Indirect Spend Cost Increases Continue

Many of the elements driving these indirect spend cost increases cannot be controlled. 

That does not mean your organization is limited in its ability to manage and mitigate some of these rising expenses. A strong relationship with your support partners helps. So, too, does an expert partner with awareness of industry trends and spend management tactics that realize efficiencies, even during volatile times. 

To support your indirect spend management efforts in Q4 and heading into 2021, let’s explore some of the factors driving cost increases in your operation.

Resin Increases, E-Commerce Demand Drives Indirect Spend Cost Spike

Demand is driving up indirect spend costs on mailing envelopes, poly bags and other packaging materials used in e-commerce shipping.

Resin costs continue to fuel increases for companies that utilize stretch film, bubble wrap, flexible mailers and other polyethylene products. Each resin increase usually translates to a product cost increase of 6-7 percent.

Five consecutive months of resin cost increases have inflated prices 44 percent. That has translated to a 20-25 percent uptick on flexible packaging-related products costs, such as the Oct. 1 increase announced by all major manufacturers of stretch film. That is the second stretch film increase this year – and we anticipate there will be additional increases on other produces that rely on polyethylene. 

At the same time, demand is up in the plastic market compared to 2019. A growing e-commerce marketplace began booming when COVID-19 accelerated consumers’ online buying behaviors for a broader range of products, from groceries to home office products. 

More e-commerce businesses are utilizing plastic packaging, bubble bags and poly bags to ship their products, whereas a few years ago they put those items in small boxes. In the 2020 parcel shipping environment, it is more cost effective to use poly mailers, and that is impacting demand.

While demand is up, some of the major manufacturers implemented maintenance related shutdowns in Q2 and Q3, reducing supply in the process. Increased hurricane activity along the Gulf Coast is also forcing shutdowns for many resin operations and nearby poly-product manufacturing plants situated close to petroleum refineries in the region. Additional shutdowns will only create a tighter market.

Cardboard and Other Commodity Costs Require Awareness

Market conditions may not support a fourth quarter cost increase on corrugated and linerboard. Often the top producers of these materials float the prospect of a rate increase to gauge pushback. Expect talk of a 6-8 percent increase to emerge toward the middle or late part of the quarter. 

Due to activity that scaled back for many operations during the pandemic, the demand and inventory levers may not support that increase. Expect that increase to emerge in 2021.

As businesses continue to ramp up coming out of COVID-19, demand may increase on those cardboard products, as well as others that are already in short supply. Costs for Personal Protective Equipment (PPE), safety supplies and cleaning products will continue to escalate into 2021. That will cause pain for businesses from a pricing and availability standpoint. 

Cost increases on steel and related products will have a similar effect on MRO supplies. Expect price movement on nuts, bolts, fasteners, and other maintenance products in the early part of next year.

Lessons Learned for Future Performance

The challenges emerging in 2020 really validated the importance of strong relationships with your support partners. 

Do you always beat up your suppliers to get the best price?

If you do, the pandemic has taught us, you might suddenly find that you do not have a reliable supply base because you have not been loyal to a supplier. If you focus on buying what you need at the lowest cost and jump from vendor to vendor, when trouble arises you may not have a partner you can count on. 

Thanks to partnerships forged through Transportation Insight’s Group Purchasing Organization, we have the leverage to secure both the best product prices and the supplies you need to continue operating.

The pandemic has taught us that when businesses align with national supply partners, they have access to competitive prices and products delivered on a timely, reliable basis. 

This is especially important in the poly-packaging space. When times get tough and supply gets tight, suppliers will take care of the customers that have been good to them. They will have a difficult time supplying customers that are here today and gone tomorrow. 

Relying on long-term partnerships established in Transportation Insight’s Group Purchasing Organization, we are able to secure both good pricing and consistent supplies of products necessary to your operation. At the same time, we help you manage indirect spend areas that is driving up your overall operational costs that could be jeopardizing your profit. 

To learn more about how we help organizations manage their indirect spend and achieve double-digit savings watch our recent webinar.

E-Commerce Logistics Demands, COVID-19 Empower Ocean Alliances

Although there is still a slim chance that the fourth quarter produces some rate compression – or a downturn in the need for e-commerce logistics. When freight levels are at an all-time high, there is little motivation for the three major shipping alliances to drop rates significantly during the remaining calendar year.

Shippers looking to 2021 would be wise to consider contingency budgeting – especially if you are a major importer competing in a supply chain environment that continues to be affected by ongoing growth in online sales and e-commerce logistics.

Likewise, there has never been a more important time to reassess your entire import supply chain to validate compliance with evolving trade regulations. Emerging pinch points in the international supply chain are elevating risk for shippers who must be prepared to address traditional risk areas that carry a financial impact.

As we have stated since early 2019, contingency planning must be the part of your monthly and sometimes weekly business plans. Diversification in foreign sourcing has never been more critical, particularly in an election season that has pushed global trade forward as individual candidates differentiating issue.  

Close review of the international transportation landscape can lay the groundwork for developing strategies that mitigate that risk heading into 2021.

Alliances Take Control Amid E-Commerce Boom

Consumer behaviors are shifting the traditional retail models, and the unchecked growth of e-commerce is keeping the global supply chain packed with product. 

Credit some of that international freight volume to the rapid production and movement of Personal Protective Equipment (PPE) in response to a global health crisis. At the same time, retail supply chains have been irreversibly impacted by the functional success of e-commerce. Until some of the demand cycles in both realms stabilize, predicting ocean shipping rates will be a challenge.

More importantly, the three major shipping alliances response to COVID-19 demands the attention of organizations that rely on global commerce and e-commerce logistics. Vessel operators have shown remarkable discipline by matching supply to demand volatility.

