transportation impact parcel newsletter

www.transportationimpact.com


Q Review

North Carolina Governor Pat

McCrory recently named

Transportation Impact the

state’s “Outstanding Employ-

er,” awarding the Emerald

Isle-based parcel spend man-

agement firm the 2014 Governor’s Award

for Excellence in Workforce Development.

Founded in 2008, the company offers par-

cel audit and carrier contract negotiation

solutions to companies with a minimum

net spend of $200,000 on FedEx and/or

UPS parcel shipping services. Transporta-

tion Impact ranked on the Inc. 5000 list of

America’s fastest-growing private compa-

nies in 2013 and 2014.

For more information:visit www.transportationimpact.com

employerOUTSTANDING

NC2014 Governor’s Award

[2] /// QREVIEW · July-September, 2014 · NO.1/Q3 /// www.transportationimpact.com

An International ImpactFrom humble beginnings in Keith Byrd’s surf shop in Emerald Isle, North Carolina, Byrd and his partner Travis Burt founded Transportation Impact, a parcel auditing and carrier contract negotiation firm.

4-5

Partner SpotlightDigitalShipper offers a diverse product line of solutions to help compa-nies manage their small package shipments and/or LTL carriers from any location in the US.

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Contents

Recently, Transportation Impact, in conjunction with the NCEast Alliance, had the exciting opportunity to be featured in the “Industry Spotlight” section of US Airways magazine, which appeared on pages 138 and 139 of the June 2014 issue.

The NCEast Alliance is the lead economic develop-ment organization serving eastern North Carolina. The Alliance is a private, not-for-profit economic development agency serving more than one million residents within several small metropolitan and micropolitan areas from the fringe of the Research Triangle to the Atlantic Coast.

The Alliance is working hard to help grow our state and regional economies through site building and research, as well as workforce development.

Where we come from is important to us. Of course, where we have gone is, too, which is why I want to share this article (p. 4) with you. I hope it serves to illustrate that your partnership is invaluable, not only to our organization, but to our local economy as a whole.

We take great pride in being located along the North Carolina coast and want to take this opportunity to thank you, and to let you know that your partnership is much bigger than business.

At Transportation Impact, we strive to make a positive impact on the lives of those that have helped get us where we are today. We sincerely hope that we have done that for those in our community; and we sincerely hope that we have done that for you.

Thank you for believing in Transportation Impact, and we look forward to growing our great partnership along the road ahead.

Keith ByrdCo-Founder, Principal PartnerTransportation Impact

WelcomeThe trust you have placed in us has allowed our company to serve as a reminder to our state and our region that we are all in this together.

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10-13

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Q Review Focus

When it comes to reducing your transportation spend, a third party is sometimes a necessary component.

Dimensional Doomsday

Parcel shippers scramble to prepare for DIM weight rules.

IN THE NEWS: USPS

Could shifting volume to the Post Office be a viable option?

QREVIEW is a quarterly newsletter published by Transportation Impact.

All content in this publication is under international copyright laws. No

part of the content can be reproduced in any form without the prior

written permission of Transportation Impact.ANALYZESTRATEGIZEREALIZE /// [3]

Featured in US Airways MagazineJune 2014


ANALYZESTRATEGIZEREALIZE /// [5]

DigitalShipper

STREAMLINE The world, and everything in

it, moves pretty fast these days. We want

our news instantly, our food fast and our

Mondays to be over with as quickly as

possible. As such, nearly every facet of

today’s business landscape, specifically the

ever-evolving supply chain space, requires

companies to keep up or get out of the way.

People pay a premium for prioritization,

optimization and innovation; and with so

much focus on the fastest route to the

bottom line, time-tested traditions like

partnership and value commonly become a

casualty of the past.

By installing DigitalShipper’s software on a server be-hind the firewall, a company can provide rate shopping, pre-shipment rating and price quote visibility throughout all levels of the organization.

