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February 1, 2007

it's about time

A firm delivery date isn't enough anymore. Today's customers also want their orders delivered at a specified time. Here are 10 tips for meeting their demands without breaking the bank.

By Martha Spizziri

It's every distribution manager's nightmare: A man escorting an urgent international shipment boards a FedEx plane on Christmas Eve. Somewhere over the Pacific, the plane crashes, and the packages are delivered late. Four years late.

The story that unfolds around Tom Hanks' character in "Cast Away" may be an extreme example of a time-definite delivery gone wrong. And it is only a movie. But deliveries get snarled in real life too. Most of the time, the holdups are not the result of plane crashes or hurricanes (though Ted Scherck, president of the Atlanta-based consulting firm The Colography Group, says you can count on one major supply chain disrup tion a year). Instead, they arise from more mundane— and more preventable—causes, like paperwork errors, miscommunication and simple lack of follow-through.

Those minor errors can have major repercussions. For one, there's the risk of angering customers. The appeal of time-definite service lies in its predictability—the promise of delivery at a specified time or within a specific time window. (Though often confused with express service, time-definite service may also include deferred service.) A customer that has lined up a receiving crew for Thursday is bound to be unhappy if the shipment doesn't show up until Friday. For another, there's the risk of financial penalties. These might be fines or detention charges levied against shippers for unnecessary holdups or delays. They can also include overspending by shippers who make poor service choices (for example, using overnight service for a non-urgent shipment).

The good news is that most of the more common mistakes are also easily avoided—in most cases, it just takes some effort and a little common sense. Here are some tips:

1. Avoid overbuying. Paying for overnight service when you only need second-day seems an obvious waste of money. Yet shippers across the country continue to use premium service as a sort of default option. "A lot of premium freight goes premium less because it needed to be expedited than because someone didn't have the freight decision rules to make the right mode and carrier selection," says Randy Garber, a vice president at the consulting firm A.T. Kearney.

Determining the right mode and carrier starts with some basic information gathering, says Jon Petticrew of ODW Logistics Inc. in Columbus, Ohio. "I always want to know what the service requirement is," says Petticrew, who is the company's vice president of operations. At a minimum, that includes the shipment's size, its weight, its origin and destination, and when it's needed.

On that last point, it's worthwhile asking whether there's some flexibility in the delivery time. If there is, the carrier may be able to save you a lot of money, says Sean O'Neil, director of time-critical services for trucker Averitt Express. "We might say 'We can get it there at noon for $2,000, but if you can make it 5:00, I can knock it down to $1,200.'"

For similar reasons, it's also worth checking to see if there's some leeway in the choice of equipment. Jeff Curry, vice president of corporate development for expedited trucking company Express-1 Inc. in Buchanan, Mich., says one of the most common errors he sees is shippers requesting a dock-high truck when the freight might easily have been hauled in a smaller, less costly truck.

2. Avoid underbuying. Many companies don't realize it, but underbuying—that is, settling for a lower service level than you actually need—can be just as costly as overbuying. Though shippers are often reluctant to use premium-priced time-critical service, it could actually save them money. Before you rule out time-critical service, says Phil Corwin, director of marketing for UPS Supply Chain Solutions, ask yourself this question: "What are the penalties to the customer—the one who's actually manifesting the shipment and the final one?" When you add up the penalties, he says, you may find they far outweigh the premium service's added cost. Corwin cites the example of an automaker that had received several truckloads of floormat fabric that proved to be substandard. For that automaker, he says, chartering an aircraft to deliver new materials proved cheaper than shutting down the production line.

Shippers are particularly likely to confront these kinds of dilemmas during peak shipping season, adds Chuck DeLutis, vice president of new business development and special services for Roadway Express Inc. That's when they're liable to run into delays caused by port congestion or capacity shortages, he explains, leaving them to weigh the cost of premium transportation against the risks of not having a hot-selling item in stores on time. "It's important that customers understand the tradeoffs," he says, "as well as the impact of those tradeoffs."

3. Keep an open mind when choosing a mode. A few decades ago, decisions involving time-sensitive freight were simple. If it was urgent, you used air. If it wasn't, you went with a truck.

But the old rules don't always apply today. Take expedited shipments, for example. "With the great improvements in LTL and the faster transit times, you don't always need [air freight]," says Petticrew of ODW Logistics. Over the years, carriers have been extending their next-day delivery areas, he explains. "It used to be 300, 400, 500 miles," he says. "Now it's 600 or 700 miles in some cases."

Nor can you safely assume that trucking is the cheaper way to go. There are times when air service beats truck on price, says Tim Hindes, director of ground expedited services for forwarder Eagle Global Logistics (EGL). Hindes explains that with a smaller shipment of, say, 100 pounds, sending the freight on the next flight out could be more economical than shipping ground expedited.