During the first half of the year, the three alliances (2M, Ocean Alliance and THE Alliance) constricted supply by canceling dozens of scheduled voyages with the intent to remove excess capacity. However the net effect was scarcity of space, i.e. rates were increased monthly or bi-weekly and started to build. Representing 21 ocean vessel operators and roughly 10 million 20-foot equivalent units (TEU), these alliances have maintained rate discipline as the retail supply chain began to open in July in August. 

In the past, increased demand for service and the prospect of rate increase motivated operators to add sailings. With a strategic approach that ensures vessels are filled before others are added, ocean carriers keep upward pressure on rates that are roughly 80 percent higher in a year-over-year comparison to 2019.

This strategy supports a more dependable service for international shippers as it creates more reliability for in-country logistics operators, but if the alliances maintain this discipline, plan for rates to stay elevated. Solid bookings will continue through October and contingency budgeting should be a focus for major importers.

Persisting Pinch Points Create Risk

As we approach what has traditionally been a calm period at the end of the e-commerce logistics peak season, the ports of Long Beach and Los Angeles are at capacity. Historically higher volume for this time of year will undoubtedly spur downstream challenges deep into Q4 and into 2021. 

Finding available chasses to support container movements will continue to be a problem into December. As these containers and chasses (to a lesser degree) move in country and on the rail, it is hard to balance the need for equipment during a disruption-filled year like we’ve had. Vessels hoping to expedite movement for the last wave of peak season freight to North America are now waiting for containers to come back to port so that have something to load and ship. 

We know there will be an end to this kind of imbalance, but we have not gotten there yet.

The timing has never been greater for organizations to assess their entire import and export supply chain. Look for places to increase efficiency. Identify pinch points that elevate risk that emerges in times of global volatility. At this point, organizations should have complete awareness of the supply chain challenges arising during COVID-19 and address their preparedness for the next global disruption, both economically and around traditional risk areas. 

Trade Regulations and Tariff Battles Require Eye on Compliance

Plaintiffs representing a diverse set of industries are suing the U.S. Trade Representative (USTR) for relief from China 301 tariffs. The argument: tariffs implemented without sufficient advanced notice caused unfair and improper financial harm to their organizations. Many shippers have been negatively impacted, some to a crippling point, and they are looking for any dollars they can get.

These organizations – including some of the world’s largest brands – will not likely get complete relief, but their actions demonstrate that businesses will not sit idle when trade laws are put in place, as they argue, without warning.

Meanwhile, implementation of the trade regulations intended to replace the North American Free Trade Agreement continues to carry some unexpected consequences.

The U.S.-Mexico-Canada Agreement (USMCA) is having the largest effect on businesses close to the automotive supply chain, but many companies were lulled into thinking there would be limited changes in the new agreement. Updated documentation is required to execute cross border entries. Make sure to review your international trade compliance processes to avoid this type of needless risk caused by what seems like a simple change in regulations. 

UPS Announces Last Day to Ship

Know the last day to ship to make sure your UPS small parcel delivery arrives on time.

A later-than-usual Thanksgiving on Nov. 26 condenses the shipping season by almost a week. Meanwhile, continuing effects of COVID-19 drive more buyers online to fill holiday wish lists – and many of them will avoid the personal contact of store shopping altogether.

Combined, these factors predict a capacity crunch for the small package networks. Already experiencing service delays and disruptions, these networks will not see relief until after the New Year, even as parcel carriers bring on thousands of new workers.

Be mindful of the “last shipping days” announced by UPS and FedEx, but that may not be enough to avoid a disappointed holiday customer in 2021. That’s why the world’s largest retailers are turning the holiday shopping clock from Black Friday toward a “Black October.”

Navigating this year’s peak season during the middle of a pandemic will require companies to be more creative and flexible. Forward-thinking shippers should be prepared to adjust. 

Retailers Drive Christmas Creep, Protect Experience

Amazon’s Prime Days on Oct. 13-14 delivered $3.5 billion in sales to small- and mid-sized businesses, with a 60 percent uptick in sales over last year. The move expedites holiday shopping – and product shipping. It also adheres to latest guidance from UPS: “encourage your customers to shop earlier than ever with special offers or other incentives.” FedEx echoes the same advice for shippers preparing for the 2021 holiday season.

Promotions like Walmart’s “Big Save Days” and Target’s “Deal Days” are all designed to pull parcel volume forward and avoid a costly catastrophe caused by a lack of capacity in December. 

If your organization is focused on protecting customer experience this holiday season, keep these five things in mind: 

It is more important than ever to make sure that you proactively and clearly communicate the potential for delays. Every year the national carriers suspend their on-time guarantees during the holiday period. Earlier this year they suspended the guarantees due to COVID-19 complications and disruptions.

Retailers can ship-to-stores for curbside pickup.

Retailers can also ship-from-stores to shorten the distance that the package travels in the carrier’s networks and thereby reduce the potential for delay.

Shipments can be made to alternative delivery locations such as certain retail partners, your customer’s office, or to one of the many parcel lockers.


5. Finally, if you operate multiple DCs across the US, it will be important to have the right inventory at the right locations to speed delivery and avoid split orders.

In a time where lockdowns have driven e-commerce shipments to levels never seen before, companies will need to deploy an all-of-the-above strategy to navigate it appropriately.

