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Fully Connected Shipping

What's Your Plan for Shipping Cost Management?

As the holidays approach and another comes to a close, it's the time of year when carriers start announcing their annual shipping rate increases. Parcel carriers recently announced average increases of between 3% and 4.9% for 2014. Many Freight / LTL carriers rolled out mid-year freight increases between 5% and 6% during the summer and we may see more in the spring. Bottom line is that 2014 shipping rate increases are again significant, especially considering that the overall inflation rate has been hovering near 2% for 2013.

With all those increases, and all the complexity in shipment pricing, where can you start to develop a strategy to manage and contain shipping spend in 2014? Creating a strategy can be overwhelming but it gets easier if you break the problem down into 3 pieces --- questions, data, and tools. What questions would you like to be able to answer in order to help identify the largest shipping cost-drivers in your business?(e.g. how much non-billed freight are we paying for?, what kinds of extra shipping fees are we paying for?, how often do we charge freight directly to customer accounts?, ...) With your list of questions in hand, you can sketch out the types of data you need to answer your them and then identify the tools that can help you get at that data. The result can be a pretty pragmatic approach to focusing in on key cost drivers and assembling some strategies to take action.

7 Strategies for Your Plan and Tools to Help

So how about the nitty-gritty details of getting started? Do a quick Google search on "reducing freight costs" and you'll get a return of more than 75 Million helpful hints, not exactly a step-by-step guide. At Pacejet we're biased towards software tools since that's our specialty. Since we spend every day working with shippers to run their operations more efficiently, we do have a unique perspective on practical strategies every shipper should consider. Here are 7 of the most impactful strategies we think you should put in your plan for 2014.

1. Get Visibility Into Your Shipping Choices

Injecting some visibility of shipping costs into your business can position real-time pricing data at the key decision-making points where it makes the most difference. If your order entry team can see that Overnight costs $4,082.03 but Ground would be only $616.86, they can have a conversation with customers about the trade-offs and make a better choice for everyone. If your new found visibility is sharp enough to show you the Extra Service fee will be $165.00 or that there will be a Fuel Surcharge of $393.47, then you won't underestimate the shipping costs and get hit with a nasty surprise after you've shipped. Using visibility instead of guessing is an extra step, so it's often underrated or dismissed. Once you see the dollars-and-cents impact this level of precision can have on your business, you won't go back to flat-rate estimates.

2. Get Into the Habit of Monitoring Shipping Spend

The only thing more annoying than running reports is spending time wading through them trying to dig out answers. There are certainly many ways to slice and dice shipping cost data (reports are a great resource - Pacejet provides many shipping reports with our solutions). From a practical perspective, we all get busy and reports have a way of sinking to the bottom of the to-do list. Our suggestion is to identify a set of simple metrics you can have automatically delivered to your inbox so you see them, check them, and file them every single day. We provide that type of scorecard in Pacejet solutions as a feature we call Weekly Shipper Metrics. It's a simple and easy way to just stay on top of the numbers. When you see some basic numbers every single day, it's far easier to spot changes, aberrations, or to catch an upward trend that might have otherwise gone on for far too long.

3. Spend Other Peoples Money More Efficiently

In the shipping world, carrier account numbers are the equivalent of a credit card used to charge shipping expenses directly to customers or third parties. On this strategy, our recommendation is simple --- get better at using them. Every shipping charge you can pass along as a direct charge to someone else is cash you will not have to spend, invoicing and collection time you'll avoid, and reduced risk of getting stuck with the bill.

There can be technology involved here, such as the integrated account handling that Pacejet provides and how it allows you to attach carrier account numbers to your customer files and then automatically charge them when you ship orders to each customer. Beyond the technology, this strategy requires more of your team to take on the tasks of getting account numbers from customers, making sure they are valid, and then using those account numbers during shipping execution.

4. Break Out of Your Carrier Comfort Zone

Many shippers we work with have a lot of momentum going with an established set of carriers and are reluctant to try new ones. Concerns over delivery times or damages, bad experiences, requests by customers for a certain carrier, or challenges in using another carrier software tool or website to process shipments are all reasons why shippers can't break out of their carrier comfort zone. Because we deliver multi-carrier solutions and operate a cloud-based multi-carrier network at Pacejet, we have a birds-eye viewof many different shippers, using many different carriers, across a wide range of geographies. Our advice? --- Try out some new partners! Run a pilot program with a new carrier, measure the result, and you may be shocked at some of the new services, prices, and choices you've been leaving off the table.

5. Make Getting Cornered Worth It

In following our previous recommendation of trying new partners, it might seem contrary to even consider getting locked in to a single carrier contract. Some businesses with the right reasons, geography, shipping patterns, and service needs, choosing one carrier to provide all of their shipping services can lead to a better overall service and better cost-management. At Pacejet, we think the way to making a focused or single carrier contract work is to make it worth it by not flying blind. Even if you hand over all of your shipping business to a single carrier, you're going to want multi-carrier quoting visibility and reporting available to you if only so you can periodically bid out to new carriers and put some pressure on a carrier to keep sharpening their pencil. We've seen Pacejet shippers drive down rates by 20%-40% simply by showing that they can easily see what another carrier might charge for a similar service.

6. Sweat the Little Stuff and the Money Hiding There

Many shippers have a lot of volume flowing through more basic carrier services and tend not to worry about the extended services that seem to be mostly an exception in their process. It's easy to get focused on the workflow steps and spend your time optimizing keystrokes, mouse clicks, and getting the most out of every busy shipping day. What can get lost are the extra services that get dripped into the flow of shipments and end up driving up costs that you don't see until it's too late to recapture them. Residential fees, oversize box fees, expedite fees, and address correction fees are just the beginning of a very long list of extremely expensive carrier surcharges. Our recommendation is to use visibility on the front-end in quoting and on the back-end in reviewing carrier invoices to spot and target fees for elimination or better handling in your shipping process. A current Pacejet user targets residential deliveries more carefully, ultimately using automated address verification to flag deliveries going to residences, ensuring that charges quoted from carriers included the extra fee for that delivery type, and then making sure freight pricing rules passed this on to customers. The result saved the shipper about $20k per quarter.

7. Help Shipping and Accounting Teams Compare Notes

In many businesses with reasonably high levels of shipping, we see that the accounting department and the shipping department might have a good relationship but they often seem to live in different worlds. Shipping is dominated by a need for speed, constant motion, and continuous changes in customer expectations. Accounting is focused on detailed record keeping, precise control, and a desire for process consistency. The different operating modes can let costs fall through the cracks when, , shipping is forced to take actions to meet customer demands which end up increasing shipping costs that don't make it into the billing stream (i.e. service charges mentioned previously being the prime example). This is one area where a better technology strategy can make a difference. For example, if you can introduce better freight reporting, auditing, and payment technologies in order to connect the shipping and accounting processes, you'll find it far easier to automatically detect non-billed shipping charges, track them to specific customer situations, and find ways to alter your process to avoid these in the future.

Keeping it Practical and Step-By-Step

It's very easy to get overwhelmed by the complexities of shipment pricing or just the sheer velocity of life in a busy shipping operation. You might find yourself wanting to just leave it alone for a little while longer, after all the existing momentum of systems, processes, and carriers you have in place will keep the shipments moving. But with shipping rate increases averaging double the rate of inflation for 2014, you may be shocked to see how much of an impact using even just one of the 7 strategies outlined here might have on improving your bottom line next year.

Topics: Pacejet - Strategy