There are many ways to reduce the costs associated with how expedited documents and parcels are shipped, and they are not necessarily the traditional ways that have defined the industry. The main savings focus has always been around contract negotiation and invoice auditing. These are great services, but there is a larger savings opportunity that most organizations miss, and it is managing desktop users at the point of shipment. This means having the right tools, information, education, and support for your users to make the right decisions each time they ship an item.
Where we see the biggest savings is not in the production shipping rooms, with expert shippers and automated systems. It is with the hundreds or thousands of employees sending overnight letters and small parcels, using free carrier provided tools, without any company wide support, with limited education on best practices or ability to make the best decisions. In many organizations this makes up the majority of the spend which could be in the millions of dollars per year.
In this article we are going to focus on the top 10 ways that you can reduce cost and streamline this shipping process that can have a big impact on your bottom line.
Most companies use free systems provided by the carriers to make it easier for you to ship on their network. Examples include UPS CampusShip, UPS.com, and FedEx.com. The issues with these platforms are that they are designed to make it difficult for you to see all your shipping options in one place. They can also make it almost impossible for you to move to another carrier (due to the change management process), giving you less leverage in contract negotiations. Finally, as you read the points below, you will see how limiting these systems can be at the point of shipment. It is recommended that you have a multi-carrier platform that can make the best shipping decisions and provide you the most leverage.
Most companies send the majority of their desktop-generated items as next-day or two-day air services. UPS and FedEx guarantee their less expensive ground services next day up to 150 miles and two-day for 300 miles or more. The issue is the “free” carrier-provided systems do not present the ground rates in the same screen, forcing users to go to a different place in their systems to do a comparison. This is done on purpose to make the more expensive air shipments the most visible to the user. Third-party multi-carrier systems can show you these comparisons in one place so you can make the best decision for your item at the point of shipment.
The USPS can have less expensive rates for lightweight items (less than 10 lbs.) going to a home address or to businesses in rural locations and should be compared. Most large organizations have sizeable discounts with the private carriers that could be in the 50-80% range and think they are getting better rates with these discounts. While this is true, the USPS does not charge for many items that can significantly drive up the cost of shipment (making the USPS less expensive), including:
· Residential Fees - $4-5
· Delivery Area Surcharge – $3-5 - If the destination is in one of 25,000+ ZIP Codes (over 61% of all ZIP Codes)
· Fuel Surcharge – Currently 7-8%
· Address Correction - $18
· Minimum Service Fees – All carriers will set a minimum rate that the package price cannot go below regardless of your discount. As an example: If you have a minimum service fee of $9, with the list price for the package at $20 and you have a 75% discount, then what should be a $5 package is actually billed at $9.
Most companies find that USPS does not have a suitable next-day service, but is competitive against two-day, three-day, and ground services. The USPS will provide packaging for Priority Mail and has a First-Class Parcel service for up to 16 ounces that rates by the ounce vs. all other services that go by the pound and starts at $3.01. While the USPS does not guarantee the shipment, it can provide full tracking and day expected delivery.
The final option where the USPS shines is with its First-Class letter and flat services that start at $.51. Does every piece that is currently sent as an expedited air shipment need tracking and to get there in one to two days? Most people send this way because it is easier than trying to figure out how to send a letter. This sounds crazy, but for many workers outside of a corporate office with central mail services, they may not have access to print postage. They may be working from home or at a small office without a postage meter or PC postage solution. It is easier to go online and print a FedEx/UPS Label at $10 than to go to the post office, buy stamps, and chargeback the postage. There are new web-based enterprise postage and shipping platforms that can solve this issue, allowing users to make the best decisions including printing a postage stamp on demand.
From our analysis, 20% of a company’s total shipping spend is from fees outside of the base rate from that level of service. These are the extra service fees that are going up at the fastest amounts and typically have the smallest discount levels. The best practice is having visibility to what is being spent on these fees, what can be changed, and to create plans to reduce their use.
Most large organizations will have hundreds or thousands of users accessing free carrier-provided tools, and there is typically little thought in how the users are managed. The biggest issue is user rights to the application. This is typically done in one of two ways:
1. Centralized Administration – There is someone who sets up the users on the platform and allows them to create their own password.
2. Decentralized Administration – Users are instructed to go to the vendor’s website and enter their own account number to create their own login.
Regardless of the method, we do not typically see anyone removing users who are no longer employed, meaning non-active staff could be shipping from your accounts. Also, there are typically issues making sure that users are linked to their proper cost centers.
The best practice is to have a shipping platform that can be centrally managed with single sign-on, allowing only active staff to access the application with cost centers automatically applied.
