ARE YOU LEAVING MONEY
ON THE TABLE?
A ďguaranteedĒ way to cut your shipping costs.
Originally published in the July 2007 issue of the Associated Mail & Parcel
Centers News & Ideas magazine.
here to download the
magazine in PDF.
If you ship with FedEx or UPS and donít hold them
to their service guarantees, the answer is YES,
and there is absolutely no need for it.
FedEx and UPS absolutely positively guarantee that your package will
arrive at its destination by the time promised. They use on time service
guarantees as a marketing tool to compete with each other to attract your
business. If itís more than one-minute late and their fault, you are
entitled to up to a 100% refund of your shipping charges.
On time delivery is their benchmark for service quality and they take it
very seriously. If they donít measure up to the standard they set for
themselves, they will give you a refund if you ask for it. The problem is
that you have to know that a shipment was not delivered by the guaranteed
time, and then apply for the refund all within that very brief window of
your refund request is late by just one day, your refund is lost forever.
The refund policies of each carrier are available in their service guides
and on their websites. They are quite complex, but they spell out the
conditions under which ground, expedited, international and freight services
are guaranteed. Basically, ground shipments are guaranteed to be delivered
by the end of a certain day, and expedited shipments are guaranteed to be
delivered by a specific time on a specific day. If a package arrives late
for reasons beyond the control of the carrier, they can and do rightfully
decline to pay a shipping refund. Thatís fair, but a majority of the time it is their
fault, and they are willing to pay.
What does this mean to you? Revenue. When you purchased the shipping service
from the carrier, you bought and paid for a guarantee. Itís no different
than the warrantee on your new car. If anything goes wrong in accordance
with the manufacturerís warrantee, they will fix it. In the shipping
industry, that fix is a service-failure refund. Service-failure refunds fall
straight to your bottom line as a reduction of your shipping costs, and
therefore directly increase your profit.
How often are shipments late? More often than you think. In the summer of
2006, the PA Consulting Group, an international management, systems and
technology consulting firm conducted a study on U.S. Domestic 10:30 am
expedited service performance between DHL, FedEx and UPS. The purpose of the
study was to determine how often the carriers delivered on time. This study
is available, at the time of this writing, on the DHL website. In summary,
by shipping approximately 14,400 packages evenly divided between carriers,
in a matrix comprised of 44 of the 50 largest U.S. cities, they arrived at
specific performance rates for each carrier. Between them, the average
percentage of shipments delivered on time was 89.84%.
So, roughly 90% of shipments sent between major U.S. cities during the
summer were delivered on time and roughly 10% were late. Of course, major
U.S. cities have the most sophisticated and mechanized package handling
systems in the world, and the summer months are typified by good weather and
low volume. If those packages were sent to or from rural areas in busy
shipping periods, the extra distance, weather and system volume will
introduce extra chaos for the carriers to manage and inevitably the on time
performance will reflect it. Itís a statistical certainty. Place your bets
for on time delivery: Boston to Los Angeles in the summer or Yarmouth, ME to
Alpine, CA in December.
Does this apply to ground shipments? Absolutely! Many shippers do not
realize that ground shipments are guaranteed. Further, they will likely
produce more service-failure refund revenue than expedited shipments. The
aforementioned study did not examine ground shipments for on time
performance, but they are late about half as much as expedited shipments, or
about 5%-7% of the time. In most cases, the package arrives a day late and
you would not know it unless you tracked it or your customer complained. You
would then be eligible for a full refund of your shipping charges.
What will your experience be? The truth is, you are unique. Your experience
will vary from the results of the study, sometimes significantly. One thing
is for certain, you do not consistently ship large city to large city in
optimal summer conditions. A retail shipper usually has shipments that are
non-repeating and widely dispersed because they ship to destinations
dictated by occasional customers. Other shippers, like manufacturers often
ship similar packages to the same customer locations each month and thereby
have a very predictable failure rate. Your actual experience is not subject
to the systemic rates until your packages are inserted into the carrierís
mainstream system. A significant part of your experience is controlled by
your carrierís local operation. That means your pickup driver actually has a
hand in your on time performance rates! Even your local weather conditions,
traffic and your local infrastructure, including the public and private
transportation systems the carriers must use (ferry, aircraft, train, etc.)
come into play. The only way to know for sure is to audit every shipment for
a period of time and examine the actual results.
How much money will you save? Itís really a function of your shipping
volume. The example below illustrates potential freight refund revenue using some
generally accepted estimates. Again, your actual results will vary somewhat.
Use the example to extrapolate to your volume and service mix in order to
decide whether to begin analyzing your shipments or not.
Letís say that a typical retail shipper has shipping charges of $1,000.00
per week. Lets also say that their revenue is split at 85% ground and 15%
expedited. Lastly, we will conservatively say that the carriers pay refunds
on just 50% of the late shipments. Thatís 10% late x 50% = 5% for expedited
shipments and 5% late x 50% = 2.5% for ground shipments.
$1,000.00 x 15% = $150.00 expedited shipment cost
$1,000.00 x 85% = $850.00 ground shipment cost
$150 x 5% = $7.50 expedited shipment savings per week
$850 x 2.5% = $21.25 ground shipment savings per week
Total weekly savings estimate ($7.50+$21.25) = $28.75
Total annual savings estimate ($28.75 x 52) = $1,495.00
On a percentage basis, that is a ($1,495 / $52,000) = 2.875% savings.
That is truly a conservative ratio in most cases.
What to do next? Stop leaving money on the table! Track your packages and
apply for your refunds! You will very likely knock 3% or more off of your
shipping charges. That equates to about 1.5 - 2 weeks of free shipping per
Donít have time to track all of those packages?
Leave it to us!
Call us: (888) 438-7801