Parcel - November 2008 - (Page 18) trends HOW TO CREATE SHIPPING PROFIT CENTERS Tips from those in the know By Tim Sailor L ast month, PARCEL, Traffic World and Navigo Consulting Group conducted a survey of over 660 shippers. The survey addressed how shippers are confronting rising shipping costs and whether or not shipping was a profit center. Additionally, the survey was designed to provide benchmarks for our readers to measure and evaluate your own chargeback methods. The results demonstrated that shippers are primarily trying to control shipping costs by using different chargeback methods, changing their shipping modes and directly negotiating with their carriers (See Table 1). Table 2: A breakdown of the percent of parcels shipped by the survey respondents Shippers are utilizing a wide array of chargeback methods in their efforts to make shipping a profit center. The most common method was to chargeback using actual carrier costs that included all surcharges as well as a handling fee (29%). Although this may seem like a fail-safe way to create a profit center, fully 20% of these shippers stated that they were still losing money on their shipping. There are a number of reasons that this could happen. First, it is very difficult to truly know that you are passing along all of your actual carrier costs. Fuel surcharges change monthly and have fluctuated wildly. Also, if you charge back at the point of order entry, you will not capture back-end charges like residential surcharges, dimensional weight, reweighs and address corrections. Table 1: A breakdown of how companies are dealing with higher shipping costs Although 78% of shippers stated that they passed on the cost of shipping and handling to their customers, only 51% stated that shipping was a profit center, 26% stated that it was a cost center and 23% indicated that they didn’t know. The majority of our respondents shipped under 500,000 parcels per year and 53% were primarily B2B, while 35% were B2C and 13% were divided equally. Today’s rapidly rising freight costs have become a challenge for shippers. Not only have the carriers implemented record tariff increases and fuel surcharges, but they are constantly adding new accessorial charges as well. In the last six years, the parcel carriers have added or increased surcharges on 22 occasions, resulting in increased overall accessorial costs of 128%. While all shippers struggle to make shipping a profit center, it becomes clear that B2C shippers are having a much more difficult time recapturing shipping costs (See Table 2). This is not too surprising as the carriers have consistently increased residential tariff rates, charged higher add-ons for residential shipments and applied more accessorial charges to residential shipments in general. For example, the Delivery Area Surcharge (DAS) fee to a commercial address is $1.50, but 53% higher to residential addresses at $2.30. The next most popular chargeback method (17%) was to apply actual carrier costs, but without a handling fee. However, with this scenario, 25% of shippers reported their shipping was losing money. Clearly, chargeback methods affect the profitability of shipping operations. Survey respondents who claimed that shipping was profitable utilized the following three methods: 1) Charging a flat rate (14%), 2) applying published carrier rates (14%) and 3) Charging based on the dollar value of the order (14%) (See Table 3). Table 3: Indicates the basis on which shippers charge back to their customers More importantly, the survey showed that shippers who adjust their shipping and handling more frequently have the best www.PARCELindustry.com 18 November 2008 http://www.PARCELindustry.com
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