Exhibitor Insights from Retail's BIG Show 2017. Small Parcel Shipping costs have soared over 35% in the past 5 years. LTL carriers are imposing sharp rate hikes annually. At the same time, Retail customers are hyper sensitive to shipping costs and have come to expect 'free shipping'. How do Retailers stay competitive with their shipping costs?
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Challenges in Retail Shipping
• “Free Shipping” has Become the Expected Norm
• Consumers are Impatient – Want Instant Gratification
• Strong Shift from Malls to E-Retail / E-Commerce
• Shipping Costs Continue Sharply Rising Every Year
• Small Parcel Shipping Costs Have Risen 35% in Past 5 Years
• LTL Carriers Imposing Sharp Rate Hikes Annually
• Far Outpacing Inflation
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Speaker Background
Corporate Expense Reduction Specialists – Focus on Shipping / Freight
LTL / TL / International / Intermodal Shipping
• 400+ auditing staff, 3,000+ clients
• $750M in Shipping & Freight Buying Clout
• Work with Some of Largest Retailers in the Country
Small Parcel Shipping
• 50+ Auditing Staff (mostly ex UPS / FedEx)
• Former UPS / FedEx Pricing Analysts, Sales Execs, Mgmt
• 500+ Clients, $200M in Documented Client Savings since 2008
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TIP #1 – Inbound Shipping
Inbound Shipping is NOT “Free”, In Fact It Is a Profit Center
• Inbound Shipping is Nearly Always Marked Up
• Some Vendors Specify Shipping Charges on Invoice, Others ‘Bury’ it
Most Scrutiny and Effort Tends to be on Outbound Shipping
• Inbound Shipping is Neglected, Seldom Scrutinized
• Inbound Shipping is NOT Free
• Inbound Shipping is a Vendor Profit Center
Retailers Are Overpaying for Inbound Shipping
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TIP #1 – Inbound Shipping
Step 1:
Estimate Inbound Shipping Cost:
• Typically Range From 5% - 10% of Total Goods Purchased (Inventory)
• Not to be Confused With COGS (Cost of Goods Sold)
• Example: $100M Retailer:
• $25,000,000 Goods Purchased Annually x 7.5% =
$1,875,000 Annual Inbound Shipping Costs (est)
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TIP #1 – Inbound Shipping
Step 2:
Begin with Small Parcel Shipping (SPS)
• Require That Vendors Use Your Small Parcel Account # for Inbound
Parcel Shipments
• Most Vendors Will Comply
• Exception:
• They Are Passing Along Their Direct SPS Costs (VERY Rare)
• If Vendor is Much Larger Than You (Higher SPS Spend)
• Their SPS Rates Are Better Than Yours
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TIP #1 – Inbound Shipping
Step 3:
LTL / TL Shipments
• Focus Initially on Your Largest (Top 5) Vendors
• Ask Vendors to Requote with Modified Terms
• Some Will ‘Play Ball’, Some May Not
• “We Want to Buy Your Products but Not Your Shipping Services”
• Request New Terms: FOB Vendor Dock
• Identify Actual Inbound Shipping Costs
• Solicit Quotes for Inbound Shipping on Top 5 Vendors
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TIP #2 – Consolidate Small Parcel
Many Companies Use Multiple SPS Carriers
• Sometimes Customer-Driven
• Small Service Differences May Exist
• Some Perform Package-by-Package Cost Assessments to Select Carrier
for Each Shipment
$15.75
$16.85
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TIP #2 – Consolidate Small Parcel
Multiple Parcel Carriers Is Rarely More Cost-Effective
• More Cost Effective to Pool Spend with (1) SPS Carrier
• Carrier Pricing Includes Target ‘Tiers’
• SHARP Dropoff in Incentives for Falling Below Target Tier
Sample Small Parcel Tier Incentive Schedule *
Service(s)
Weekly Transportation Charges Ranges ($)
0.01 - xx,xxx.00 - xx,xxx.00 - xx,xxx.00 - xx,xxx.00 - xx,xxx.00
$xx,xxx.99 xx,xxx.99 xx,xxx.99 xx,xxx.99 xx,xxx.99 and up
Next Day Air - Letter - Prepaid Frt 0.00% 35.70% 51.00% 52.00% 53.00% 54.00%
Next Day Air - Package - Prepaid Frt 0.00% 36.40% 52.00% 53.00% 54.00% 55.00%
Next Day Air Saver - Letter - Prepaid Frt 0.00% 35.70% 51.00% 52.00% 53.00% 54.00%
Next Day Air Saver - Package - Prepaid Frt 0.00% 36.40% 52.00% 53.00% 54.00% 55.00%
2nd Day Air - Letter - Prepaid Frt 0.00% 31.50% 45.00% 46.00% 47.00% 48.00%
2nd Day Air - Package - Prepaid Frt 0.00% 33.60% 48.00% 49.00% 50.00% 51.00%
2nd Day Air - Hundredweight - Package - Regular
Pickup 0.00% 15.40% 22.00% 23.00% 24.00% 25.00%
* For Illustration Purposes Only. Not actual data.