4. Resist the temptation to estimate. "Quite often a shipper won't take the time to get the exact dimensions [of the freight]," observes Curry of Express-1. "They'll round them or guess, and that can end up costing them money." There are a couple of reasons for that, he says. "They could get the wrong size truck—they'd be charged more for a larger truck. Or maybe [the carrier will] send in a truck that's too small and they'll be unable to [take] the shipment."

5. Pay attention to packaging. When you go to determine a load's dimensions, don't forget to take packaging into account—particularly if the shipment is going by air. Many airlines have size restrictions, warns Frank Perri, executive vice president at Pilot Airfreight. If you load a shipment on a 4- by 4- by 4-foot standard skid, for example, it probably won't fit in a narrow-body passenger plane, leaving all-cargo service as your only option. Cargo-only airlines use wide-body aircraft, so size won't be a problem, but you can expect a much higher bill. "[A shipment will go for] about a third the cost if it can move on a commercial airline vs. cargo-only," Perri explains. These restrictions apply primarily to flights in the continental United States, he notes. Most overseas flights are on widebody planes—although that's starting to change.

6. Coordinate with the people on the receiving end. It's not enough to get a time-definite shipment out the door on schedule; you also have to confirm the delivery arrangements with the people on the other end. Yet many times, shippers fail to follow through with this simple task. Curry of Express-1 says he sees it all the time: "[The shipper] hasn't really checked on the other end of the shipment— their address, when they're open, when they're closed, when they're really ready for the freight." That's a risky practice, he says. Sooner or later, something goes wrong, the trucker gets delayed and the shipper is hit with detention charges.

Even something as simple as obtaining the exact dock and gate number in advance can go a long way toward cutting down on delays, Curry adds. "Sometimes with larger plants there are multiple gates and even multiple buildings within the same town," he explains. "It's real important to get that truck exactly where it's going or you may get additional stop-off charges of $50 to $100 per stop."

Shippers should also be aware that customers occasionally drop the ball when it comes to notifying their own warehouses of an incoming shipment. "There continues to be a disconnect between the buyer, who might have a certain delivery requirement, and the warehouse—when it has slots available," says Sean Monahan, a vice president at A.T. Kearney. The customer might want the shipment there on Tuesday afternoon, but then when the shipper calls the warehouse, the warehouse will say "The first appointment is Wednesday morning." So the carrier will arrive on time for the appointment, but it's still late as far as the customer is concerned. "A lot of companies are wrestling with how they can close that gap," he says.

7. Get all the facts when you negotiate rates. After you've agreed on a per-mile rate, ask the carrier how it calculates mileage. If you don't, you could be in for a nasty surprise when you receive the final bill. "We get a lot of shippers that get excited about receiving what they think is a low rate, but … the carrier's mileage platform [software] may calculate a higher number of miles," explains Express1's Curry. Mileage platforms are updated constantly as roads are added, closed and renovated, so if the software's not up to date, it could be generating unnecessarily long routes.

8. Avoid squeezing carriers on price. Soaring fuel, insurance and equipment costs have taken a toll on truckers in recent years. At the same time, rampant industry consolidation has left trucks in short supply. In a climate where the truckers have the upper hand, shippers' attempts to drive a hard bargain could backfire. If you're only willing to pay $1.25 a mile and someone else is paying $2 a mile, warns Monahan, "your driver might not show up for your load."

9. Check your shipping documents; then check them again. Errors on shipping documents almost guarantee delays. To avoid costly holdups, prepare the shipment's paperwork in advance and make sure it's complete and accurate (particularly for international shipments and shipments for which you can't risk even an hour's delay). If there are several different documents, make sure the data are consistent. "We see a lot of problems with incorrect paperwork or [documents] that contradict each other— say, with different product codes," says Corwin of UPS Supply Chain Solutions.

10. Be open with your carriers. When it comes to communicating with carriers, there's no such thing as too much information. The more details about a shipper's business a carrier can get, the better it can serve that customer, says Pilot Airfreight's Perri. "It's always helpful for us to see how they package their materials [and find out] where they'll be picked up, what time things will be ready for pickup, and what time they'll call in [to notify us] that they're ready for pickup." Any reports or spreadsheets with historical data the shipper can provide will be helpful as well, he adds.

Perri notes that communications among the various players in the airfreight industry have improved in recent years. He credits the new security regulations, which have made collaboration between shippers and forwarders a necessity. "One of the nicest things that has come about is that shippers are working with us much more closely than they have in the past on things like packaging," notes Perri. "[Shippers have] a better understanding … of some of the challenges we face … [and] how to reduce costs in the supply chain and improve service at the same time." And that's the kind of understanding that can bring about a moviestyle happy ending for any shipment.

Editor's Note: Other sources who contributed to the development of this story, but were not mentioned in the text, include Chris Monica, Eagle Global Logistics; Virginia Albanese, FedEx Custom Critical; Steve Fisher, Kendall Jackson Wine Estates; Chris Caplice, Massachusetts Institute of Technology; Peter Butler, Sky West; Richard Murphy, Murphy Warehousing; Rob Lively, Mach 1 Air Services; and Bill Villalon, APL Logistics.

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