This is our first installment of our multi-part series on Freight Metrics. Many of these metrics are available in reports generated by LampreyTMS but regardless of your Transportation Management System, these are metrics which your business should track and understand. For this first week we focus on Financial Metrics.

Freight Costs as a Percent of Net Sales

Total Freight Costs to Net Sales (total freight cost/net sales) is the starting point when tracking and analyzing your Freight performance from a financial standpoint. This ratio is the key metric senior leadership should know off the cuff. Tracking this metric overtime tells you how much of your revenue goes towards your freight shipping and changes in this metric should be closely monitored. Rises and falls in this percentage can be caused by outside factors such as fuels, but changes in the % can also be driven by a number of controllable reasons such as your proximity to your suppliers and customers, your product mix and your warehouse efficiencies to name a few. This metric is also especially useful when you can compare it to your industry average and trends within your industry.

If your accounting software or TMS can let you go further and separate inbound vs. outbound freight costs you can then dive deeper and pinpoint exactly where there may be room to improve.

The Outbound Freight Cost to Net Sales Ratio (outbound freight cost/net sales) will give you a trackable metric for monitoring the portion of your overall costs that come from shipping to your clients. This is an important metric to track and a rise in it could indicate that you client base is moving farther away from your facilities.

On the other side, the Inbound Freight to Net Sales Ratio (inbound freight cost/net sales) can be used to track the costs of shipping from your suppliers. If your business has a long period of time from purchasing raw materials to selling the goods made from them, you may want to use the Inbound Freight/Direct Material Ratio for a given period (inbound freight cost/direct material cost same period). While tracking the Inbound Freight/Direct Materials Ratio month to month won’t tell you how inbound freight costs are impacting the bottom line of your business, it will tell you if freight is making up a larger or smaller portion of your cost of goods sold.

Freight Cost per Unit Shipped

Once you understand how your freight costs relate to your sales dollars, it is important to examine how your freight costs related to your sales units. This metric is especially useful in businesses where your units shipped are uniform. The formula is simple, total units shipped for a given period/freight costs for a given period. You can also repeat the steps above to get both the Inbound and Outbound Freight Cost per Unit.

Accessorial Charges as a Percentage

Looking at freight spend itself, Accessorial Charges to Total Freight Spend (accessorial expense/total freight cost) is an important ratio to take a look at because many accessorial charges are either avoidable or too often are not fully budgeted. Accessorial charges make up on average approximately 10% of the freight charges with Fuel Surcharges being the most common accessorial charge we see. While some accessorial charges may be unavoidable, charges such as residential adjustments, extra pick-up fees, and weight adjustments, can often be avoided. Monitoring your percent of freight costs that are accessorial charges will at a minimum allow you to better budget for future accessorial charges and diving deeper may allow you to find areas where you  can improve your business processes and avoid future surcharges.

Freight Bill Accuracy 

In conjunction with tracking your accessorial charge percentage, you may want to track your Freight Bill Accuracy Rate which is calculated by dividing the number of variance-free freight bills by the total number of freight bills in the period (# variance free invoices/total # invoices). Causes of variances can include incorrect pricing, incorrect weights, incomplete information, etc.  You can look at this number as a total for all of your carriers but you may want to look deeper and measure the accuracy by carrier. This again is an important metric for budgeting and it is important to investigate if the reasons for variances in your freight bills are due to your own processes or those of your carriers.

Claims to Total Freight Costs

An additional indicator of your supply chain health is the Cost of Claims to Total Freight Costs (claim cost/total freight cost). A high rate of claims, or increases in your % of claims, can point to either process or packaging problems. It is important then to understand if and when your packaging has changed when you measuring this metric overtime. If you are seeing changes in this rate while your packaging is staying the same, the causes may be due to process or handling, of your freight. Conversely, if you make a sudden change to your packaging and notice an increase in the percent of claims, you then know that it is very likely that your new packaging is to blame.

Understanding Metrics

Making sense out of your shipping data starts with a good Transportation Management System. Our own system, LampreyTMS not only can help you create and manage shipments but also has a comprehensive suite of reports and analytical tools. Regardless of your shipping habits, or your TMS, Lamprey Systems is here to help with any logistics related questions. Simply call 800-675-6598 to speak to one of our experts.

