transportation impact 2015 q1 newsletter

O ne of the most common questions I’m asked throughout my travels, whether by CEOs or whoever happens to sit next to

me on a plane, is “Why Emerald Isle?”

For those who don’t know, Emerald Isle, the town Transportation Impact calls home, is located along the southernmost portion of North Carolina’s Outer Banks. Of course, it isn’t the first place you think of in relation to the country’s most popular locations for commerce. With a population of 3,784, our town is better known as one of the top vacation destina-tions on the East Coast, and for many of our employees, it has long been the place they call home.

When we started the company in 2008, my partner and I didn’t have to put much thought into kick-starting the business right here in our own backyard. After each of us left our 20+ year careers with UPS, we sought to create a company that was big on production and big on giving back

to the community that we held in such high regard.

One of the most valuable lessons I’ve learned between then and now, is how important support can be for a growing business, and nowhere have we found more support than right here in the town of Emerald Isle. In addition to the beautiful beaches that are a short walk from our office’s front door, one of the biggest benefits to locating our business in this tight-knit town has been the many opportunities that Transportation Impact has had to show the community the same support it has shown us.

Homegrown As our business has grown, our staff have been able to join dozens of great causes that we might not have had the oppor-tunity to become so intimately involved with had we located someplace bigger. While our efforts surely pale in compari-son to large corporations, giving back to the community that has given so much to

us is something we work at every day. The relationships we’ve built as a result are irreplaceable and are collectively among our company’s greatest accomplishments.

Island timeDuring a time when so much is changing, when things are moving so quickly, I en-courage you all to look for opportunities to set your clocks to what we call “Island Time.” It’s a phrase many in our area use as a reminder to make time to slow down and enjoy all the great things going on around us. We are a busy company, and the world is a busy place. But every now and then it’s important to remind our-selves to slow down and enjoy the ride.

Keith ByrdCo-Founder, Principal PartnerTransportation Impact

Welcome

Emerald Isle, the town Transportation Impact

calls home, is located along the southernmost

portion of North Carolina’s Outer Banks.

Local photographer Brad Styron captures Capt. Jack shrimp boat heading out for a night at sea. (bradstyronphotography.com)

[2] /// QREVIEW · January-March, 2015 · NO.2/Q1 /// transportationimpact.com

Partner Spotlight Intentional Grounding

Adding Fuel to the Fire

By offering competitive, cost-effective solutions and superb customer service, OnTrac is leading the way in regional delivery to the West Coast.

A quick study of each carrier’s Ground transit maps can uncover significant cost savings for companies willing to trade down.

FedEx responded to lagging gas prices by increasing its fuel surcharge.

4-5 10-11

6-9

Depending on your discount levels and package char-acteristics, the minimum charges within your FedEx or UPS carrier agreements can have significant impacts on your bottom line. Es-sentially, these charges represent a price floor that often prevents companies from realizing their full discounts on ground, air and acces-sorial charges.

Before you can determine whether your discounts are as good as they look on paper, it is imperative that you calculate the net impact of your incentives, inclusive of the minimum charge, to see how much of your price breaks will be reflect-ed in the net charges.

Negotiating aggressive discounts is an important part of competitively positioning your business within your market. Realizing those incen-tives, however, could determine whether your company simply competes with other businesses or thrives within its space.

QREVIEW is a quarterly newsletter published by Transportation Impact. All content in this publication is under inter-

national copyright laws. No part of the content can be reproduced in any form without the prior written permission of

Transportation Impact.

Q-Tip The Bare Minimum

Contents

PRICE FLOOR

ANALYZESTRATEGIZEREALIZE /// [3]


Shippers know now, maybe more than ever, that they need options. The strug-gles to meet demand and stay competitive are as evident now as they have

ever been, and as national carriers UPS and FedEx continue to closely align pricing for their respective

services, decision makers are start-ing to look elsewhere.

Enter OnTrac:a leading regional overnight package delivery service to the West Coast and one of many in a growing trend of trusted regional carriers.

The story of regional carriers has long gone the way of the underdog. The sheer size of the world’s two largest shipping companies has naturally made it a tough market for others to enter, much less prosper in.

But by covering a targeted area and placing a strong focus on customer service, shorter time in transit and competitive rates – three of the most significant pain points for

StayOnTrac

The faster, more affordable alternative for regional package delivery.

Partner Spotlight

AZ

UT CO

WA

ID

NV

CA

OR

OnTrac

OnTrac took things a step farther late last year when it launched DirectPost, a partnership with the U.S. Postal Service to provide a ser-vice to rival FedEx SmartPost and UPS SurePost. Transit times for the latter services could take as long as a week, while OnTrac’s DirectPost offering aims to cut the time for de-liveries down to two or three days for most packages, according to a November report by The Wall Street Journal. That’s just one day slower than OnTrac’s already speedy ground service.

