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A ďguaranteedĒ way to cut your shipping costs.

Originally published in the July 2007 issue of the Associated Mail & Parcel Centers News & Ideas magazine.

Click 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 opportunity.   If 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 year.

Donít have time to track all of those packages?
Leave it to us!


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