The Shipping News

No matter how tight your operating budget, there are some things you can't cut, including the need to provide excellent service by delivering products on time.

Still, companies are doing what they can to can trim the fat from parcel-shipping costs.

In a recent survey, 96 percent of logistics managers in mid-sized and large companies reported making significant changes to their shipping strategies due to the economic downturn. In the survey, conducted by Kewill, a U.K. global trade and logistics software maker, companies said they were reducing shipping and logistics staff, using lower-cost options and changing carriers.

Some mid-size companies choose to cut costs by outsourcing to third-party shipping and logistics specialists. Those that don’t outsource can also save through careful analysis, research and educating their workforce.

The specific strategies that will cut shipping costs depend on a company’s size and shipping volume, among other variables. "You have to know the characteristics of your product and customer mix, understand how the carriers work…how they price and their rules," says David Armstrong, logistics manager for Baxa Corp., an Englewood, Colorado, medical device manufacturer.

Cost-saving tactics are perhaps even more important today than a year ago. As parcel-shipping demand in certain industries has started rising with the improving business climate, carriers have less incentive to cut customers a deal. The change is showing up in the major carriers’ bottom lines. By mid-summer 2010, FedEx announced it was expecting summer-quarter earnings to grow anywhere from 81 percent to 116 percent over the same period in 2009. UPS also lifted its profit forecasts based on an expected boost from higher industrial orders and online retail sales for fall, according to a Wall Street Journal report.

Choosing a Carrier
If you're looking to save on shipping, a first step is determining how to optimize your relationships with the major carriers. For companies that ship 10 to 20 packages or less a day, using a single provider is often the way to go. "The higher the volume, the better price you get," says Dan Lockwood, president of Unishippers, a UPS reseller and service provider that works with such mid-size companies as Unilever Freezer Management, Seattle Sports and Steve Madden. "This is very different than the freight business, where there are so many different carriers and you really can optimize among lots of providers."

Companies that ship hundreds of packages a week have the flexibility of choosing whichever carrier can give them the best price or service in a given circumstance. At Baxa, the medical device maker, "If we have a high-volume day we can easily move things over to the other carrier, and sometimes customers have requests for certain carriers," Armstrong says. Baxa’s shipping volume with FedEx and UPS is "significant," though Armstrong would not disclose specific numbers.

Pricing and service aren't the only variables to consider in choosing a carrier. Technology integration can provide valuable efficiencies, and a company may choose to work with whichever carrier is a better fit for its systems. Baxa, which employs 400 people around the globe, does most of its business with FedEx because its ERP system is linked to FedEx’s information systems to better integrate customer and order data, Armstrong says.

Start with Obvious Changes
After Armstrong joined Baxa in early 2010, he set a goal of cutting 3 percent of the company’s shipping costs this year. Ultimately, he’d like to simplify decision-making by using formal, statistically-driven methods, including regular audits and using shipping-optimization software.

Until then, Armstrong is targeting low-hanging fruit. That entails monitoring myriad rates and extra fees carriers charge for address changes, private residence deliveries and other variables. Fortunately when Armstrong has questions he says he can find answers to most of them online. He also uses a network of former transportation industry colleagues for advice.

Armstrong also recently implemented a collect shipment program with FedEx Ground, which gives Baxa negotiated discounts on inbound shipments instead of having suppliers pre-pay for shipping and invoice Baxa, which can be more expensive.

Companies can also save by optimizing packaging, a complex exercise based on carrier rules that charge extra for packages that exceed certain dimensions. For example, when a company ships multiple packages to the same location, it could be cheaper to use several smaller boxes instead of one large one that would incur greater dimension-based charges.

Outsourcing
Companies without a full-time logistics manager working on shipping tactics can contract with a third-party service provider.

One company that took that route is Diabetes Specialty Center. The Salt Lake City supplier of insulin pumps, glucose monitoring devices and other diabetes products ships hundreds of packages a week to consumers in 40 states. Since starting to work with Unishippers six months ago, the company has shaved 10 percent from its parcel shipping costs, says Marc Cohen, Diabetes Specialty Center’s president and CEO.

Outsourcers such as Unishippers save money by consolidating shipments across multiple clients to get volume discounts. Beyond that, outsourcers can provide more personalized service than the big carriers can deliver. For Diabetes Specialty Center, which has 53 employees and relatively light shipping volume compared to large enterprises, working directly with carriers is often frustrating, Cohen says. On the other hand, "Our Unishippers guy is here weekly."

As part of its service, Unishippers also tracks each package Diabetes Specialty Center ships, assigning parcels to one of the company’s four business lines, which can make it easier to spot areas that need improvement. Using the tracking service, Diabetes Specialty Center determined that one business unit was spending a lot on expedited shipping, a practice the company reduced by coming up with a way to ship products earlier instead of resorting to overnight service.

Educating Employees
The easiest way to reduce shipping costs is to educate employees. Companies can save simply by training workers to minimize their use of overnight shipping and other premium services. Such service downgrades have been common at many mid-size companies due to the recession, says Lockwood, the Unishippers executive. Ground shipping and other low-priced options have improved and offer more guarantees these days, he says.

At Baxa, Armstrong frequently helps guide the company’s business managers in their shipping choices. He also pushes the importance of using the correct department account numbers so when shipments are made, costs are allocated appropriately. The result, according to Armstrong, is better financial reporting, and a more accurate picture of a business unit’s spending, which in the long run can change behavior.

It takes a thoughtful strategy to save money in shipping. Spending time to get it right is not only worthwhile, but necessary. Unlike vendors of other business services that have taken to deep discounting to retain customers during tough times, carriers haven't had to go to those lengths. “Despite the economy, prices have held up," Lockwood says.