Know the Last Days to Ship

Now more than ever, it is important to make every possible effort to avoid deadline shipments. If you anticipate a last-minute holiday rush, make sure your UPS shipments go out on or before these dates to give your parcel the best possible chance to arrive by Dec. 24:

  • UPS Ground: As early as Tuesday, December 15* 
  • UPS 3 Day Select®: Monday, December 21 
  • UPS 2nd Day Air®: Tuesday, December  22 
  • UPS Next Day Air®: Wednesday, December 23

*Note UPS advises that most UPS Ground shipments have a later “last recommended shipping dates.” Shippers can track their transit time and cost here

FedEx released its holiday schedule ahead of UPS, and both schedules align closely. We detailed 7 tips for holiday delivery success shortly after the FedEx announcement. 

Regardless of the service provider you trust with your shipments, through full transparency and good information, you can effectively manage customer expectations while also syncing with the carriers that will deliver the goods to their doorsteps.  

You Shipped it – Did it Make Money?

Protecting customer experience this holiday season will require timely shipments and thorough communications throughout the sales cycle. 

Protecting your organization’s profit while responding to these customer expectations requires additional awareness and proactive measures.

  • Be aware of the Peak Season Surcharges and more importantly the differences for UPS, FedEx, Regional carriers and now the USPS.
  • Perform a detailed analysis to estimate the surcharges financial impact and to mitigate any negative effects on profitability.
  • Identify specific SKUs that will be negatively impacted and make decisions regarding those items to protect profit margins.  
  • Raise the cost of the item.
  • Increase the free shipping threshold.
  • Pass some or all of the additional cost to the customer.
  • Ensure carriers agreements are best in class and that invoices are audited for compliance to them.
  • Make sure you have the right box sizes so that the packaging is only la
    rge enough to adequately protect items during transit.
  • Work to eliminate operational errors that create avoidable costs such as incorrect addresses, unnecessary declared value and unauthorized packages.

To help shippers protect profit on every customer and every order, we created “You Shipped it … But Did You Make any Money.” Open it today for more guidance on making sure your peak season ends in the black.

E-commerce Supply Chain: 6 Challenges

The e-commerce supply chain challenges this year will be as long a family’s shopping list.

Here are the top 6 challenges to consider during the holiday peak shipping season.

  1. The traditional holiday peak converges with elevated online demand due. E-commerce sales will match or surpass brick-and-mortar. Consumers have multiple ordering channels to tap. E-commerce supply chain fulfillment and delivery operations need to respond to this decentralized − and unprecedented − demand-pull.
  2. Many supply chains remain out of kilter, one of the pandemic’s many legacies. U.S. inventories are at their lowest levels in five years, according to several analysts. Stock-outs have been common. U.S. imports are spiking. However, those goods may not reach store shelves or distribution centers in time to satisfy peak consumption needs.
  3. Parcel networks have been overwhelmed by demand since March 2020. This has led to inconsistent delivery performance across the board. National and regional parcel carriers have maxed out their fulfillment and distribution infrastructures. Late deliveries mean that consumers will be forced to accept holiday service levels that are beneath their expectations. If there is good news, it’s that e-commerce consumers are aware of the problems and will be more tolerant of slower delivery. What they demand, and should expect, is access to real-time information about any service issues.
  4. Consumers may order goods earlier than usual, allowing the supply chain to spread out delivery timetables to create a “load-leveling” effect. That would be positive news, but it should not automatically be counted upon.
  5. Warehouse space is severely constrained. Retailers with brick-and-mortar exposure need to position stores as “forward fulfillment” nodes. This allows orders to be pulled from store inventory and delivered over relatively short distances. Store networks will also support what is expected to be major demand spikes for in-store and curbside pickups of online orders. Pure-play e-tailers without store networks need to get creative.
  6. FedEx and UPS are levying meaningful peak surcharges on volumes from their largest customers. The U.S. Postal Service imposed the first peak surcharge in its history. Carriers say the fees are needed to offset their higher costs to serve. That is true, up to a point. Demands on delivery networks will be unprecedented, and carriers are pricing their services accordingly. Companies will have to consider this in their free shipping strategies to maintain profitability.

THE CLOCK IS TICKING

Retailers relying on the e-commerce supply chain are racing the clock and capacity constraints during holiday peak season.

Is it too late for shippers and retailers to get their holiday house in order?

Not necessarily, but it will take fast action and deep e-commerce supply chain planning. The challenges, as we’ve laid out, are immense. One key is to get ahead of the “demand curve.” When shippers gain visibility into end demand, they can prepare and execute a plan that enhances customer satisfaction and does so profitably. After all, meeting customer demands while losing money in the process is the hollowest of victories.

Managing the upstream channel is just as critical. Calibrating inventory flows with replenishment needs is a year-round challenge, and especially so during peak. The challenge is magnified this year with the headwind of COVID-19. Retailers need a clear line of sight into supplier production so they can forecast their inventory replenishment. In normal times, lack of visibility can lead to costly over-ordering to ensure adequate buffer stock. This season, however, over-ordering may be an adequate response, given how and where the inventory is positioned. 

During CSCMP’s EDGE 2020 Virtual Conference, Target Executive Vice President and Chief Supply Chain and Logistics Officer Arthur Valdez advised to “not be afraid to overreact.” That may sound counter-intuitive, but it can be an appropriate step during this peak. Target will be investing heavily in transportation services with a focus on improving delivery timing, Valdez said. Again, that appears to run against the grain as transport is considered a cost center. Yet it will be less costly than failing to execute deliveries because capacity is not available. A seasoned logistics partner can map out a strategy to leverage a customer’s existing assets, as well as to bring in outside capabilities that profitably meets customer demands.