OnTrac expects the service to be a boon for retailers shipping prod-ucts within its 8-state West Coast network, especially those that offer free shipping to their customers. E-retailers, fulfillment and di-rect mail companies that ship a minimum of 500 small, lightweight packages per day can access thou-sands of postal facilities through-out OnTrac’s network through the service, according to the company’s website.

Of course, quick, cost-effective de-liveries don’t offset the importance of attentive customer service.

As competitiveness within the overall economic landscape con-tinues to increase, companies are looking to vendors to help them carry the burden. OnTrac has the advantage in these situations, too, Magill says, because the size of their market segment promotes a more intimate partnership and thus a more capable understanding of a customer’s needs.

“What’s considered a large cus-tomer for OnTrac would not be considered a large customer for FedEx and UPS,” he said. “So our customers are going to get that account representation, where they have a local sales rep in the area, who they can contact, who can just drive right over.

“There’s a sales rep in our custom-ers’ neighborhood, period.”

For large accounts, Magill said that OnTrac even will assign a special account representative whose job is to walk customers through On-Trac’s Blue Ribbon implementation process, which Magill equates to a “pilot’s checklist,” ensuring things get done the customer’s way, from setup all the way through execu-tion.

The company’s strong focus on service led to another significant launch: same-day service to Los Angeles, San Francisco, Phoenix and Seattle, the four major metro-politan areas within its network.For large customers, the story doesn’t end there.

“We even do Saturday and Sunday pickups during peak season, and deliver on Saturday and Sunday as well,” Magill said.

“We do what it takes to go the extra mile to make sure our cus-tomers have the experience they’re looking for.”

shippers – companies like OnTrac are chipping away at the market.

“When you’re in a service industry, your service levels are all-import-ant,” explains Mark Magill, vice president of business develop-ment. “Without that, you don’t have a business, basically. A lot of com-panies are saying, ‘We finally need a West Coast (distribution center).’ For example, if a customer has a DC in Reno, we can deliver next day at ground rates from the Canadian border . . . all the way down to the Mexican border.

“An express service over a huge area like that, but at ground rates, is very compelling for people looking to improve their customer experience.”

More info — ontrac.com

Mark Magill, VP Business Development


There’s a sales rep in our customers’ neighborhood, period.

OnTrac’s New DirectPostA mail product that combines the

speed of OnTrac with the last-mile delivery of the USPS.

Parcel news

Rising costs in the face of poor prior-year holiday performance forced businesses of all types and sizes to trim the fat from various facets of

their operations. Though many struggled to prepare for dimen-

sional pricing changes that piled onto FedEx and UPS general rate increases that have long been the norm, at least they knew what was coming.

The mere calculation of the bottom-line impact of the dimen-sional weight pricing changes, difficult in itself, was only part of the problem. The trickle-down ef-fect of those rate hikes, shippers knew, would require the explora-tion of more efficient packaging, regional carriers, tech upgrades: a gamut of 2015 initiatives that surely hung like an albatross

Addi

ngFu

el to

the

For FedEx shippers in particular, there’s a part of the equation that they either didn’t have time to prepare for, or may not even have known took place.

FIREBarely a week in, 2015 may well have proven itself as the most interest-ing year in the history of parcel shipping (What a triumph!). During the home stretch of 2014, tryptophan wasn’t the only source of heartburn

for shippers across the country.



from the necks of businesses already facing a revolutionary shift in consumer behavior, and thus increased competi-tion.

The silver lining in it all was the general uptick in consum-er confidence in the American economy, significantly fueled by, well, fuel. With gas no lon-ger syphoning bank accounts, businesses everywhere were the beneficiaries.

Shoppers showed their appre-ciation by spending.

It was, as closely as it could be, a win-win-win. Consumers had more disposable income, businesses had more product to replenish, and the carriers had more volume whipping through their feeders and onto their package cars and planes.

Are efforts paying off?But as has been the case for billions of years, time marched on, and the calendar turned. As of January 6, reality – and higher prices – took hold, and shippers have now had a little more than a month to determine how much their efforts during the latter part of the previous year paid off.

For FedEx shippers in particu-lar, there’s a part of the equa-tion that they either didn’t have time to prepare for, or may not even have known took place. During its quarter-ly earnings call on December 23, FedEx quietly notified the world that its fuel surcharges would increase. Those chang-

es became effective February 2, and now more closely parallel UPS’s charges for fuel. The move was compensation, FedEx said, for the decline in the cost of fuel and thus the decline in revenue from the fuel surcharge.

