Parcel - October 2008 - (Page 28)

operations MAKING ENDS MEET The economy is down, shipping costs are up. Now what? By Melissa Priest the increase in the fuel surcharge adds an additional 18.1%. Taken together, that is a 26.6% overall increase over the past 12 months and a fuel increase of 66.7% in just the past seven months. This massive increase in cost is because the fsc has increased 19 percentage points since July of ’07, with 13 of those percentage points coming since just January 2008. So what is the best course of action? A renegotiation of your existing carrier agreements for two main reasons — a compounded reduction in shipping charges and leverage with the carriers based upon current marketplace conditions, which are competitively favorable today, but may change significantly, at least on air parcel transportation with the pending DHL-UPS deal. The transportation providers, shippers and consumers are all grappling with the unprecedented increase in fuel. The continued volatility, at least for the foreseeable future, makes fuel itself very difficult to negotiate and puts the carrier in position of vulnerability. This is not a great place to start a negotiation. However, with a careful renegotiation of your agreements, you can also reduce the amount of fuel surcharge paid. Since the fuel surcharge is a percentage added to both the base transportation charge and is also tacked on to certain accessorial charges, a reduction in either of those factors amplifies the savings. UPS and FedEx stocks are both considered economic bellwethers of the US economy, and the stocks have suffered recently based upon poor domestic growth and their downgraded earnings estimates. Investors like to see growth, of course, which is tough to pull off in a contracting economy. Since growth is not happening organically, the carriers are left defending their existing business and trying to convert customers from their competitors. The carriers and carrier representatives are highly motivated to keep existing business and grow new business as well. In today’s times they are even more pressure to do so. The increased pressure for growth provides the opportunity for deeper discounts and more negotiating power, provided the competitive element is real. The carriers consider very carefully if there is any true risk to their business and price accordingly. P erhaps you negotiated your small parcel contracts awhile back. So you think those negotiations are in the past for now. Well, it’s quite possibly time to think again. With an economy that hasn’t been in this much turmoil in decades, coupled with the historic and rapidly increasing cost of oil, this might be the very best time to revisit those agreements, even if you’ve recently done so. Additionally, the recently announced airlift arrangement between DHL and UPS could have a significant impact on the competitive landscape, as its announced structure would remove a significant amount of excess air capacity that exists in today’s market. DHL’s current lift would go away completely, and much of UPS’ air capacity would be filled with DHL packages. With the economy staggering, many shippers — large and small alike — have experienced rate increases in the neighborhood of 10% on ground shipments and 26% on express shipments in the past 12 months, when adding both the general rate increase and fuel surcharge (fsc) increases together. These increases are difficult to pass on, especially in a stagnant economy. A 10 lb. Zone 6 UPS commercial ground package in July 2007 cost $7.52. That same package just one year later costs $8.28. Part of the increase is due to the general rate increase, which was five percent. However, an additional five percent is due to the increase in the fuel surcharge, which has gone up five percentage points since July of ’07 and another 3.25 percentage points since just January 2008. That’s a 52% increase on fuel in just seven months. A 10 lb. Zone 6 UPS Next Day Air package in July 2007 cost $70.26. That same package just a year later costs $88.97. The general rate increase for air packages was 8.5%. However, 28 October 2008

Table of Contents for the Digital Edition of Parcel - October 2008

Parcel - October 2008
Editor's Note
What Would Augello Say?
Best Practices Survey Results
Going with the Flow
Is Your Parcel Network Optimized?
Last (Mile), but Not Least
Moving From Manual to Automated Fulfillment
A Race for Excellence
Making Ends Meet
Is Your Job Killing You?
Software Selection Demystified
Controlling Costs
On the Mark
Product Profile
New Products & Services
Advertiser Index
Wrap Up

Parcel - October 2008