This is especially important as shippers encounter an increasingly complex surcharge environment constructed by FedEx, UPS and, to a smaller degree, USPS and regional carriers.  High-volume FedEx and UPS customers could be looking at surcharges as high as $4 to $5 per piece. These are by far the most expensive surcharges we have ever seen. They can spell the difference between peak season success and failure, even if everything else breaks right. Any shipper expecting to tender significant traffic to either or both must be able to navigate those surcharges all within the framework of their logistics execution.

Amid the coming storm, it may be hard for folks to get a good fix on demand profiles beyond the holidays. But it pays to do so. For example, we may see another e-commerce surge early next year as fears of a combined COVID-seasonal flu cycle keep more consumers homebound. Already, we are seeing 2021 budget plans being adjusted to account for the lingering effect of COVID-19. We also expect similar peak season patterns for the next 3-5 years even after a coronavirus vaccine is approved and distributed. A strong logistics partner not only can help you get through 2020. It can prepare you for 2021, 2022, and beyond.

Q4 Forecast: Parcel Rates and Cost Impact

Not long ago parcel carriers were transporting 20-25 percent of their deliveries to residential addresses. By 2019, that number increased to about 50 percent. This year, 70 percent of all parcel carrier movements involve a residential address. The shift is largely driven by a consumer who is shopping from home either by choice, necessity or both. 

According to the Department of Commerce, U.S. retail e-commerce sales for the second quarter of 2020 were $211.5 billion, an increase of 31.8 percent over the first quarter of the year. During the second quarter of 2019, e-commerce sales increased just 12 percent over the same period in 2018. 

These are some telling numbers, and they paint a picture of a shifting consumer purchasing environment that’s pulling the major parcel carriers right along with it. For example, UPS saw its residential delivery volume increase 65 percent during the second quarter. This is just one of several carriers being asked to absorb and handle volume increases unlike anything their networks have ever experienced.

Here’s what shippers can expect on the parcel shipping front as 2020 winds down and the holiday season kicks into full speed.

2021 Parcel Rates: FedEx

FedEx Express (Domestic, U.S. Export and U.S. Import), FedEx Ground, and FedEx Home Delivery shipping rates will increase by an average of 4.9 percent. FedEx has increased these rates 4.9 percent every year since 2007. FedEx Freight will increase rates by an average of 5.9 percent. 

These are a sampling of the changes becoming effective Jan. 4, 2021:

  • Institute a 6 percent late fee to U.S. FedEx Express and FedEx Ground customers who don’t pay their invoice within their agreed upon payment terms. UPS implemented this fee in 2003.
  • New $16 Additional Handling Fee for packages where dimensions are greater than 105 inches in combined length plus girth. 
  • Additional handling charge for weight increased 6.25 percent to $25.50.
  • Additional handling charge for packaging increase 7.7 percent to $14.
  • DAS for Home Delivery is 7.5 percent from $4 to $4.30.
  • Oversize charge for Home Delivery has increased 8.3 percent from $120 to $130.
  • Residential Delivery charge for Home Delivery charge increased 8.75 percent from $4 to $4.35.
  • The ground minimum package charge (zone 2, 1 pound list rate) has increased by 6.44 percent to $8.76.
  • 2Day and Express Saver (3 day) shipments will take larger increases.
  • Longer zones have larger increases than shorter zones for Express services.
  • Surcharges have increased by more than the announced 4.9 percent for the ones most commonly applied.

Even though the GRI is 4.9 percent your true rate increase will be somewhere between 4.9 percent and 8 percent depending on usage of these additional services. This is the type of analysis Transportation Insight provides to our clients. Every year a GRI report is generated for our clients to aid in understanding the impact these rates will have on their transportation spend.

When Parcel Rates Peak Season Lasts All Year

Carriers typically experience peak season about six weeks a year. Because of COVID-19 carriers have been running at peak season pace for several months straight. There’s never been this level of capacity utilization in the small package network, and it’s clear that carriers weren’t ready for it. As a result, the massive increase created management difficulties for the carriers which, in turn, implemented COVID-19 surcharges that create new cost management challenges for shippers

These charges went into effect in the U.S. during the first quarter of the year, with UPS and FedEx creating a peak season operating plan for spring and summer (to handle the demand of home delivery while simultaneously experiencing the collapse of their commercial delivery volume). This created major problems: commercial deliveries are traditionally carriers’ most profitable and have been reduced to a fraction of their “normal” levels. 

Tracking the cost impact of these surcharges isn’t always straightforward. UPS created a $0.30 charge for residential and SurePost packages while also raising by $31.45 a surcharge on difficult-to-handle parcels (e.g., extra-large boxes). FedEx imposed its own surcharges on large shippers and added a $0.30 charge for express and ground residential deliveries, and a $0.40 addition for SmartPost deliveries.  

Navigating the New Gauntlet

With COVID still impacting the shipping environment, carriers rolled out holiday peak season surcharges. For 2020, these charges will be broad-based and targeted at the shippers that more significantly impact the parcel carriers’ networks. 

Charges for UPS will range from $1, $2, and $3 for ground residential and SurePost packages. These charges will begin Nov. 15 and continue through Jan. 16, 2021. UPS is also tacking on an additional handling charge of $5 per package, a large package surcharge of $50, and an over-max-limit of $250. These charges will be in effect through Jan. 16. 

FedEx began its holiday peak season surcharges of $4.90 on Oct. 5 for packages needing additional handling. Oversized package incur a $52.50 surcharge and unauthorized packages cost an additional $350. These rates will be in effect until Jan. 17. In addition, FedEx’s residential ground packages incur surcharges capped at $4 per package, while residential express shipment surcharges are $5. The latter charges are both based on specific formulas. 

The U.S. Postal Service (USPS) will implement its own peak season surcharges beginning Oct. 18 and running through Dec. 27. The fees still need to receive regulatory approval, but we expect them to be passed. The USPS fees will be applied per package and will pertain to all commercial shippers.  