Partner Spotlight


www.digitalshipper.com

DigitalShipper

Fortunately for ship-pers in every industry, however, DigitalShipper, a national sales and ser-vice leader of multi-car-rier, enterprise-wide

shipping execution solutions and supply chain industry veteran, re-mains solely focused on both, just as it has been for almost 25 years.

Since 1991, the company has been helping businesses of all sizes au-tomate and improve the efficiency of their shipping and distribution operations through the provision of complete, integrated and auto-mated shipping solutions which streamline and drive excess costs out of companies’ small parcel and LTL/FTL shipping operations.

How does it work?

Actually, very easily.

By installing DigitalShipper’s software behind its firewall, a com-pany can provide rate shopping,

pre-rating and price quote visibility throughout all levels of the orga-nization with the flip of a switch. The software is designed to help streamline the shipping process, from start to finish, by automat-ing as many manual processes as possible. Simply put, it enables any user within an organization to identify the best carrier and the best price.

Additional enhancements in-clude the implementation of the software’s automation rules, set depending on a shipper’s specific needs, which rate international, hazardous and LTL shipments – common pain points for most shippers – in seconds.

DigitalShipper’s software is built on the most current .net technolo-gy, and web services are included in the one-time cost of the soft-ware. Customers have full access to DigitialShipper’s API – the same API the company uses to perform its freight calculations – enabling users to rate packages in real time

from places like their websites, giving end customers shipping options and actual costs. That func-tionality is especially beneficial in a world of e-commerce, where companies have to compete to cov-er shipping costs in the face of free and discounted shipping offers from countless competitors.

In an age that demands companies keep up with the pace, DigitalShip-per’s portfolio of shipping execu-tion software enables shippers to keep up with the times without sacrificing the traditional corner-stones of value and partnership.

For more information about

the ways in which DigitalShip-

per can reduce your compa-

ny’s costs, contact Jim Roma,

Business Development, at

(651) 348-4080 or via email at

[email protected].


unless you’re among the most avid of sports fans, you’ve probably never heard of David Falk. Listed among the “100 Most Powerful People in

Sports” for 12 straight years from 1990 to 2001 by The Sporting News, Falk is best known for his representation of Michael Jordan throughout Jordan’s entire career. Jordan’s fame and fortune are well documented, but depending on who you ask, you’re likely to get very different stories about his agent.

Players loved Falk because he could negotiate deals that owners and companies seeking endorsements said couldn’t be

done. Those owners and compa-nies? Well, I’m sure they would portray him in a different light. Sound familiar?

In the current climate of ever-in-creasing parcel costs, it’s as im-portant as ever to obtain savings for your company by any means necessary. Increases in acces-sorial charges, pricing and fuel surcharges typically represent companies’ biggest concerns, forcing them to get outside the box and proactively find solu-tions to combat rising costs.Let’s face it, you know your busi-ness, and the carriers know their business. The difference is that the carriers probably know a lot more about your side than you

know about theirs. Why? Because they have thousands of custom-ers like you that depend on them for their shipping needs. That’s a very large data pool.

Rate increasesSo when UPS and FedEx custom-arily announce similar rate in-creases each year, it’s important to understand that the averages they advertise fail to accurately portray the true effect that the changes might have on any given company’s bottom line.

Remember the three biggest concerns – about accessorial, pricing and fuel increases? Hid-den among these increases are a plethora of minimums, tiers

Players loved Falk because he could ne-gotiate deals that owners and compa-nies seeking endorsements said couldn’t be done.

When it comes to reducing your transportation spend, a third party is sometimes a necessary component.

In an industry where competition is so thin, the consumer faces a steep disadvan-tage. So if MJ needed an agent in a 30-team market, he would have more than likely needed an army if the NBA were a 2-team league.

Michael Jordan

Even

Had an Agent


QREVIeW FOCUS

and additional surcharges that are all designed to make the carriers money.

It’s working FedEx and UPS have been near record highs on Wall Street all year. Of course, this is great news for sharehold-ers. Google “United Parcel Service” or “FedEx,” and the returns will be littered with stock market blog and finance

news results pertaining to dividends, profit forecasts and, depending on when you search, 52-week highs.

