipping. Shipments are now scanned an average of 6 to 7 times to track package movement, providing a high level of visibility to the shipper and their customer. Copyright Advanced Distribution Solutions, Inc. 3
Solution: Add the USPS to your multicarrier system. Your shipping system vendor should be able to help you assess the cost savings you may achieve. The U.S. Postal Service also provides consulting services for shippers. ROI Tip #3: Make Sure Your DIM Weight Calculation is Accurate Have you audited your dimensional rating procedures lately? This is an area where seemingly minor calculation differences can amount to significant back charges from your carriers. Before we get into the areas of risk, following are a couple of tips to keep in mind: Dimensional (dim) weight, also known as cubic weight or volumetric weight, is a freight billing technique that is calculated by multiplying the (length x width x height) applied to a dimensional factor, which varies by carrier and other factors. This is a freight calculation used by a carrier to charge for a lightweight or low- density package (such as a boxed canister of gourmet popcorn weighing 1 pound) as if it had a greater weight (such as a 1- pound bag of unpopped corn). The two weigh the same, but one takes up much more room in the truck. The standard practice followed by carriers is to use the dim weight or the actual weight, whichever is larger, to calculate shipping charges. The typical calculation for dimensional weight is (L x W x H)/166. So for a 20 lb. package in a 24x24x24 box it may be rated as an 83 lb. package. (24x24x24 = 13,824)/166 = an 83 lb. dimensional weight. Dim weight calculation is commonly used by DHL, FedEx, UPS, the U.S. Postal Service and other carriers for domestic and international shipments. Many freight carriers and logistics service providers have implemented dimensioning systems to automatically measure package dim weights and calculate freight charges. Identifying Discrepancies Hidden costs come into play when the shipper s system calculates dim weight differently than the carrier s system. If the carrier s system yields a higher charge, the shipper will be back- charged by the carrier. Discrepancies can occur for a number of reasons, including the following: Actual carton measurement discrepancies One shipper found that the measurements they were using for their cartons differed from the carrier s measurements. Carton shape The volume used to calculate the dimensional weight may not be absolutely representative of the true volume of the package. The freight carrier will measure the longest dimension in each of the length, width and height and use these measurements to determine the package volume. If the package is a right- angled box, this will be equal true package volume. If the package is of any other shape, then the calculation of volume will be more than the true volume of the package. Copyright Advanced Distribution Solutions, Inc. 4
Data entry errors For example, let s say you have a shipment that weighs 20 lb., measuring 20 x 20 x 20. The dimensions are omitted when the shipment is processed and the resulting charge is calculated to be $20.00. However, when the box crosses the carrier s facility, its equipment picks up the dimensions, calculates the dimensional rate at $40.00. You will be billed back for the difference. Such errors can amount to thousands of dollars in back- charges in very short time. Packing processes For example, you pack a carton so full that it causes the size to bulge. Say you report a 20 lb. carton at 20 x 20 x 20 for a freight charge of $40.00. If the carton is bulging out to 22 x 22 x 22, the carrier s dimensional system will calculate freight at $45.00. A shipper of decorative home accessories encountered this problem. Many of their cartons were packed with towels, which forced the carton to bulge out, up and down. A 24 x 24 x 24 carton suddenly became 26 x 26 x 26. The carrier was charging back a recalculated dim weight. In this case, the company implemented a dimensioning and weighing system to eliminate the chargebacks. Following are some best practices to avoid these charges: Implement a dimensioning system A number of solutions are available to accommodate a wide range of operations. Eliminate data entry of dimensions You can also replace keying of box sizes with barcode scanning. One approach is to print a template of carton sizes that includes a corresponding barcode for each carton type. The shipping operator scans the barcode instead of keying in numbers and key errors are eliminated. Integrate box types into the order process Set up all of your box sizes as a series of codes that can be passed from the order system with each order when it is passed to your shipping system. If you re using an automated packing solution, the operator can scan a carton type as they are packing the order. Audit your inventory of carton types and sizes Make it a regular practice to verify all of your carton or box types and compare them with your carriers measurements of the same. This can prevent back charges from occurring on future shipments. ROI Tip #4: Eliminate Shipping Data Entry Errors Data entry errors can occur at a number of points during shipment processing incorrect account numbers, missing or incorrect customer reference numbers, bad shipping addresses, etc. It s easy to view such errors as isolated incidents, and yet, taken together, they can add up to significant hidden costs. Consider the following: Third Party Billing Errors When third party billing details are manually keyed in, an opportunity for error exists with every shipment. If the account number is entered incorrectly, the carrier charges the freight costs back to the shipper. Additionally, your odds of collecting those freight charges from the customer are slim at best. Remedy? Have the third party billing account information passed from the order entry system to the shipping system when the order is completed. Incorrect Delivery Addresses - When a carrier encounters an incorrect delivery address, they will fix the problem for a price. Many shippers are surprised to find out just how costly address correction can be. Depending on the carrier, the additional charges may range from $11.00 to Copyright Advanced Distribution Solutions, Inc. 5