Maintaining Profitability

For the first time, we’re also seeing small package regional carriers implementing surcharges. Because these fees are based on formulas and difficult to compute, planning for, managing, reporting and auditing the surcharges is difficult. Unfortunately, the combination of COVID-19 and an e-commerce boom overturned the parcel industry’s apple cart, and the change will be forever felt as parcel shippers navigate this new gauntlet.

For most companies, speed is the most important supply chain deliverable. They’re looking to move volume to the end consumer to achieve speed at an acceptable price point. We’re also seeing many companies: 

  • Exploring opportunities for faster growth or service into specific markets.
  • Going direct to consumers
  • Pivoting to maintain Amazon Prime designations by complying with requirements taking effect in February.

Managing these complexities on your own has become a major headache for parcel shippers – especially when logistics management isn’t your core business. Not prepared to make long-term commitments in technology, infrastructure, and employees, more companies are turning to third-party logistics providers (3PLs) to move quickly and affordably in this customer-centric business world. 

Third-party fulfillment allows companies to ramp up quickly to meet demand. It also creates a more elastic fulfillment environment that can be scaled up or down, depending on the volume of freight that’s moving through the operation. A 3PL will also help you lay out a master plan in advance, and then adjust accordingly as rate hikes, surcharges, and other variables come into play.   

Volatile parcel rates and surcharges jeopardize revenue your online shipping carts are generating.

In light of the rising costs of parcel shipping—and the myriad surcharges that went into effect in 2020—the biggest questions that shippers are asking themselves right now are: Where should I place my inventory? And, what SKUs should I be stocking in order to meet customer demand?  The companies that find the right balance between these two points will then be the ones that maintain profitability through this uncertainty…and beyond. 

Last Days to Ship? 7 Tips to Meet Holiday Deadlines

According to MarketWatch, Deloitte is forecasting a 1% to 1.5% year-over-year sales increase for the upcoming holiday season, during which time total retail sales will be about $1.15 billion (between November 2020 and January 2021). Meeting holiday shipping deadlines will be more important than ever.

“E-commerce sales, which have been strong throughout the coronavirus pandemic, are expected to climb 25% to 35%, reaching $182 billion and $196 billion,” Deloitte predicts. “Regardless of the scenario, however, consumers’ focus on health, financial concerns, and safety will result in a shift in the way they spend their holiday budget.”  

Here are seven tips for making sure your holiday packages get to their destinations on time.

7 Tips for Holiday Delivery Success 

The new realities of the current shipping environment have created ongoing service delays and disruptions, both of which have compounded into an overall capacity crunch for small parcel carriers. Working through this issue will require forward-thinking companies to adjust accordingly.

For example, shippers will need to be more creative and flexible to cope with the combination of COVID and the normal peak season. FedEx, UPS, and other carriers are hiring a lot more workers for the season, but we still expect to see some capacity issues. With the uncertainty, it will be more important than ever to inform customers when to expect shipments and be extremely transparent. 

Here are seven tips that will help you get your packages to their destinations on time: 

  1. Know the cutoff dates. FedEx’s last days to ship calendar is online here and UPS publishes its holiday deadlines here. The USPS plans to release its cutoff dates for holiday shipping sometime in October. Be sure to factor in these last days to ship dates when planning your holiday shipments. 
  2. Talk to your carriers. Proactively communicate with carriers regarding any expected increase in volume and any additional equipment requirements (e.g., feeders or bulk-type pickups). This will help your carriers plan ahead and provide some assurance that there will be capacity to accommodate your volume spikes (or, allow you to make alternative arrangements). 
  3. Next, talk to your customers. Companies should proactively communicate anticipated delays and properly set customer’s expectations on their websites and in any email communications. This could be as simple as featuring the holiday cutoff shipment dates prominently on the first page of your website. 
  4. Know the limits. Shippers should clearly understand any potential volume limits or caps that may be put in place by the carriers. Because these constraints can impact your ability to deliver on time, be sure to discuss them with your carrier. 
  5. Explore your options. Shippers should also understand their carrier options and negotiate favorable agreement terms to properly leverage all national, regional, and postal carriers. Having a “Plan B” in place is always a good idea during the busiest times of the year. 

  1. Start your product promos early. Don’t wait until the last minute to kick off your holiday promotions. Starting early will help you pull volume forward to avoid peak shipping periods and allow time for expected delays. 
  2. Factor in holiday business schedules. For example, USPS is closed for all of the major federal holidays. With delivery times varying between its services, knowing the cutoff dates and hours of operation are both important. 

Maintaining Transparency  

Reflecting on how parcel carriers performed for the 2019-20 holiday shipping season, UPS’ SurePost and FedEx’s SmartPost both assured 100% delivery for holiday orders that were shipped on or before December 14 or 9 (respectively). However, we also saw that as the cutoff date approached, those commitments slipped. This is something to keep in mind as you lay out your plans for the 2020-21 season. 

Using the tips outlined in this article, you can strike a nice balance between growing your company’s holiday sales while also letting customers know that there is a risk of passing the carrier’s “suggested date” for accepting pickup for a Christmas delivery. Through full transparency and good information, you can effectively manage customer expectations while also syncing with the carriers that will deliver the goods to their doorsteps.  

Peak Season Performance Requires Visibility

To make sure holiday shippers are aware of the latest trends affecting their transportation cost management, we convened a roundtable of our parcel experts. Watch or listen to our webinar “Peak Season: Are You Ready?” to hear Todd Benge, Robyn Meyer, Toni Caputo, Bernie Reeb and myself address the unprecedented challenges emerging his year.