Each carrier’s recent dimen-sional weight pricing changes likely will keep moving the needle in favor of investors. Spokespeople from each com-pany said the move was about fair compensation, according to a report by The Wall Street Journal.

“Our focus is on being fairly compensated for the value we provide to our customers,” a UPS spokesman said.FedEx echoed nearly ver-batim, saying the “primary

concern . . . is that we want to make sure we’re getting an appropriate price for the val-ue of service we’re providing.”Of course, companies that ship lightweight goods in larg-er boxes (think lampshades, pillows, etc.) likely question the world’s largest shipping leaders’ interpretation of “fair,” considering those companies are now faced with oncoming cost increases that

could price some of them out of the market entirely. So what’s a customer to do? In an industry where compe-tition is so thin, the consumer faces a steep disadvantage. So if MJ needed an agent in a 30-team market, he would have more than likely needed an army if the NBA were a 2-team league.

There is, of course, one primary difference that some customers will point out when entertaining the thought of bringing in a third party – the delicacy of the carrier rela-tionship.

Well, if you thought Chicago Bulls owner Jerry Reinsdorf was happy to see Falk walk through his door, think again. But unlike the hypothetical line drawn by UPS and FedEx, Reinsdorf wouldn’t dare say, “I’m sorry, Michael, but I refuse to do business with people who use a third party.”

If you think about it, it’s almost comical. In today’s

world, third parties are ev-erywhere you turn; business as we know it couldn’t exist without them. Rest assured that both UPS and FedEx use third parties to preserve prof-itability by keeping operating costs down.

It’s no secret that UPS and FedEx have earned strong profits with their SurePost and SmartPost services, respec-tively; interesting, considering those services rely on what? You guessed it . . . a third party. The United States Postal Service doesn’t answer your phone call, doesn’t process your claim (other third parties are in place for issues like

those), but they do deliver your package!

Despite the glaring imbalance between what each carrier demands from its customers, yet implements in its own business model, the biggest hurdle we face when working with current and potential clients is the fear of damaging that relationship. Often, a company has been working with UPS and/or FedEx, and their reps, for some time, and is fearful of messing up a good thing. Any business person knows this is good practice.

But within the current com-petitive landscape, does the cost outweigh the perceived consequence? At the end of the day, business is business, and you shouldn’t be afraid that asking for additional dis-counts will ruin the relation-ship between your company and its carrier. Your carrier certainly isn’t afraid to ask for – no, demand – increases to be “fairly compensated” or to get “an appropriate price” is it?

And I’m sure that if you asked Michael Jordan how he figured out what to ask for during his contract negotia-tions, his answer would be pretty simple.

He hired an expert.


Determine your DIM impactVisit transportationimpact.com/dim for a free customized impact analysis.

Earlier this year, FedEx turned the shipping industry on its head by announcing it would apply dimensional weight pricing to all ground ship-

ments, effective January 1, 2015. Several weeks later, UPS mirrored those changes, putting its into effect on December 29.

The news subsequently sent shippers scurrying through their parcel supply chains working to determine how much their respective costs will increase. While most now have a better understanding, it remains to be seen how much companies will actually be impacted by the changes.

To date, any ground pack-age smaller than three cubic feet (5,184 cubic inches) will be charged based on the actual weight of the shipment.

DIMENSIONAL DOOMSDAYWhat you need to know, from the Ground up.

UPS® DIM weight pric-ing becomes effective December 29, 2014, and FedEx® will follow on January 1, 2015.

Parcel news


www.transportationimpact.com/dim


Each carrier implemented dimen-sional pricing models, which derive a “billable” weight for packages based on cubic-inch measure-ments divided by a published rate factor of 166, to compensate for capacity issues presented by large, lightweight packages. To date, any ground package smaller than three cubic feet (5,184 cubic inches) will be charged based on the actual weight of the shipment. Packages that measure above that threshold will be billed based on the greater of the dimensional and actual weights.

