Third-party logistics providers can help shippers navigate the cost pressures of increased e-commerce demand
You probably noticed your online purchases are taking a bit longer to arrive this holiday season. The e-commerce data clearly shows why. Seasonal surges combined with stay-at-home pandemic purchases are generating upwards of 7 million additional daily packages compared to previous years. Online shopping is booming with $5.1 billion in sales on Thanksgiving Day, $9 billon on Black Friday, and $10.8 billion on Cyber Monday—now the biggest online shopping day in U.S. history.
The multi-billion dollar increase in online shopping has the nation’s largest parcel carriers extending delivery times. Between Black Friday and December 3, FedEx only delivered 75% of parcels on time. The same week in 2019 shows 91%. Cyber Week for UPS was similar with 80% on-time performance compared to 90% the prior year.
UPS responded to the shipping onslaught by issuing a “no exceptions” directive to stop picking up packages at several large retailers including Nike, Macy’s, and L.L. Bean until capacity became available. The company cited pre-negotiated package allocation limits as the reason.
The delayed deliveries arrived with another blow to domestic shippers during their make-or-break fourth quarter: significant rate increases.
Both UPS and FedEx issued new surcharges in June to compensate for rising capacity demands and cost pressures created by the coronavirus lockdown. The companies then announced another round of surcharges and fees in August for the holiday peak season from October 5 through January 17. Shortly after came the announcement of general rate increases (GRIs) for 2021 which averaged about 4.9%.
The increases include costly 2021 surcharge adjustments. FedEx added a minimum of $1 extra per package for Additional Handling and instituted new dimensional restrictions. The rate hikes also introduce a new High Cost Service Area surcharge for certain U.S. Zip codes representing both high-traffic cities and rural areas.
Analysts expect other carriers will follow suit.
Limited capacity and steadily increasing costs have many shippers feeling handcuffed. However, everything is negotiable.
“Shippers who accept standard rates or have not renegotiated their carrier contracts in several years likely are paying more than necessary. Now is the perfect time to engage a 3PL as a powerful negotiator and network partner to control costs and improve service,” said Cathy Langham, President and CEO of Langham Logistics.
Sophisticated third-party logistics providers bring a unique set of skills to the negotiating table. They combine advanced technology, buying power, and relationships to rework rates and networks for improved results.
Logistics providers develop a core carrier network for their client base. This creates volume buying opportunities. Small to mid-size enterprises can realize lower rates using the collective volumes of multiple shippers within the 3PL’s carrier network.
These third parties also put individual contract rates under a microscope for additional savings. Shippers often make the mistake of using broad strokes in their contract negotiations. A 3% across-the-board discount on all published rates, without analyzing individual surcharges, can negate savings.
Key negotiable fees include:
- Minimum charges – carriers frequently raise per piece minimum charges along with GRIs. A skilled 3PL will crunch the numbers finding the best combination of discounts.
- Dimensional price – parcel carriers price packages using the greater of actual versus dimensional weight with a standard divisor. That divisor has decreased in recent years allowing carriers to squeeze more revenue out of the same shipments. By understanding the dimensional charge impact, 3PLs help shippers negotiate a more favorable divisor.
- Accessorial costs – most carriers host a multi-page list of accessorial costs. Fuel, residential deliveries, oversized packages, weekend drops, reconsignments—all represent common fees. However, each can be targeted for negotiation.
- Revenue bands – many carriers, especially LTL and parcel specialists, price using revenue bands based on projected volume. Moving between bands can come with significant financial penalties. Savvy 3PLs will negotiate wider revenue bands and volume flexibility while also layering in additional carriers for excess capacity. The strategy helps keep rates consistent when different seasons and circumstances impact volume.
Before any contract negotiation, shippers should engage a 3PL in a comprehensive network analysis. Consider volumes, lanes, consolidation points, overall freight spend, and individual charges. This third-party review provides three significant advantages:
- Identifying current inefficiencies and potential improvements.
- Understanding volume trends and determining seasonal spikes compared to a new normal.
- Creating a benchmark that isolates the most beneficial concessions in carrier negotiations.
Carriers want a business case for modifying their fees. A 3PL review can build the win-win scenario for both the shipper and carrier.
Leveraging Diverse Services
Not all shipments are created equal. Neither are carriers or their services. Single-sourcing volume is easy, but not always cost effective. Logistics providers review multi-modal opportunities and shipment options. Both FedEx and UPS offer multiple delivery services at different price points. Investigating evolving customer needs may present the opportunity for capitalizing on discounted carrier options without compromising service.
Freight Bill Auditing
Accessorial costs nickel and dime a shipper’s budget. According to the Journal of Commerce, surcharges represent a larger portion of overall shipping charges every year. Working with a 3PL offering auditing services ensures no charge goes unchallenged. A 3PL will review all accessorial requests before authorization and challenge any invoice posting an overage from the negotiated amount. This ensures shippers avoid unnecessary costs or correct practices generating avoidable surcharges.
Higher Rates? Look to Langham Logistics
Companies battling big rate increases should engage a 3PL willing to go to bat on their behalf. Langham Logistics provides value-added services that go well beyond moving a shipment from point A to B. Our team analyzes networks and creates new solutions. We apply advanced, propriety business intelligence software to identify inefficiencies and build transparency. Langham then sits at the negotiating table maximizing every shipper dollar. Once the deal is done, we execute on each shipment creating on-time, on-budget deliveries. Langham’s comprehensive services makes us more than a logistics provider. We are a partner. Learn more about the Langham Logistics difference before your next negotiation.