This digital event shares strategies to help you protect profit and enhance customer experience. Watch it today to make sure you are getting charged correctly and manage the capacity risks that threaten to derail your performance.

Carrier Surcharges: What’s the Real Impact?

Now we know more peak carrier surcharges are on the way for the traditional holiday season. Between the major carriers, the UPS plan is quite a bit different than the FedEx strategy for applying new costs.

FedEx has set peak surcharges to begin as they plan to pull back the COVID surcharges, in essence, keeping the charges in place through the Christmas season. The biggest difference between the FedEx and the UPS charges is the SmartPost charge. It appears all SmartPost customers will have the charge, while the UPS and Home Delivery surcharges will be used for larger customers.

In particular, it appears the FedEx SmartPost charge looks to jump 100% for one week in December and then drop back to $1 the remainder of the season. This type of complexity between carriers and service impacts makes it difficult to manage cost.

Unlike global changes that impact all shippers (i.e., the modification in dimensional weight definitions introduced in 2015 and again in 2018), surcharges affect companies differently.

For example: 

  • An e-commerce apparel company sending most of its orders to residential addresses likely felt the brunt of COVID-related surcharges. 
  • A large B2B company delivering primarily to commercial addresses, on the other hand, was likely shielded from the brunt of these impacts, unless they were moving larger packages. 

The good news is that even though individual companies can’t control parcel carriers’ surcharges, they can minimize the budgetary impact with accurate shipping data, experienced logistics partners, and quick responses to carrier announcements.

What are Carrier Surcharges Costing You?

One 30-cent surcharge on a residential parcel shipment may seem innocuous. Multiply that fee across thousands of parcel shipments, and it’s clear just how burdensome this unexpected fee can be to a company’s bottom line. 

Furthermore, spend management becomes more complicated when carrier surcharges are based on average volume benchmarks, especially when they become retroactive to all shipments once thresholds are crossed.

Consider this: 

If a retailer averages 200,000 weekly packages shipped through UPS Ground Residential or SurePost in February, what’s the cost impact of a 30-cent surcharge when that volume increases to 250,000 weekly packages?

*After average threshold is exceeded, surcharge applies to all packages shipped.

  • If a distributor averages 50,000 weekly packages shipped residential through FedEx Ground, what’s the cost impact of a 30-cent surcharge when that weekly volume increases by 75,000 packages?

*FedEx surcharge volume threshold was higher at 40,000, and included the stipulation that weekly volume had to be 120% higher than the February weekly average.

Factor in any additional fees for oversized packages, and a shipper operating on tight margins can quickly find itself losing money on every order. And without a plan for dealing with unexpected surcharges, SKU profitability moves out of reach quickly. 

Adding to the complexity, carriers can make changes in how or when surcharges are applied – at any time. We saw this with the reduction in dimensions and weight for when carriers applied additional handling surcharges.

Although not a specifically a surcharge, shippers saw a significant change with the migration of the DIM factor from 194 to 139, which increases the billable weight for many packages.

Manage Carrier Surcharges to Avoid Budget Shock

Both the predictable and unexpected carrier surcharges are likely here to stay.

As you plan your transportation spend for the remainder of 2020 and into 2021, be sure to factor in the reality of carrier surcharges. It doesn’t take a global pandemic to create peak season pressure on carriers’ profitability and spur added fees on your parcel shipments. 

While none of us has a crystal ball — nor can we control the steps carriers take to shore up their own operations during peaks and difficult periods — preparing in advance, understanding the impetus behind the charges, and taking the proactive steps can improve your ability to control costs in the current and future parcel freight environments.

To help you improve your ability to plan for and respond to carrier surcharges, we created “Manage the Surge: Avoid Surcharge Shocks, Power Performance.” It explores the how and why behind parcel carriers’ cost-recovery tactics. Read it today for the strategies you need to power a parcel program response that offsets these costs and protects your profit.

Manage Surcharges: 4 Things to Know for Holiday Season

Less predictable, peak surcharges are creating additional complexity for parcel pricing, especially as UPS announces its holiday peak season surcharges. These new charges come in addition to similar costs in place the past few months. Combined, it is a difficult environment to manage surcharges.

For example, a parcel carrier may announce a general rate increase of 4.9%, but this is an average taken across all services, weight breaks, and zones. In reality, many rate increases are above 6% when applied to a shipper’s actual volume. 

Predictable by nature, these annual increases are usually baked into the “cost of doing business” for shippers, many of which understand that the GRI impact on their transportation rates is at least an increase of about 5% annually. 

Now, carriers are introducing accessorial surcharges at different times throughout the year in response to seasonal demand swings and business peaks. These unexpected peak season surcharges can be difficult to manage, especially during a global pandemic when dynamic shifts are occurring across the marketplace. 

Here are four things all shippers should know about peak season surcharges in 2020.

  1. Peak Season Surcharges Becoming Routine It pays to stay on top of these variations and respond accordingly. Companies that take proactive measures to offset pending surcharges are often best positioned to maintain profitability, protect their bottom lines, and keep their customers happy (and coming back for more).

    Alongside existing peak surcharges implemented earlier in 2020, UPS announced it will increase surcharges for the holiday season. Starting Nov. 15, surcharges on Ground, SurePost and domestic Air services will increase to between $1 and $4 per package, depending on the shippers’ parcel volume. At a minimum, that triples the increases implemented May 31.
  2. Parcel Carriers Felt the COVID-19 Impact During the traditional holiday season, UPS and FedEx often start hiring up to six months ahead of time. They also require larger shippers to provide volume estimates to support capacity planning. Staffed and trained, the carriers position everyone for success during the busiest time of the year. 