In 2015, however, that will change for FedEx and UPS customers, likely resulting in significant cost increases for businesses that ship lightweight items – like pillows, lamp shades or shoes – in larger boxes. FedEx stands to gain about $350 million in additional revenue following the move, and Kevin Sterling, a BB&T Capital Markets analyst, said he projects the shift will boost FedEx’s annual operating income by $180 million, according to The Detroit News.

Because UPS possesses a larger ground network than FedEx, those numbers could be even more mouth-watering for UPS and its investors.

Then, of course, there are the customers . . .

While analysts in every industry delve into dissecting billions of aggregate numbers in an effort to determine what the overall impact would be on their companies, a Ph.D. in rocket science is not necessary to ascertain that prices certainly are not coming down.

What’s the worst that could happen?

A 346 percent cost increase, that’s what.

Yes . . . Three. Hundred. Forty. Six.

A Zone 8, 1-pound shipment spa-ciously arranged in a 12x12x36-inch box – which represents the current dimensional weight pricing thresh-old for each carrier – would cost $7.71 for the remainder of 2014. Next year, however, the price for that same package will soar to $34.41.

Specifically, dimensional weight is calculated by multiplying the dimensions of a package, length by width by height, then dividing the product by 166. A package’s billable weight is the greater of the dimensional and actual weights. So, if you apply that formula to the current threshold, you’re left with a money-hungry 32-pound package. If that package only happens to contain, for example, a desk cal-endar, then it might be in a FedEx or UPS customer’s best interest to find a smaller box, or consider the financial benefit of encouraging their own customers to cozy up to their email calendars.

Of course, this apocalyptic example doesn’t exactly reflect the most feasible shipment, but it does make very clear the fact that shippers of large, lightweight goods had better

get to brainstorming.

Illustration 1 shows a breakdown of similar worst-case scenarios across all zones.

According to The Wall Street Jour-nal, analysts think more than 30% of total shipments will be affected, and many weigh less than five pounds.

So, when determining how the FedEx and UPS pricing changes will impact your company’s bottom line, there are several key ques-

tions you should consider as you work to determine how the change will affect your business:

What role would a potential 2015 General Rate Increase (GRI) play in the announced increase?

It is important to consider that the rates contained within each carrier’s service guide likely will be at least a few percentage points higher by the time any dimensional weight changes are tossed in. Near the end of each calendar year, typically in between late October and early December, FedEx and UPS usually announce average published rate increases for most or all of their service offerings and service charges. While price changes for air and service charges are relatively straightforward, it is

Zone 26.24

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1 lb.32 lbs.

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Illustration 1



standard procedure for each car-rier to refer to average cost hikes related to their respective ground service-level charges, which masks the fact that the price for the most common shipments increases at a disproportionate rate to relatively uncommon shipments, which plays in favor of the carrier.

How will contractual discounts factor into the equation?

High-volume shippers typically re-ceive service-level discounts based on volume and package character-istics, meaning they pay less than published rates in exchange for the amount of business they provide to the carriers. When performing any type of financial impact analysis, it is important to factor these in when determining the true net effect of any dimensional weight pricing changes you have coming your way. For example, if your company currently receives a 20 percent discount on 1- to 5-pound

ground shipments, and 25 percent off of 6 to 10 pounds, those dis-counts need to be included in your analysis. If you have an 18x12x7 (1,512 cubic inches) shipment that weighs three pounds, it will get billed at 10 pounds if and when the change goes into effect. Make sure you subtract your respective discounts from the published rates for each shipment to ensure that you arrive at a true net change (Illustration 2).

Should I turn to re-gional carriers?

