How global shippers can reduce parcel freight costs

Pieter Kinds

Pieter Kinds

January 22, 2016 - 11:48

Controlling parcel shipping costs is undeniably the hot ticket in todays logistics and supply chain environment. With rising e-commerce sales, DIM pricing and growing consumer expectations, even some large companies struggle with parcel distribution challenges and excessive parcel transportation costs.

E-commerce is one of the most important drivers of the global courier service industry. The e-commerce business primarily consists of B2B-companies and online shopping. The impact of this new form of commerce has been felt in each and every industry, and retailers everywhere want to expand their operations to include online shopping. This new form of retail has brought in a new set of opportunities as well as challenges for the courier and delivery services companies. As businesses are expanding, both internationally and domestically, parcel courier companies are becoming increasingly important to competitiveness of companies, especially those with large shipping volumes. (for more information: How Has E-Commerce Changed the Courier Services Industry?)

A good indicator that demonstrates the growth of (international) parcel freight is the share of courier express services in the air cargo market, growing by an average of 3% a year in real terms between 2008 and 2013. The most important players in the parcel express industry are United Parcel Service (UPS) and FedEx (FDX). Logistics providers C.H. Robinson Worldwide (CHRW), Expeditors International (EXPD), and Con-Way (CNW). (Who Are the Key Players in the US Delivery Services Industry)

On the other hand is a growing customer experience demand causing extra pressure to a companies parcel delivery operation. The (online) shopper of today and the shopper that was willing to wait for more than seven weekdays before their online bought product landed on the doormat, are a million miles apart.

People simply don't want to wait. Why? Because your competitor around the corner is able to deliver what your customer desires, regardless of any geographical factors. It has never been more clear that your customers are the ones that hold the key and their wish is your command. With the pressure rising, delivery is becoming a key differentiator between them and their competitor.

How is the growing E-commerce market affecting logistics managers worldwide?

- More and smaller shipments

- Parcel shipping management is becoming more important and time-consuming

- Carrier benchmarking becomes increasingly important

- More complex and expensive logistics flows

- Companies need to deal with return shipments

Why parcel billing is not easy but complex. Get your savings finally!

How can you as a shipper reduce parcel shipping costs?

To take a closer look at the possibilities of reducing parcel freight spend, I have taken a few results from the 2015 PARCEL Forum, Shipware parcel pricing and benchmarking survey, in which 77 shippers responded to survey questions about their parcel usage, carrier preferences, pricing discounts, cost reduction strategies and other valuable benchmarking data. Survey respondents collectively commanded approximately $2.8 billion in annual parcel spend.

When asked to rank the top three ways shippers would change their UPS and FedEx pricing agreements, minimizing surcharges was the highest weighted response (85.1%), amazingly higher than get- ting deeper discounts (63.5%). Shippers would also like to have more favorable minimum charges (48.6%) and DIM factors/thresh- olds (45.9%).

Over the past 12 months, shippers predominantly chose to renegotiate their carrier pricing agreements (83.8%) as the principal strategy to keep shipping costs in check. Only 39.2% of respondents increased their use of the USPS and/or regional carriers.

To determine anticipated changes for 2016, the survey also gauged how shippers intended to keep parcel shipping costs under control over the next 12 months. While contract negotiation remained the top strategy (80.0%), significantly more shippers indicated they'd increase USPS and/ or regional carrier usage next year (58.7% - up from 39.2% in the previous question). Other popular strategies include auditing carrier invoices (69.3%), improving packaging to minimize dimension-based pricing costs (68.0%), and using least-cost- routing software (45.3%).

Read more: 5 effective ways to reduce parcel shipping costs

Visit our content hub to view more great parcel shipping insights and the full results of the survey:

Parcel Freight: Pricing and Benchmarking study

Parcel freight audit: Why you need to pay attention to your parcel freight invoices

With parcel shipment volumes growing almost everywhere in the logistics industry, I feel that it makes sense to highlight some of the complexities involved in parcel billing. In contrast to popular believe, the correct billing of parcel shipments can be quite complex.

Typical parcel freight invoice issues

- Volumetric Weight discrepancies due to carrier's own scanning

- Service level discrepancies

- Application of Accessorial Charges not stated in the rate agreement

- Application of Accessorial Charges that cannot be audited (insurance, appointment surcharge)

- Regular changes in the Remote Area zoning definition

- Consolidation rules not properly specified

- Complex rounding mechanisms (sometimes triple rounding)

- Complex conversion mechanism (conversion p/parcel)

- New surcharges popping up

- Inaccurate shipment data on Shipper side

- Parcel carriers claiming there is just one standard for all, no customization possible

Common parcel freight invoices mistakes

How ControlPay Freight Audit can offer a solution to rising logistics costs

- Cost efficient outsourcing of freight invoice audit & electronic coding/posting: reduced FTE spend

- 100% invoice audit versus no or little control

- Overbilling reduced to 0%

- BI data for reporting and analysis, input for tactical SCM decision-making RFP base-line data, calculate RFP offers, cost impact to base-line.

- Shippers gain carrier benchmarking strength

Hidden benefit alert: financial consolidation of shipments

More (parcel) freight audit content that could help your company reduce freight spend

1. Freight Audit Payment - 10 Freight Invoice facts that everyone should know

2. What is Freight Auditing? How can it help you companies bottom line

3. How Logistics & Finance benefit from freight invoice consolidation

4. 2016 Logistics Rate Outlook: A Global Ripple Effect