$77.00 per shipment. Remedy? Pre- empt this hidden charge by adding address verification software to your order entry or your shipping system. Incorrect or Missing Customer Reference Numbers Companies who ship products to large retailers need to ensure that the customer reference numbers provided by the retailers are accurately entered in the correct field on the freight bill. This reference number is forwarded by the carrier to alert the retailer of an incoming delivery, a critical key to keep their inbound receiving operations flowing smoothly. Failure on the shipper s part to include this number so that it is automatically transmitted by the carrier can result in hefty fines. Remedy? Automate the capture of reference numbers so they are automatically included in the order- to- shipment process. Infrequent Invoice Analysis Another best practice is to regularly perform carrier invoice analysis to identify new delivery problems and resolve them before they amount to significant dollars. This is often too time- consuming to perform manually. Remedy? Consider adding invoice analysis services to track carrier performance. Web- based options are available that make it easy to capture historical shipping details and identify carrier refunds and other cost reduction opportunities. Identifying these gaps requires a little common sense and a good checklist to ensure that data entry gaps are being identified and closed. ROI Tip #5: Add Desktop Shipping for All Departments and Employees How Many Non- Warehouse Shipments Leave Your Offices Every Day? You d be surprised how many non- warehouse packages documents, product samples, marketing materials, etc. are shipped by other departments every day. Moreover, they re typically processed manually, without the benefit of carrier rate shopping. An organization- wide desktop shipping software solution will reduce manual errors and labor and prevent the unnecessary use of premium shipping services. One shipper, a large insurance company with 70,000 employees in 24 facilities, knew a large volume of office based packages was being manually shipped every day. Employees chose a carrier based on their own preference, filled out the paperwork by hand and sent it to the mailroom where it was keyed into a carrier- provided shipping system. Sound familiar? It should. They used a process no different than many other companies to get those non- warehouse shipments out the door. The company deployed desktop shipping so that any employee could ship from their own computer. They log in to the shipping system, enter their delivery details and compare carriers delivery times and rates. They then print a simple ship request form including a unique barcode, attach it to the package and send it to the mailroom, where it is scanned, processed and shipped. After 12 months with the new desktop shipping system, the results were staggering. With all non- warehouse shipments now being captured on the company s multi- carrier shipping system, they gained a true picture of shipping volume. They had shipped more than 1 million non- warehouse shipments! True, this is a large insurance company with a high volume of documents being shipped. But even if this number were divided by 100 and the total was 10,000 non- warehouse shipments what impact would that have on your freight bill? Copyright Advanced Distribution Solutions, Inc. 6
How Desktop Shipping Can Control Freight Costs By adding desktop shipping, you can reduce freight costs in several ways: Ensure that lowest possible freight rates are applied on all shipments. Drive better negotiations Identify shipping cost refunds on all shipments; it s much easier when you can automatically track carrier performance on your multicarrier system. Reduce costly surcharges that often result from errors on handwritten shipping, address corrections, etc. Eliminate manual labor related to package and label preparation. These are just a few of the ways that you can benefit by implementing an organization- wide desktop shipping solution. ROI Tip #6 Leverage Regional Carriers to Reduce Freight Costs Consider using regional carriers to handle some of your deliveries. This can be extremely cost- effective for companies with a concentration of customers in certain geographic areas. Regional carriers can be categorized in a number of ways. Some focus on small parcel delivery, while others offer less- than- truckload (LTL) services for heavier shipping. Certain regional carriers provide multi- state solutions, while others are couriers or micro- regionals that cover smaller geographic regions such as cities or partial state. 2 There are hundreds of regional carriers operating in the U.S., providing plenty of choice to find those who offer the right rates, services and technology. Regional carriers offer numerous benefits: Lower freight rates. As a result of lower operating costs, regionals can often pass along to customers savings of 10% to 40% over UPS and FedEx pricing. Most regional carriers transport packages via truck hubs instead of airlines. Trucking can be as little as 10% of airline costs. Fewer surcharges. Many regional carriers do not assess the same delivery surcharges that national carriers do, which can range from $1.85 to $3.00 per package based on rural zip codes. Faster delivery for a lower cost. For example, if you have a lot of customers in a specific major market such as New York, Chicago or Los Angeles, you can send these packages via an LTL carrier or an airline on a Thursday or Friday to the regional shipper, which will deliver them on Monday. Savings can be as much as 40% with any loss of delivery time, says Rob Shirley, president/founder of Austin, TX- based shipping solutions consultancy ExpresShip. 3 Negotiating power. Adding regional carriers places shippers in a better negotiating position with their national carriers. Responsive service. Regional carriers may be willing to take on special shipping requirements and have more flexibility in terms of the kinds of services they can offer. In fact, as a recent 2 Kent Szalla, Regional Parcel Carriers: A Historical Perspective, Parcel Industry, May/June 2012. 3 William Atkinson, Close to Home, Multichannel Merchant, December 1, 2006. Copyright Advanced Distribution Solutions, Inc. 7