    These proactive moves weren’t possible during the global pandemic, and that’s precisely why the surcharges surfaced quickly in 2020.
  3. Residential Deliveries Bear the Brunt of COVID Surcharges Surcharges surfaced quickly in 2020, with higher costs on residential deliveries and large package shipments to homes and businesses quickly consuming the carriers’ margins. In response, UPS and FedEx implemented peak surcharges for U.S. domestic residential shipments and large/oversize packages due to the increased demand. UPS implemented the new charges on May 31, and FedEx quickly followed on June 8. 

    Not all shippers were caught in this particular surcharge web. Some charges solely affected large shippers with significant increases in residential deliveries compared to their average pre-pandemic weekly volume from Feb. 2 and Feb. 29, 2020.
  4. Advance Peak Season Surcharge Planning Isn’t Easy Budget planning to manage surcharges isn’t easy in an environment where these increases can arise unexpectedly. No one was prepared for the massive impacts of COVID-19, for example, so shippers had little (or no) time to prepare in advance for the surcharges. 

    The good news is that even though individual companies can’t control parcel carriers’ surcharges, they can minimize the budgetary impact with accurate shipping data, experienced logistics partners, and quick responses to carrier announcements. 

Avoid Peak Season Surcharge Shock

As you plan your transportation spend for the remainder of 2020 and into 2021, be sure to factor in the reality of “unexpected” carrier surcharges. It doesn’t take a global pandemic to create peak season pressure on carriers’ profitability and spur added fees on your parcel shipments. At the same time, in the wake of COVID-19, expect significant changes in the last-mile delivery environment, especially in terms of pricing complexity.

Individually, a 30-cent surcharge on a residential parcel shipment may seem innocuous. Multiply that fee across thousands of packages, and it’s clear just how burdensome this unexpected fee can be to a company’s bottom line. 

Remember the proverb: forewarned is forearmed. Prior knowledge of a potential issue will always give you a tactical advantage.

To help you avoid surcharge surprises, we created “Manage the Surge: Avoid Surcharge Shocks, Power Performance.” It explores the how and why behind parcel carriers’ cost-recovery tactics. Read it today for the strategies you need to power a parcel program response that offsets these costs and protects your profit.

Mitigating Parcel Delivery Challenges in a Post-Coronavirus World

Consumers are now using e-commerce as their primary channel to buy everything from groceries and small electronics to home appliances and even cars. Most of those items move through one of three parcel networks: FedEx, UPS, or the U.S. Postal Service. Because of the sheer amount of parcels being processed and handled across the United States, we’re seeing natural “log jam” points come alive, resulting in delayed delivery and dissatisfied customers.

With the challenges mounting, is it possible to mitigate issues and maintain customer satisfaction? It’s possible – but it’s critical for teams to work together and understanding the challenges currently in play.

UPS Experiences Backups In The Northeast

The Northeast region of the United States was heavily impacted by the spread of COVID-19, forcing major cities like Boston and New York to virtually shut down overnight. Although those cities are starting to open, there remains a major backlog of parcels waiting for sorting and delivery.

At one UPS facility in Rhode Island, at least 40 UPS trailers remain on the dock, waiting to be processed. The parcels in these trailers represent a substantial amount of packages, destined for many different destinations across the northeast. Potentially, that could reflect over tens of thousands of customers who are frustrated because the items they ordered are not being processed for delivery.

The northeast isn’t the only facility experiencing problems. In Tucson, Arizona, employees at one facility is expressing concern about an outbreak of COVID-19. The local union claims 36 employees tested positive for Coronavirus, while three have been hospitalized for COVID-19 symptoms. If this facility shuts down for cleaning and sterilization, it could also create problems for parcel delivery in the Southwest as well, including the major population centers of Los Angeles and Phoenix.

Trouble Continues for the U.S. Postal Service

Packages sent through the mail are also facing delay threats due to the COVID-19 pandemic. The U.S. Postal Service is chartered by the U.S. Congress to deliver first-class mail, and in 2019 they delivered over 143 billion pieces of mail to 160 million addresses across the country, including parcel delivery through Priority Mail and other products.

But the COVID-19 outbreak has forced massive changes in their structure and how they manage their workforce. According to data from the USPS, at least 60 postal workers have passed away due to COVID-19 complications, 2,400 have tested positive for Coronavirus, and 17,000 employees – or three percent of their workforce – were temporarily displaced on quarantine. While there’s no way to measure the human loss, the number of employees affected by this virus is forcing the Board of Governors to work up a plan to keep employees healthy despite a decline in profit.

The profit drop comes from a reduction in one of their most successful business areas: Direct mail advertising. At one point, direct mail advertising made up 23 percent of revenue for the Postal Service. As companies look to save money and find new ways to get in front of consumers, they are pulling away from pre-sorted and direct mail advertising, putting a major impact in the USPS budget. The future of the Postal Service is now in question, as they are experiencing both a cash and personnel crunch like never before.

Managing Difficulties and Driving Customer Satisfaction

Although the COVID-19 pandemic is creating challenges, it’s nothing that we cannot overcome. With a combination of actionable insight and sound decision making, it’s possible to still drive customer satisfaction by understanding and controlling the current situation.

To start, it may be useful to start a relationship with a secondary carrier. Opening a new door with a carrier can expand your options, especially when it comes to expedited parcel delivery. For example: although UPS has an expansive ground network, FedEx can offer more daily flight connections. Understanding the tradeoffs and opportunities give you an upper hand in determining how to ship parcels to consumers, and through what options.