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TIP #2 – Consolidate Small Parcel
Drive as Much Volume to (1) Carrier as Possible
• Reduce Carrier Choices for Customers
• Amazon Offers No Carrier Choices
• Change E-Commerce Shipping Options
• Offer Time-in-Transit Choices, Not Carrier Choices
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TIP #3 – Create Parcel Rules
An Optimal Mode Exists for Every Shipment
• Mode Shifting / Optimization Can Offer HUGE Savings in Parcel
• Two Day Shipments May Not Require “Two Day” Shipping Mode
• Next Day Shipments May Not Require “Next Day” Shipping Mode
• Manual Analysis is Possible
• Some Specialists / Experts Offer Software Optimization Solutions
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TIP #3 – Create Parcel Rules
Parcel Rules Sheet
• Publish and Distribute to All Responsible for Initiating Shipments
• Include Rules for Various Zones & Transit Times
• Create Method(s) for Evaluating Adherence to Rules Sheet
• Run Weekly Reports to Highlight Non-Compliant Shipments
• Distribute to Customer Service / Shipping Department
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TIP #4 – Separate LTL/SPS Contracts
Small Parcel Carriers Also Offer LTL Services
• Frequently Attempt to ‘Link’ Contracts Together
• Sales Tactic to Limit Choices / Avoid Carrier Changes (Hooks)
• VERY Seldom is Favorable for the Client
• NEGOTIATE SPS AND LTL CONTRACTS SEPARATELY
Introduction – Don Coburn
By show of hands, How many here are retailers?
If you have any financial or operational responsibilities, you will find something useful and actionable here
Transportation Research Board Meeting in D.C. on 1/10/17
Impatient Consumers:
One day delivery to same day delivery
Drone deliveries
3D printing
We have helped over 3,500 companies improve their shipping costs
Many Retail clients
Compiled this list of Top5 things companies can easily do on their own (Tips here are not part of what we typically do)
I’d like to understand a bit about you
Who here are retailers?
Who has a direct/indirect role or responsibility for Logistics?
Pick a few people out to ask them their role.
Sourcing / Purchasing?
Logistics?
Supply Chain?
E-Commerce?
Operations?
Finance?
Most think of shipping as what you put in a box and ship out your door – Outbound Shipping
We will start by discussing Inbound Shipping
It’s the #1 most overlooked form of Shipping
In this example, this company is spending roughly 2% of it’s annual revenue on Inbound Shipping
Most companies would be surprised to find this
These are NOT unrealistic estimates
You will typically not address ALL vendors
80/20 rule generally applies
Start by targeting Top 5 largest vendors
This table is a sample table only for illustrations purposes
Closely mimics actual SPS contract agreements
3rd Tier is typically the target tier
Client example:
We implemented $1.1M annual savings
Client had 70/30 split UPS / FedEx
Have 10+ difference shipping options on E-Commerce site
We showed them another $200K in savings was possible if they could achieve a 90/10 split
Made changes to their website – used Amazon shipping options as a guide
Achieved 90/10 split and $200K added savings
If you do not have the means to do this, we can help facilitate this