New FedEx Surcharges Highlight the Need to Proactively Scrutinize and Manage Carrier Costs
Guest author Seth Kakuske of Veriship shares his insights into the impact of FedEx new surcharges:
In its March 16, 2016, conference call to discuss third quarter earnings, FedEx executive vice president, Mike Glenn, described upcoming changes to FedEx Ground handling charges. Currently, an additional handling surcharge applies to packages with a length greater than 60 inches. Beginning June 1st, the threshold will be lowered to 48 inches. This adjustment is designed to address three trends in parcel shipping:
- A shift in consumer buying habits as more consumers are shopping online and purchasing more types of goods, making specific peak days a thing of the past.
- An increase in home deliveries as more retailers are fulfilling e-commerce orders.
- An increase in non-traditional items being shipped, such as big screen TVs, mattresses, and new swing sets.
“We welcome this opportunity but it is important that we price these items accordingly to account for the operational complexities such as manual sortation to person delivery et cetera,” Glenn explained.
What Does This Mean for You?
The additional handling surcharge will apply to more of your FedEx shipments, which may result in your average cost per package skyrocketing.
What Can You Do About It?
Start taking control of the situation and driving improvement. The process starts with uncovering and measuring all of the different areas where this change may affect your parcel spend. The key is to control or eliminate the surcharges which are under your control and then work with your carrier to negotiate lower rates on the ones you can’t.
- Measure and manage the impact. You can’t manage what you can’t measure, so understanding your total landed cost on a per-package basis is a key performance indicator (KPI) that every business should be monitoring weekly.
- Implement operational changes. Once you know the total impact that accessorials are having on your parcel spend, you can begin to take specific action to reduce or eliminate overspend. With “initiative-driven changes,” you pick an accessorial or a surcharge impacting your cost per package, use the current impact per package as your starting point, and set a goal to reduce that figure by X% over the next quarter. Having the data upfront allows you to set a smart goal with a measurable definition of success.
- Hire a parcel auditing company to recover refunds on the invalid accessorials
- Utilize address verification software
- Use appropriately sized boxes
- Use USPS or similar alternatives for residential deliveries and/or low weight items
- Negotiate with your carrier to lower your fees. There will be some accessorials you just can’t avoid. But that doesn’t mean you have to pay sticker price for them. You can negotiate discounts on your accessorials in the same manner you negotiate discounts on your service rates. And just like those service negotiations, the person with the most data is going to win.
Armed with the data you uncovered in Step 1 and monitored in Step 2, you’ll be equipped to sit down with the carrier and negotiate controls around parcel spend. A parcel intelligence platform with a robust, data-driven benchmarking solution can drive you towards an optimized contract, including all surcharges and accessorials appropriate for your level of parcel spend.
Another important component of cost-effective shipping operations is a multi-carrier shipping software system that enables you to accurately capture dimensions and freight rates, and avoid unexpected backcharges.
Thank you, Seth. VeriShip is a cloud-based parcel audit and intelligence company providing innovative parcel audit, intelligence, and engineering solutions.
Logistyx Technologies is a provider of carrier-agnostic e-commerce fulfillment software and shipping software solutions that enable shippers to manage all their small parcel, LTL postal, regional, national and international carriers on one platform. We also help companies automate their reverse logistics process for greater efficiency and lower cost. Contact us today.
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