At Lamprey Systems we audit 1000s of our client’s FedEx and UPS invoices each week evaluating the performance of every shipment on every invoice. We then use our longstanding relationships with FedEx and UPS to insure that every single dollar owed to our clients for avoidable FedEx and UPS service failures is sent to our clients. While often the largest and most talked about example of a service failure is a late package, after 13 years of of being in this business we have found over 30 unique reasons a business may be owed money from their carrier. In this week’s post, we walk you through a few of them.

Incorrect Residential Surcharges - Being charged residential delivery fees on commercial addresses

A Residential Surcharge is an extra fee which both UPS and FedEx charge for delivery to a home or a business operating out of a home. The Surcharge ranges from $3.10 to $120 depending on the service and it can be negotiated lower during the Contract Negotiation Process. How do the carriers determine if an address is a residence? It’s determined by FedEx’s and UPS’s own database or by the delivery person. The address databases aren’t always correct and sometimes the delivery person gets it wrong. It isn’t uncommon to see manufacturing facilities, retail stores, and offices being incorrectly billed Residential Surcharges. In one example we saw a company that before coming to us had one of its own retail locations flagged as a residence. Every time the company would mail a package from the company’s warehouse to its own retail store, the company was being incorrectly charged a $3.10 Residential Surcharge for what was clearly a commercial address.

UPS Manifested but Never Shipped – Being charged for shipments that you made but never shipped out

Not all problems are entirely the carrier’s fault and if you are a UPS shipper, you may be experiencing this problem. Often businesses will create labels but never use them. These manifested but not shipped packages are charged to your account but show no activity. It is not in your carrier’s best interest to alert you to these shipments so they normally go unnoticed. For some businesses this is a very small and abnormal occurrence, while for others it can be considerable recurring issue. In either case, unused labels can be refunded and if we see a pattern of them, we will alert the client so that they may take steps to avoid the issue altogether in the future.

Unwarranted Address Corrections – When the address is correct but it gets corrected anyways

Address Corrections Surcharges range from $12.50 to $68 per correction and can happen on perfectly valid addresses.  If any shipment has an incorrect or incomplete address carries will do their best to get it to the destination. Often this is a legitimate charge for packages where the shipper omitted a crucial piece of information such as the zip code. Understandably, if an important piece of information is missing from an address, it will take more effort on the carrier’s part to delivery. A significant amount of the time however, carriers fail to use common sense and charge an Address Correction Surcharge on a valid address. For example common sense abbreviations such “st” for “Street” or “apt” for “Apartment” can trigger an Address Correction. At the same time, we’ve seen the reverse happening, full spellings of “Street” triggering an Address Correction to the abbreviation. The issue happens with dozens of interchangeable words and abbreviations and unfortunately there is no simple clear cut solution to avoid unwarranted Address Correction Surcharges.

Saturday Delivery Not Requested – Getting charged for a Saturday Delivery when you didn’t ask for a Saturday Delivery

If you didn’t request Saturday Delivery Service and your packages happen to arrive on Saturday, you are still going to be charged for the unasked for service, $16 per package. Why does this happens? We honestly couldn’t tell you but when it does, the $16 surcharge can add up quick. When it happens, it is a straightforward mistake on the carrier’s part so a refund is due on the surcharge even if the package arrived earlier than expected.

And 30+ Other Reasons

FedEx and UPS manage an incredibly complex network of thousands of stores, planes and trucks delivering millions of packages and they do get it right most of the time. It is important to remember that when they do make a mistake, which is about 5% of the time, FedEx and UPS don’t want their clients paying for it. After 13 years of Small Package Auditing, it is clear to us that it isn’t just about late packages but about a much longer list of possible service failures.

One of the most common, costly and often avoidable category of delays we see are custom delays. Custom delays are some of the longest delays and having one often makes the package ineligible for a guaranteed service refund. Below are five simple steps you can take to avoid many of these delays and insure your international shipments get to where they need to be on time. 

1. Know your Countries

The first step in shipping internationally is understanding the requirements, restrictions  and practices that you need to adhere to in order to ship your package from A to B. Many countries have restrictions regarding which commodities may be shipped into and from their country as well as what services may be used to ship those commodities. Furthermore, you will need to understand which services your carrier offers between your origin and destination and what documents you will need to include.