From there, constant analysis of parcel delivery optimization can help you determine how effective your plans are, and how to improve them even further. Through service and compliance audits, you can find out how quickly your packages are moving, if they are moving within guaranteed service parameters, and if how many packages end up lost or damaged.

Finally, understanding the current parcel situation can help you mitigate and manage customer expectations. Expressing the potential problems and managing an understanding of when parcels may be delivered can help customers better plan for the issues, driving better loyalty in the end.

Bringing it All Together With a Trusted Partner

Navigating the parcel world in a post-Coronavirus world doesn’t have to be intimidating. The experts at Transportation Insight can help you identify change opportunities in your parcel delivery program, and lead to long-term success. Schedule a consultation with us today, and learn how our decades of experience can quickly improve your parcel program.

Parcel Volume Growth Spurs Retail Caps

Bound for a stay-at-home society quarantined under COVID-19 guidelines, a whipsaw in residential delivery parcel volume growth is a burden on small package carriers like FedEx and UPS which are accustomed to commercial service driving operational revenue.

In response to the dynamics of the current norm, service providers across the e-commerce supply chain are taking unprecedented steps to control their own financial performance while still delivering a satisfying shopping and delivery experience.

Effects of the COVID-19 disruption are still emerging, even as organizations work to pivot their processes to meet the needs of a post-pandemic supply chain. Shippers that understand how shifts in consumer demands manifest across small package networks can pivot their supply chain strategy to control costs, avoid risk and capitalize on opportunity.

Retail Sales Plunge During April

U.S. retail sales dropped 16.4 percent during April, the largest drop of its kind since 1992. The April decline doubled the previous record for one-month tumble in the sales indicator – set just a month prior during March’s 8.3 percent record drop.

While the U.S. Department of Commerce reports the sharpest dips for clothing, electronics and furniture stores, society’s continued migration toward the online sales platform accelerates.

Month over month, the online segment posted 8.4 percent growth in April as Americans shopped from home for an expanding diversity of products, from groceries to office supplies. Compared to last year, the changes in consumer behavior accelerated by COVID-19 has increased e-commerce sales 21.6 percent.

DHL, which provides local e-commerce delivery in major U.S. markets, reported volume increases of 36 percent compared to February numbers. Increase is sharpest in the Northeast, according to a release that also stated that an increase in e-commerce orders over the past five weeks has pushed DHL’s parcel volume to peak season levels.

As U.S. businesses begin reopening their doors, monitoring the evolution of consumer buying habits after COVID-19 will be an important piece in maintaining an optimal parcel shipping strategy. Will the U.S. embrace on-site shopping again, particularly in malls and other brick-and-mortar establishments? How much of your retail sales will continue to come through the e-commerce channel?

Whether your organization is an e-commerce legacy or you’re seizing new market share, serving online customers requires an expert understanding of the service implications on transportation costs. In the hurry to serve peaking customer demand, it is easy to lose sight of profitability at the order and item-level. Lacking that visibility could prevent you from capitalizing in growth areas emerging in the same environment as broader economic changes.

FedEx Limits Parcel Shipments for Kohl’s and Others

FedEx limited the number of items that about two dozen other retailers can ship from certain locations. Applied in certain geographies where volume is heaviest, the move comes as retailers across the nation have increasingly begin using closed storefronts to fulfill online orders.

For retailers, this alternative fulfillment strategy facilitates sales even when other conditions pre-empt an on-site purchase. When fulfillment alternatives are included in supply chain contingency planning, retailers can quickly pivot their network to serve parcel volume growth in emerging customer segments or specific geographies, and still maintain optimal transportation cost.

“These customers have seen significant volume growth since the spread of Covid-19,” FedEx said last week in a notice to its Ground workers reviewed by The Wall Street Journal. “In a time of already high volume growth, capping the number of packages to be picked up at these locations will limit any negative impacts to the FedEx Ground network.”

While retailers are able to keep inventory moving off shelves though online fulfillment, the volume increases in certain parts of the country have challenged FedEx facilities that were not prepared to handle a rapid increase. This is most prevalent along the East Coast and West Coast, particularly the Pacific Northwest, where the COVID-19 impacted has persisted the longest.

Customers initially affected by FedEx shipping limitations included: Kohl’s, Belk Inc., Neiman Marcus Group Inc. and Nordstrom Inc., retailers like Abercrombie & Fitch Co., Bed Bath & Beyond Inc., Hobby Lobby Stores Inc. and Eddie Bauer, and other sellers like Groupon Inc. and Young Living Essential Oils LLC. The limits varied at each location.

In an environment when parcel carriers are limiting volumes, shippers can improve critical business decision making through on-demand access to dashboards that reveal real-time access to your order volume, historical transportation transactions, carrier volume requirements and accessorial trends. Increased visibility to these and other Key Performance Indicators can deliver improved cost management and increased awareness of cost-service trade-offs.

Supply Chain Master Can Map, Mitigate Risk During Parcel Volume Growth

Organizations that are re-calibrating their supply networks to address the weaknesses and opportunities emerging during COVID-19 can benefit significantly from the support of a supply chain expert.

Our unrivalled expertise gained across thousands of supply chains allows us to offer guidance when the way forward is unclear. We’re currently helping hundreds of clients assess their small package program to make sure they have the network in place to meet e-commerce delivery demand today and tomorrow. Deploying a best-in-class technology platform to gather, manage and analyze your parcel data, we provide evidence to support your go-forward strategies.

Leveraging this technology alongside deep parcel industry knowledge and multi-modal expertise, shippers can effectively identify any existing supply chain gaps impact performance and cost management.

To learn more about how we can map your strategies for e-commerce success in the face of supply chain disruption, talk to an expert today.