3 areas where Parcel shipping is becoming increasingly complex

February 8, 2016 Pieter Kinds

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With rising parcel shipment volumes almost everywhere in the logistics industry, complex rate increases and disruptive developments in the parcel shipping industry, many facets of parcel management are becoming harder to manage.

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While many shippers are still adjusting to dimensional weight pricing, many online retailers and manufacturers are facing higher shipping costs due to rising rates, additional accessorial costs and increasingly complex parcel flows. In this blog, we take 3 areas of parcel shipping, all of which are becoming increasingly complex.

 50% of business is now retail e-commerce

1.Increasing rate & surcharges complexity

Jerry Hempstead, president of parcel express analyst firm Hempstead Consulting, observes that the parcel sector is becoming increasingly complex, and that pricing will reflect that this year. “Shippers who are spending the time to model their business and benchmark their costs against the carriers rate increase announcements now long for the simplicity of the increases of the past,” says Hempstead, adding that this year’s general rate increases are muddied by a myriad of “yield improving” mechanizations that make the calculus of Einstein look like child’s math.
“On the surface, the increases look similar to the increases of year’s past,” says Hempstead. “However the devil is in the details. For example FedEx recently announced an increase to its fuel surcharge index because it had been charging less than UPS. UPS countered by increasing its fuel surcharge index. It’s like watching two guys playing high-stakes poker.”

Latest accessorial cost

Effective January 4 2016, UPS has implemented a new accessorial for third party billing. According to its website, this 2.5% fee is “applicable to the total charges on all packages that are billed to third parties.” So far, FedEx has not implemented a similar surcharge. This accessorial could have a negative impact primarily on online retailers.

According to number of Forrester Research, US online retail sales are forecasted to reach $334 billion in 2015 and increase to $480 billion by 2019. For online retailers, it could mean the end of ‘free shipping’ or even worse.

UPS Rate Change information

How global shippers can reduce parcel freight costs

2.Benchmarking

Why is benchmarking parcel pricing data so critical? Well, according to 2015 PARCEL PRICING & BENCHMARKING SURVEY, the most common challenge from volume parcel shippers is that they don’t know how good the incentives, terms and structure of their carrier pricing agreements are.

As a shipper, you don't want to leave money on the table during carrier negotiations and overpay. that being stated, much more than half (56.3%) of the survey participants that feel it’s harder to negotiate with the carriers today, believe FedEx and UPS have a tacit agreement to avoid “price wars.”
More likely however, is the cat and mouse game that FedEx and UPS are playing, tending to follow each other’s pricing actions. One raises rates, the other matches it. One creates a new surcharge, the other quickly implements the same thing. One changes Ground pricing to dimension-based, the other adapts the strategy. One raises fuel surcharges, the other follows with a similar announcement.

Knowing this benchmarks can only take a shipper so far in their carrier negotiations. While overall volume and revenue certainly play a role in pricing, FedEx and UPS discounts are largely based on the carriers’ analysis of distribution footprints and physical package characteristics, which are directly tied to the carrier cost drivers. Other pricing factors include desired carrier operating ratios, sales com- missions, strategic account value, and competitive considerations. Therefore, simply reviewing benchmarking data may not be enough to draw conclusions that you, too, should be receiving similar discounts. Benchmarks like those published below will provide shippers with an idea of what’s possible high watermarks for which to strive.

 Pricing and Benchmarking study

ControlPay — Global Processing of Transport Data & Freight Audit services

3. Billing

Just because of the nature of parcel, being a light-weight package sent at a relatively low price people think savings are not really to be achieved when you apply freight audit to parcels.

In general, you can say that outside of the USA there is no standard in place in the logistics industry for rate structures. The less obvious points with rate structures are the business rules behind them, how are shipments rounded, what is the standard for the fuel surcharge or currency, how is consolidation be done and how are calculation methods applied. Learn more:

Besides the different lane set-ups, different zonings, a wide variety of pricing ranges, different accessorials and different discounting structures, carriers make more mistakes than you can see with the bare eye when you do a random check off the big stack of paper you receive from your carriers. You know they send you that for a reason right? Nevertheless, we have made an infographic of the billing errors we find on an ongoing basis:

 invoice mistakes you can expect as a shipper

ControlPay is Europe’s largest Freight Audit provider. We are increasingly sharing thoughts, views and insights about the logistics industry and about logistics procurement, Freight Audit and TMS systems in particular. Feel free to get in touch with us: info@controlpay.com

ControlPay - Global Freight Audit Solutions

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