COVID 19 Has Changed Your Company’s Shipping Activity and it Is Costing Your Company Money

Jun 16, 2020 | News, Optimization

That is a bold statement to make when I don’t know your business. But it is true because there has been a fundamental shift in shipping characteristics – Volume, Zones, Commercial, etc. – caused by the virus. That shift is a dramatic increase in residential shipping and it will continue. It also means a decrease in commercial shipping. It gets worse, the change in package weights, zones, assessorial charges and other package characteristics will also increase your company’s costs.

What is the goal of the carriers?

In a phrase, maximize profit from each package. Being in an oligopoly already provides the carriers with pricing advantages over shippers. If both viable carriers increase costs at the same level, they can continue to raise shippers’ costs. Additionally, the carriers have made the invoice extremely complex to discourage shippers from evaluating their true shipping costs. Assessorial charges – fees added after shipment has left your dock – are added with regularity. The latest round of these assessorial charges included a COVID surcharge to help cover increased operational costs. Have any other suppliers added surcharges because of the virus? Probably not as most are just trying to stay in business.

What Should Our Company Do to Minimize the Impact of Changing Shipping Characteristics?

Currently, most companies have a pricing contract that reflects their former shipping characteristics. This has been traditionally made up of commercial deliveries with low zone, higher weight packages with high delivery densities. With the impact of the virus, this same company will see a dramatic increase in residential shipping. The current pricing contract did not focus on residential shipping as it was a small percentage of packages being shipped. Now all the assessorial charges and fees associated with residential shipping that previously were just an annoyance will now have a larger financial impact. Additionally, the weight and zone structure of the previous contract is also outdated. Tier incentive structures will have to be restructured. New surcharges have been added since the onset of the virus to help carriers recoup the additional cost they have incurred to service this residential volume increase. And, if that is not enough to think about, a new “all in one box” service has been added to UPS’ package offering. It is exactly like it sounds, if you can fit it in the box, it ships for a flat fee!

Add it all up and your company only has one viable option to help reduce shipping costs. You must put your contract out for bid with both carriers. This is a complex process that requires an RFP that includes a weight and zone analysis, commercial and residential analysis, tier structure analysis, assessorial analysis, operational concerns, financial impact and customer satisfaction. Negotiating a contract from strength implies you have the information and background to understand how your company’s shipping volume is valuable to the carriers. This is a specialized skill that is required to get the best deal possible. We are available perform this service if you need help.