Famous for its marketing tac-tics, FedEx’s reported justifica-tion fails to pass the sniff test in one important regard. Sure, as gas prices fell, so too would FedEx’s top-line revenue asso-ciated with fuel. At the same time, though, costs could also decline in proportion with the fall in revenue, making it conceivable that FedEx would not end up on the losing end despite being a little lighter in the wallet.

Moreover, the general consen-sus of economists is that oil

won’t be this cheap forever, and probably not even very much longer. The president himself was forthcoming in admitting that this trend cannot be sustained. The gen-eral assumption of just about everyone on earth is that oil prices will soon begin to rise. As they do, the percentage increases (for both carriers) will compound the cost to the customer.

That can’t be welcome news to shippers already clamoring to find ways to lower costs in the face of their carriers’ continuing to turn in record numbers for their sharehold-ers. Even the savviest of shippers could have a hard time sifting through invoices in search of optimization opportunities,

a theme that has perhaps never been more prevalent throughout every facet of the shipping industry.

Both carriers base their price for fuel on a rounded average of the national U.S. on-highway average price for a gallon of diesel fuel for ground shipments and on a rounded average of the U.S. Gulf Coast (USGC) spot price for a gallon of kerosene-type jet fuel for air shipments. In each instance, the charges are updated monthly, based on the prices reported by the U.S. Energy Information Adminis-tration (EIA) for the period two months prior.

The savviest of shippers could have a hard time sifting through invoices in search of optimiza-tion opportunities.

Famous for its marketing tactics, FedEx’s reported justification fails to pass the sniff test in one important regard.


Parcel news

What in the world does that mean?Well, to start, depending on what those published prices are, each carrier assesses its fuel surcharge percentage according to the four tables pictured:

From there, the percentage is applied to the net transporta-tion charge amount (the base transportation charge minus any discount incentive) plus any delivery-related service charges (delivery area sur-charge, residential surcharge, etc.).

For example, let’s look at a Zone 4 FedEx Ground Commercial shipment with a rated weight of 11 pounds and assume the customer had a 15% base transportation charge discount for this ser-vice level and weight break. Let’s also assume that the package originated in Atlanta (30338) and was destined for Hebron, IN (46341), a commercial delivery area sur-charge destination, and that the shipper has requested an adult signature upon delivery.

Do the math The FedEx published rate for a Zone 4, 11-pound package in November 2014 was $9.95 (we’ll get to 2015 in a minute). To apply the fuel surcharge, you must first deduct the 15% discount from the $9.95 base rate, which subtracts $1.49, leaving a net transpor-tation charge of $8.46. The published commercial deliv-ery area surcharge for each carrier was $2.07 last year,

and since that is a delivery-re-lated service charge, it will get added to the rate before applying the fuel surcharge, marking the package up to $10.53, excluding any other delivery-rated service charges (the surcharge for adult signature in this instance) that might be applied. In Novem-ber, the fuel surcharge for FedEx was 6.5%, or $0.68 for this package. Tack that on to arrive at a net rate of $11.21, then add on the charge for adult signature ($4.75 in 2014) to arrive at the pack-age’s true, net billable rate of $15.96.

Generally, FedEx fuel surcharges rose anywhere from 0.5% to 1.0% effective February 2, hikes which are compounded by three factors: dimensional weight pricing changes, 2015 general rate increases and potential in-

creases to the average cost of a gallon of diesel fuel.

Assuming the dimensions of the box in the example shipment above were not large enough to increase the 11-pound billable weight of the package in 2015, the base transportation charge increased 5.5%, from $9.95 to $10.50, the commercial delivery area surcharge rose 6.3%, from $2.07 to $2.20, and the charge for adult sig-nature rose 5.3%, from $4.75 to $5.00.

If the price of fuel in the example remains relatively constant at the time of the shipment in 2015, that same package will cost between $16.91 and $16.96, an overall increase of between 6% and 6.3%. If the dimensions of the shipment do impact the bill-able weight of the package,

then the net rate could soar even higher.

And if the price of fuel goes up . . . You get the idea.

Alas, though much collective attention was paid to the news of these changes at the end of last year, the practice of determining just how much they are now impacting shippers, in conjunction with the recent change in FedEx’s fuel surcharge table and the potential for the price of fuel to increase in general, likely is just getting started.