Since the unveiling of the news, “regional carriers,” “USPS” and “Amazon” have shifted from mere companies to industry buzzwords in and of themselves. Regional carriers hang their hats on charging fewer accessorials and offering later pull times to customers, so it is only natural that shippers ask themselves whether shifting vol-ume to these carriers would help them in the long run. And while that makes sense, it is important

to look at the big picture. Hypo-thetically, such a seismic shift in the costs related to ground parcel networks offers regionals a window of opportunity to partner with major carriers to create network and/or service agreements with regional carriers – similar to what we saw with the introduction of FedEx SmartPost and UPS Sure-Post services. As grumblings over ever-increasing shipping costs grow, companies are (and should be) taking a harder look at the pros and cons of incorporating regionals into their parcel supply chains. Still, the only way for those regionals to shift the landscape, so to speak, is not to become competitors, but rather allies to FedEx and/or UPS. That would mean that, while regional carriers might provide short-term relief, the potential exists for partnerships, the likes of which FedEx and UPS have demon-strated their willingness to form, which may lessen the financial impact at an undetermined point in the future.

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*Prices reflect 2014 published rates. Rates subject to change in 2015. Illustration 2



What about Amazon?

Rumblings (and even some evidence to support the notion) abound that Amazon is hard at work developing a logistics service to rival FedEx and UPS. Amazon’s growth, combined with UPS’s (Amazon’s primary parcel carrier) poor service performance last Christmas all but confirm that Amazon’s brass is following the changing landscape of the parcel shipping industry closely. And given the uproar generated by the dimension-based pricing models, it would seem logical that Amazon engineers are brainstorming a simpler, more shipper-friendly cost structure that would surpass neces-sary density-to-profitability ratios. Of course, what Amazon has in the works is of little solace to compa-nies looking to dodge steep price increases within six months, but staying abreast of the company’s shipping-related announcements will put savvy businesses in prime position to take advantage if and when the opportunity arises.

Can a third-party parcel consultant help stop the bleeding?

A good parcel consultant can begin by helping you measure the net impact of dimensional weight in-creases related specifically to your business and its unique package characteristics and shipping trends. Before you can stop the bleeding, it is important to know two things: if you are even bleeding (i.e., will these cost increases actually impact your business), and if so, where is the cut; that is, which areas of your carrier agreement are driving costs up and profitability down? Third-party companies have made their mark in the industry by helping companies break aggre-gate, complex shipping data into discernible reports from which educated and effective decisions can be made. Often, companies as-sume that because the bulk of their shipments do not fall into a certain bucket (ground shipments subject to dimensional pricing in this case),

the impact will be minimal. Those assumptions can be costly. Since most parcel consultants are paid on a performance-based model, they are willing to thoroughly analyze your data at no cost, and in a frac-tion of the time that most compa-nies could on their own. Therefore, the only real way to know whether hiring outside help is right for your company is to request a demon-stration of their service portfolio and an explanation of their qualifi-cations and business model.

Companies that fail to prepare, as they say, are preparing to fail. Shipping is a numbers game. So while the news should come as no surprise, the net effect of the resulting cost increases could, even for companies that think they are well prepared.

It would seem logical that Amazon engineers are brainstorming a simpler, more shipper-friendly cost structure that would surpass necessary density-to-profitability ratios.


In the news

USPSleveraging lightweights to contend with heavyweights

It is early July, and the future is unclear.

The opposition is firmly entrenched on either side and possesses resources

so far outnumbering its own that winning is improbable and even survival is uncertain.

Then, with its back against the wall, the underdog, desperate to seize an opportunity, sees its chance.

It had to start somewhere.

No, this is not the American Revolution. It is the United States Postal Service. And on July 1, it fired a shot that, while not heard around

the world, certainly piqued interest in shipping circles everywhere.

Under increasing pressure to perform in the face of imposing competition from the world’s two largest parcel shipping companies, the fu-ture for the USPS has at times seemed bleak. But the timing of the announced dimensional weight pricing changes by FedEx and UPS could not have provided a better platform for the proposed USPS cost cuts to absorb the spotlight.

Now, for the first time in years, shifting volume to the Post Office could again be a viable option. For the first time in years, shifting volume to

the Post Office could again be a viable option.


