It's a new year, but for parcel shippers it's not a happy time. As they do every January, UPS, FedEx, and DHL increased their rates in lockstep last month. Standard rates for ground services rose by an average of 4.9 percent, excluding hefty fuel surcharges. Domestic and international air-express rates rose by an average of 6.9 percent, which all three carriers offset with a 2-percent reduction in their fuel surcharges. The operative word here is "average": many individual rates increased by a much higher percentage, and most surcharges increased as well.
Shippers can try to hold down parcel shipping costs through rate negotiations, of course, but there are other ways to attack rising prices, says Jeffrey Haushalter, an associate with Chicago Consulting, which specializes in supply chain management for manufacturers, distributors, and retailers. The consulting firm has identified a number of tactics its customers can use to control parcel shipping costs. What follows are some examples of those techniques, most of which apply to shippers that send multiple pack- ages to a single consignee:
- Pound shaving. Parcel carriers round weights up to the next pound when they rate shipments: 1.1 pounds is rated as 2 pounds, for example. To get around that, shippers should look for opportunities to shift contents among packages that are destined for the same consignee, bringing the weight down on some packages and adding to others to minimize the number of packages whose weights are subject to rounding. A simplified example: If two parcels each weigh 2.1 pounds, shifting the contents to bring one down to 1.9 pounds and the other up to 2.3 pounds will save on shipping costs.
- Dimensional weight packaging. Rates may be assessed not on the actual weight but on the higher "dimensional weight" in cases where the packages are light but bulky. The usual antidote is to use smaller cartons if possible. "If you can downsize to a smaller box, you can get your load factor up and limit the amount of corrugated," Haushalter says. But be careful: Sometimes using a larger carton can be more cost-effective if it reduces the number of boxes in the shipment. "You want to focus on the total cost of corrugated, fill, and transportation," he says.
- Optimal wave creation. The way you design picking waves can affect parcel costs. "Try to come up with a total volume estimate and work backward to release a wave that will fill the trailer," Haushalter recommends. That will bring down unit costs. In addition, waves should be planned to keep packages to a particular consignee together on the same truck.
- Back-order management. If there are multiple items on back order for a particular consignee, holding them until the entire back order is ready may be less costly than shipping each item as it becomes available. That's a good decision only when it does not harm customer service, of course. Another twist on this strategy: Waiting a little longer may reduce the num- ber of back orders. "We found a lot of times that if you hold off a day on a wave or a release, you eliminate a lot of additional back-order shipments," says Haushalter.
- Service review. Do your customers really require delivery by 9: 00 a.m.? Or even the next day? Make sure you're not paying for expedited services that your customers don't need.
These tactics aren't for everyone, Haushalter acknowledges. Low-volume shippers, for example, might not find they're worth the effort. But for high-volume shippers, the payoff can be substantial: Haushalter reports that one of his clients used these strategies to cut $2 million from a $25 million parcel shipping spend.