Analyze the dataEven companies equipped to analyze huge data sets will have to strain their resources to find better, more cost-ef-fective options to get their shipments to their destina-tions. Shops without those resources face a potentially

Current UPS and FedEx fuel surcharge percentage rates.



perilous period of rising costs, which now seem to be orig-inating from every direction. Regardless of whether it is in the best interest of a company to make the costly invest-ment to bring more resources in house, or to outsource cost initiatives to third party consultants, 3PLs, regional carriers, etc., the most effec-tive way to drive cost out of a business will prove to be a case-by-case scenario.

Are changes ahead?The only certainty is that costs are rising at an alarm-ing rate during a time when commerce, and the econo-my as a whole, seems to be developing a level of confi-dence not seen in years. In a perfect world, this would be a period of peace of mind for companies and personnel that were dealt a significant and lingering blow during the latter stages of the 21st cen-tury’s first decade. The reality however, is that the landscape we do business within has drastically changed, and the demands of staying on top of price and consumer behav-ioral shifts have never been more important.

The good news is that the opportunities are endless in this, an entrepreneurial age. If companies take the necessary measures to ensure that their supply chain engines are optimized and well oiled, they can still go far.

If not, though, they could eventually run out of gas.

The most effective way to drive cost out of a business will prove to be a case-by-case scenario.


OPTIMIZE When determining which carrier will best service your company’s small package needs, the first question worth asking is the simplest: Which carrier can get your product to its destination fastest and at the lowest cost?

One of the most surefire ways to optimize your parcel supply chain is also one of the easiest.

A BETTER PICTURERequest that your carrier rep provide a time-in-transit analysis based on the popu-lation of the zip codes where discrepancies exist.

Shipping Strategy

intentionalgrounding


Intentional Grounding

headquartered in Emerald Isle, N.C. Using our headquarters as an ex-ample (our zip code is 28594), the maps that populate show FedEx has distinct advantages from our location. Of course, the results will vary according to your company’s

location, but it’s safe to say that anything we ship FedEx Ground has a good chance, geographically, of getting to about half the country a day sooner than if we ship with UPS.

Either carrier brings plenty to the table in terms of service, but given the relatively level playing field be-tween what really amounts to two primary competitors in the market, any advantage should be analyzed and carefully considered.

First, perform your own study using the method outlined above. Next, request that your carrier rep provide a time-in-transit analysis based on the population of the zip codes where discrepancies exist. This exercise may validate an advantage portrayed by the time-in-transit maps or, to the contrary, unveil that, based on your busi-

Map to your advantageTime-in-transit maps can save your company money.

ness, the impact isn’t as substantial as it first appeared.

In either scenario, your team will be left with a clear picture of what to expect relative to service from a ground-shipping perspective.

Given the current climate, in which so many companies are looking for opportunities to trade down as a means of reducing cost, this simple measure can lay a substantive foundation relative to the proper way to move forward with that process.

FedEx Ground Service Maps - www.fedex.com/mapsUPS Ground Service Maps - www.ups.com/maps

despite all the analytics out there, there is a surprisingly simple and transparent method of

determining shipping transit times that many decision makers fail to take advantage of.

Service Maps FedEx (FedEx Ground Service Maps) and UPS (Ground Time-in-Tran-sit Maps) have resources readily available via their websites that can be used to determine out-bound ground transit times from any zip code in the United States. Simply enter a zip code from your shipping location(s) and a map will instantaneously appear, outlining the expected time it will take your ground shipment to reach vari-ous destinations throughout the country.

Depending on your location, executing this simple exercise can supply you and your transportation team with visual evidence that could save your company money, especially when trying to iden-tify areas to which 2- and 3-day shipments can be downgraded from premium to ground services and still arrive on the same day. Not only could you potentially save on the base transportation charge rate, but you could also incur lower accessorial costs, including lower fuel surcharges.

If you plan to engage in a renewal or renegotiation, this exercise can also be useful in validating either carrier’s value proposition by de-termining ground service advan-tages or disadvantages.

If you read the welcome message beside the table of contents, then you know Transportation Impact is

Downgrade premium ground services and still arrive on time

Reduce your base transporta-tion rates

Lower fuel surcharges and other accessorial costs


Emailed $419 worth of automated address corrections to distribution center. Scheduled monthly email audit-savings report for parcel review meetings. Set up GL coding for web orders, service department and warehouse. Noted $1,284 in soft-dollar savings opportunities and customized dashboard with Air-to-Ground report.

What did you dobefore your first cup of coffee?

Schedule a 20-minute Parcel Intelligence Dashboard demo and learn how you can optimize your shipping spend and capture all your FedEx and UPS refunds.

transportationimpact.com // [email protected] // 252.764.2885

transportation impact 2015 q1 newsletter

Documents