It is remarkable that companies spending millions of dollars on carrier spend have not set up rules for how their employees are supposed to ship. New multi-carrier platforms can create profiles where groups of users are restricted to what they can do on the platform. This allows for better control over your shipments and costs. Here are some examples:
· Turning off 8:30 AM Next Day service and making 10:30 AM the default to save the $30 additional fee.
· Forcing cost centers for every shipment to make sure proper chargeback is done.
· Controlling what carriers and service levels are made available for different groups of employees.
These rules can reduce cost and provide standardization across your organization.
The user processes the package on the free shipping platform and thinks the cost is $10, but when the bill comes, there are $20 in extra fees that were never considered at the time of shipment. This sounds like a one-off scenario, but it happens to 10-30% of the items. This is a huge issue because the user is not deciding on the true cost, and with all information available, may have chosen a better option. This is especially problematic when the package is being charged back to a client at the point of shipment and the remaining fees must be paid by the company.
There are the most common areas where additional charges are added after the fact to the invoice, and all can be avoided.
· Dimensional Rates – Anything that is not an envelope needs to have the dimensions of the item put into the system because the rate is derived by the size vs. the weight. This is often forgotten and can lead to large overcharges and bad decision making. The formula is (L x W x H)/139 (UPS and FedEx) and (L x W x H)/166 (USPS). The big issue is that with UPS and FedEx, this formula starts for packages over a 5” cube, whereas with USPS it starts with packages over a 12” cube. Also, USPS will always rate at a lower weight due to its higher denominator.
o Example: 9” Cube that weights 3 lbs. – UPS/FedEx Dimensional Rate = 6 lbs. USPS = 3 lbs.
o Example: 14” Cube that weighs 8 lbs. – UPS/FedEx Dimensional Rate = 20 lbs. USPS =17 lbs.
· Address Correction – When something about the address is wrong, the private carriers charge $18 per item (not charged by the USPS). This can add up when you factor all the address issues across the company. We often see the same bad addresses being used over and over because address books are not centrally managed and there is no one notifying the sender about the address changes or updating the company database.
· Residential Fees – If the sender does not select that it is a residential address, the private carriers will add a $4 charge on the invoice. This means that they made a package decision without factoring a fee that adds at least 30% to the total cost of the shipment. Multi-carrier shipping platforms can have automatic residential indicators (since they have databases of every address that is considered residential) that can assign this fee automatically at the point of shipment.
We are calling out this fee on its own because it is often overlooked and can add up to significant charges. The private carriers charge $16-33 per week per location for daily pickup service. We find that many locations do not have regular shipments that justify these fees and that on-demand pickup or drop-off services could work out better.
For example, consider a company that has 100 locations with daily pickup. Seventy percent of the locations are spending less than $75 per week in shipments and getting charged at the $33 rate (vs. the $16 fee for those that ship over $75 per week). This company is spending $145,080 per year in pickup fees that could be drastically reduced with a managed plan.
Most companies have put their programs on autopilot without any resources to drive savings. We have found that the key to reducing cost is to have professional management. Their role is to analyze the data to find the problem areas, manage the users, provide a higher level of support, and drive savings through continual education and reinforcement.
The people that are making the shipping decisions are typically casual users, with limited shipping knowledge, and are trying their best to figure out what to do on free carrier-provided tools. There needs to be a higher level of support given to these users to help them make better decisions. This is what we view as a best practice to drive optimized shipping behaviors:
1. Create educational webinars that can be offered on best shipping practices inside your organization.
2. Promote this material on your internal intranet and newsletters.
3. Reporting on who is continually having shipping overcharges or could have made better decisions.
4. Communicate the findings to the department heads that can help reinforce better behaviors.
5. Continually update the education and reporting model to reinforce best practices and change problem areas.
When you read all the issues above, it is no surprise that there are huge opportunities for savings. Companies are using free carrier tools, which do not provide an easy way to shop for better options, with users that have little support or experience shipping, and limited education on best practices. By changing this model to having the right tools, oversight, and reinforcement, there are dramatic ways to reduce costs.
Adam Lewenberg, CMDSS, MDC, President of Postal Advocate Inc., runs the largest Mail Audit and Recovery firm in the United States and Canada. They manage the biggest mail equipment fleet in the world and their mission is to help organizations with multi-locations reduce mail and parcel related expenses, recover lost postage funds, and simplify visibility and oversight. Since 2011, they have helped their clients save an average of 59% and over $65 million on equipment, postage, shipping, presort, avoidable fees, and lost postage. He can be reached at 617.372.6853 or firstname.lastname@example.org
This article originally appeared in the July/August, 2021 issue of Mailing Systems Technology.