Are Your Parcel Rate Strategies in Line with Current Trends?

By Bruce Tompkins, Principal, Tompkins Associates

Changes are occurring on many fronts in the parcel shipment industry as volumes grow, market competitiveness increases, and cost reductions receive more focus. These changes create an increasing need for shippers to manage parcel spends and make the best use of each of their carrier’s strengths.

To shed more light on current parcel rate strategies, Tompkins Associates recently conducted a Parcel Rate Benchmark Study of 30 companies in retail, consumer goods and related industries. Study participants’ parcel rate spending ranged from $300 million to less than half a million. After analyzing the results, Tompkins noticed a clear pattern leading to six best practice trends for ensuring a successful, cost-effective relationship between shippers and carriers. The trends are:

1. Parcel Bid Analysis and Management Tools

(A) Freight analysis technology is not used by a majority of companies, and (B) Parcel bids are not always consistently done within a short time period. These findings reveal that there is room for improvement in bidding practices. This, in conjunction with the greatly increasing complexity of parcel contracts, the increase in accessorial charges, and the expanded use of advanced technology by parcel carriers, is further evidence that freight bid analysis tools must be improved. There is a strong pattern indicating that companies which have the bid analysis and management technology or employ third party help to get this capability are more effective with their parcel freight spend. The benefits also go beyond expenditures for parcel into other measures of parcel shipper performance -- such as on-time pickup and delivery, claims incidence, billing error rates and information availability.

Understandably, some companies neither have the volume of parcel shipments to justify expenditures for systems and technology nor can they realistically outsource these functions. But whether you are large or small, make the most of the tools to justify and improve your ability to negotiate.

2. Auditing Technology

Auditing services for parcel freight have proven to be cost justified for many companies, particularly as parcel spend and complexity rises. Auditing of freight bills is a very common practice and has been done for many years with good results. The auditing of parcel services against contracts is completed much less regularly but has the potential to provide justifiable benefits. Data compiled by the Supply Chain Consortium indicate that freight bill auditing is typically done for selective payments versus for all payments, and freight service auditing is not a common practice.

3. Dimensional Weight Rules

Dimensional weight rule changes are difficult to get your hands around, but it is important to understand your parcel profile with respect to package cube. With this knowledge, you can pre-determine costs and make any necessary packaging adjustments before they reach the carrier. Some ideas for how to manage the dimensional weight issue are:

• Understand your package sizes and reduce the cube below the carrier’s threshold if possible. This may require packaging changes that have to be justified against the expected parcel rate changes.
• Apply technology to get the dimensions of packages before they get to the carrier. By doing this, you can ensure the dimension are properly measured and the charges are correct. Also, the charges for dimensional weight typically will come back to you after a package has arrived at its destination, and you have a dilemma if you charge customers for shipment.
• Attempt to bid parcel with stringent rules for oversize parcels or offer a time-phased approach to give you time to modify packaging or make other changes.
• Move toward regional carriers who don’t yet have dimensional weight processes for appropriate freight. This is a slightly more risky approach.
• Negotiate discounts or other dimensional weight rule changes as you would rate discounts. This could be the best strategy for keeping costs from increasing without a good way of justifying the increase.

4. Accessorial Charges and Surcharges

Focus time and attention on the accessorial charges. If you don’t measure these today, begin to measure them and make them a negotiation priority. Carriers are using technology to help capture these charges, and you need to be able to match them or plan to see this part of your parcel spend continue to grow.

When bidding parcel freight, a good practice is to level set accessorial charges and surcharges across all carriers. Get the accessorial charges established first with carriers and then move into negotiations for rates and discounts. Accessorial charges are too large a part of parcel spend to be left to the end of the bidding process for consideration.

Furthermore, fuel surcharges may be of particular interest. This study wasn’t needed to tell you about what the fuel surcharge could mean to your parcel spend, but not all carriers are calculating it the same way. Find out who has the most favorable calculation method and leverage that knowledge.

5. Customer Routing Guide

Experience has shown that companies with a good zip to zip or shipping location routing guide for every parcel ship point receive excellent services. The only way to ensure that the best service levels are being selected is to enforce the use of a routing guide. Also, careful alignment of customers with the optimal shipping point sounds basic, but more companies need to put more effort in this area.

6. Parcel Basics: Blocking and Tackling

Even if parcel is your primary shipment mode, other options are available. Consider all freight modes as possibilities for parcel including LTL and TL shipments. Companies today are making better use of zone skipping to minimize overall freight spend. Consortium data indicates that as many as 30% of companies are using zone skipping with the parcel’s volume totaling to 50% - 60%. Other fundamental shipping tips include:

• Think about combining air and parcel freight volumes to further leverage freight volume. The major parcel carriers are also involved in air freight, so leveraging the spend can be an effective tool.
• Understand weight breaks with respect to each carrier’s contract so that you can optimize the splitting of shipments or consolidation of shipments for the lowest total parcel cost.
• Fully understand your parcel characteristics and understand how the carriers will view your business. If you can position yourself to be a shipper that parcel carriers can serve profitably, you will be rewarded with better discounts and have stronger negotiating leverage.
• Consider payment terms as an important aspect of negotiating with parcel carriers, but also understand how important the terms are to the carriers as well. If your terms are beyond 30 days, and you have a history of paying beyond 30 days, you may lose more in the ability to negotiate discounts and services than you gain in terms.

Conclusion

Some of the strategies and tactics that were effective in managing parcel spending in the past have less impact today. The six trends listed above are becoming more and more essential when continually reassessing your parcel spend. To ensure that your company’s parcel rates are in line with your competitors’ and you are getting the best rates possible, follow these guidelines and be prepared for potential rate increases from your parcel carrier.