Multichannel Merchant article noted, Getting the nationals to be flexible can be a frustrating experience even for multimillion dollar shippers. Merchants that make the switch to regionals often see a greater degree of customer service and accommodation. 4 Comparing and Choosing Regional Carriers It is important to make sure that your multi- carrier shipping system will accommodate the addition of regional carriers. Some vendors already include a wide range of regional carriers in their multi- carrier library. Perform a carrier cost/service analysis to determine if/where makes sense to add regionals to your delivery network. It s important to assess the carrier s financial stability, service territory, rate structure, etc. Your shipping solution vendor should have the expertise to help you with this analysis. ROI Tip #7: Update Your Document Printing Tools Over the years, shippers have worked hard to eliminate manual, handwritten documents and push their shipping software systems to do more of the work. But it s still common for many companies to manually create additional documents and labels beyond typical domestic shipping documents. Whether the documents are produced using a computer form or written out manually, these interruptions add up to significant labor costs and also slow down the shipping line. By stepping back and taking a bird s eye view of your shipping workflow, you can quickly see how many times your staff stops to produce a shipment document: Packing lists often require the staff to stop, print the packing list, fold and insert it into a pouch. International shipments are often created manually using a template or standalone software. Hazmat documents may come from yet another system, causing the shipping staff to stop and retrieve the right labels. USPS Customs documents US postal shipments are also often hand- produced. The Answer? Integrate Smart Document Printing Technology into the Workflow Today s multi- carrier shipping solutions, integrated with host order entry, WMS systems and smart printing technology, can eliminate most manual document preparation. For example: You can auto- generate a Zebra z- slip, an all in one packing slip solution. Add a fold- under combination pack/ship label, auto- generated by your shipping system. It s a great time saver. Replace US Postal Service Customs documents with a system- generated USPS CN22 form. Use your multi- carrier shipping system to generate Hazmat labels. Use your multi- carrier shipping system to generate export shipping documents. Your multi- carrier shipping solution provider can help you assess the best way to automate these document generation tasks. 4 Rob Martinez, A Look at Regional Parcel Carriers, Multichannel Merchant, April 1, 2011. Copyright Advanced Distribution Solutions, Inc. 8
Do the Labor Savings Add Up? YES! Following are just of few examples of the benefits our clients have gained by automating more of their documents: A medical equipment company reduced export document preparation time by 80% and freed up their international staff to focus on other important tasks. A computer products company eliminated manual documentation related to USPS shipping and saved 1,000 man- hours in the first six months of the new process. Another shipper freed up the equivalent of one full- time FTE in warehouse operations after automating packing list/shipping list printing. Other Cost-Saving Benefits Reduction of shipping errors by eliminating keying errors. Detailed shipment tracking, made even more accurate by adding barcode scanning to automatically capture product line items as they are packed and shipped. Faster shipment processing to accommodate growing shipping volumes. Summary As the preceding pages illustrate, you can find tremendous opportunities to reduce shipping costs. Of course, you achieve the greatest benefit by 1) ensuring that all of the data that goes into your shipping process is accurately maintained and 2) you have optimized your carrier portfolio to include the most cost- effective rates/service to accommodate your customers. Another best practice is to eliminate manual shipment processing throughout your organization by implementing a desktop multi carrier- shipping solution. You can also realize significant savings by identifying hidden areas of manual document preparation. The bottom line? Today s leading multi carrier solutions are designed to manage a wider range of shipping scenarios. About Advanced Distribution Solutions, Inc. Advanced Distribution Solutions, Inc. (ADSI) is an industry-leading provider of flexible logistics management solutions for manufacturers, distributors, corporate campuses, online retailers, third party logistics providers (3PLs) and others. ADSI s solutions include Ship-IT, a multicarrier transportation management solution for domestic and export shipping, and desktop shipping software or SaaS shipping software solutions, optional configurable modules for order picking & packing, delivery tracking software and more. We offer consulting services to help our clients integrate their shipping software with a wide range of host systems. ADSI s solutions are integrated to Oracle, SAP, JD Edwards, PeopleSoft, MS Great Plains, MS Dynamics, MS Navision, MoveX, MAS, SAGE X3, RedPrairie, BPICS and more. We also integrate our systems with mobile computing devices, barcode scanners and barcode printers. Founded in 1997, ADSI s customers include 1750+ installed sites located in the U.S., Canada and internationally. The company has established a reputation for responsive customer service, flexible support and a long-term commitment to helping clients address a wide range of shipping challenges. Copyright Advanced Distribution Solutions, Inc. 9