That is because its brass decided to buck the trend of rising prices and make a play for market share when it slashed prices in key areas of its Commercial Plus Price Sheet. While the rate structure still must receive approval from the Postal Regulatory Commission, the proposed prices demand that shippers take the USPS seriously, lest they spend nearly 50 percent more on certain packages.

USPS Commercial Plus

USPS Commercial Plus pricing charges commercial and residential packages equally, while FedEx and UPS each tack on a $2.90 surcharge for the latter. Commercial Plus requires a minimum volume threshold of 50,000 packages per year, and any shippers

that wish to divert volume could reap heavy benefits if the pricing model is approved and thus goes into effect on September 7.

The most significant and con-sistent price changes occur with shallow-zone (2 through 4) USPS shipments that weigh up to 15 pounds; specifically, residential shipments. USPS Commercial Plus rates for packages in this range would be cheaper than FedEx and UPS published rates by an average of 27 percent for commercial shipments and about 45 percent for residen-tial ones.

The announcement is part of a move not only to become a stronger player in the light-weight parcel market, but also to shift its current customers toward a more efficient supply chain. Proposed retail rates

would actually increase by an average of 1.7 percent over where they stand now. However, the USPS is leaving customers a perfectly sensible option to help mitigate these increases via its Commercial Base pricing model, which contains proposed cuts that can be attained simply by using Click-N-Ship, PC Postage products, permit imprints, or digital mailing systems (meters) that generate an IBI (Information Based Indicia) and submit data electronical-ly, according to a release on the USPS website.

Still the buzz is almost solely about the Postal Service’s push to attract short-zone shipments on the premise of lower rates. As such, when comparing to FedEx and UPS rates, it is important to factor in commercial and residential ground discounts to deter-

mine what the true impact of diverting volume to the USPS would be.

A current FedEx or UPS cus-tomer that qualifies for USPS Commercial Plus pricing and receives an average discount on its FedEx and/or UPS ground volume likely would achieve more substantial sav-ings on residential shipments as opposed to commercial ones, since USPS residential shipments are not subjected to residential surcharges.

Another factor that could skew the numbers in a posi-tive way for the customer is fuel surcharge. FedEx and UPS charge a percentage-based fee for fuel, depending on the market, whereas the USPS has no such add-on for commer-cial or residential ground shipments.

All things considered, the pro-posed Postal Service rates do indeed have strong potential to significantly help cost-con-scious companies save money. While it is important to weigh the pros and cons relative to your own compa-ny’s business rules and best practices and to analyze your own unique data to determine the true net savings potential, there is little doubt that the latest move by the USPS is bold.

Whether it proves to be revo-lutionary? Well, that remains to be seen.

USPS

The USPS is leaving customers a perfectly sensible option to help mitigate these increases via its Commercial Base pricing model, which contains proposed cuts that can be attained simply by using Click-N-Ship, PC Post-age products, permit imprints, or digital mailing systems


1) CSCMP Annual Global ConferenceSeptember 21-24, 2014San Antonio Convention Center, San Antonio, TXwww.cscmp.org/agc/annual-global-conference-2014

Industry Events

On the road again with Transportation Impact

Tradeshows

2) PARCEL ForumSeptember 29 – October 1, 2014Gaylord Texan, Dallas, TXwww.parcelforum.com

3) SCOPE FallOctober 5-7, 2014Red Rock Resort & Spa, Las Vegas, NVwww.scopefall.com

4) Logistics & Supply Chain ForumNovember 2-4, 2014 The Four Seasons Resort, Scottsdale, AZ www.logisticsforum.com

5) AFP Annual ConferenceNovember 2-5, 2014 Walter E. Washington Convention Center, Washington, D.C. an14.afponline.org

6) CFO Summit XXIXNovember 13-15, 2014 Red Rock Resort & Spa, Las Vegas, NVwww.cfosummits.com

7) Supply Chain and Logistics Summit North AmericaDecember 8-10, 2014 Hyatt Regency, Dallas TXwww.supplychain.us.com

www.transportationimpact.com /// [email protected] /// 252.764-2885


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