FedEx offers a great in-depth guide to each of the over 100 countries they ship to which can serve as a guide to foreign regulations regardless of which carrier you use. Click here for FedEx’s country guide.  

Another important aspect to keep in mind when shipping internationally are local holidays in the destination country. FedEx and UPS both provide international schedules which cover foreign national holidays but our experience from auditing millions of packages has shown that regional holidays and events, which impact service, are often not included in any of their posted schedules. 

2. Provide a Detailed Description

Now that you know you can ship your package to your desired country, you need to describe what is inside the package. One of the most common reasons for customs delays is an inaccurate or vague shipment description. There are two primary aspects to providing a detailed shipment description, the written description and the Harmonized Tariff Code assigned to it.

A good written description answers the following questions:

• What is it?
• How many are there?
• What is it made from?
• What is the intended use?

 Examples of Poor vs. Good descriptions for the same items

Harmonized Tariff Codes

The second part of providing a detailed description of your shipment is to assign the right Harmonized Tariff Code to the item you are shipping. 

Whether you’re importing, exporting or both, you need to properly classify your products under the Harmonized Tariff System (HTS) codes to meet the U.S. and foreign governments’ customs requirements. All of the import and export codes used by the U.S. are based on the HTS. The HTS assigns six-digit codes for general categories and additional digits can further differentiate products within a category. The U.S. defines products using 10-digit HTS codes. Attached to each HTS code are corresponding duties and regulations so it is extremely important to select the correct code. 

UPS and FedEx both offer Harmonized Tariff search tools and you can search the U.S. International Trade Commission’s database here.

3. Declare the Right Value and Specify the Currency

Inaccurate Declared Value is one of the most prevalent reasons for duty and tax disputes which both delay your shipment and void your money back guarantee if the package arrives late. A shipment’s Declared Value represents the selling price or fair market value of the contents of the shipment and it is the value at which duties and taxes are assessed. The Declared Value should not be equal to the cost at which you created or purchased the item for. Even if the contents are not planned to be sold you must assign a fair market value to them or risk penalties and delays. While it may seem hard to assign a fair market value to many items you may ship, be sure to keep the value consistent across all custom documents, and be sure to specify the currency  used, to limit the chance of a customs delay. In the case of gifts and samples, the shipment may be exempt from duties and taxes so be sure to know the destination country’s regulations (#1) and provide a detail description (#2).

4. Remember the Commercial Invoice 

A Commercial Invoice is a commonly required document used by countries around the world to provide greater detail on the classification of shipments so that duties and taxes can be correctly assessed.  If you are shipping documents, you likely won’t need one but if you are shipping anything else, you will likely need to include three copies of one.

If you are using any of the following services, for anything other than a document, you will need to include a Commercial Invoice

While Commercial Invoices can be generated online through shipment creation process with both FedEx and UPS we have found that many people are still omitting them or are filling them out by hand so we’ve included direct links to blank FedEx and UPS Commercial Invoices. Simply click and print.

Blank Official Commercial Invoice Templates

Click here for a blank UPS Commercial Invoice

Click here for a blank FedEx Commercial Invoice

5. Use 1 Box

The last point isn’t about paperwork or regulations, its about how FedEx and UPS routes multi-piece shipments. A multi-piece shipment is a shipment comprised of several pieces or boxes. Anytime you ship a multi-piece shipment internationally, you are exposing yourself to the risk of boxes arriving at customs at different times. Just because you shipped out all of the pieces of your shipment at once, doesn’t mean that they will all take the same route to the destination country. Half of your pieces in that single shipment may be routed through one distribution center while the other half may be sent off to a distribution center across the country. When the first group of pieces reach customs, they are allowed to be held until the last piece in the shipment also reaches customs. This creates a customs delay which may delay your shipment a day or more as well as likely voids your money back guarantee. To avoid this issue, you want to think about consolidating boxes. You will want to compare prices between shipping the pieces separately or boxing them all together especially if you regularly ship multi-piece shipments between the US and China where we often see this issue. 

Conclusion

Following the five steps above isn’t going to guarantee your package gets to its destination on time. FedEx and UPS are still both late over 5% of the time when shipping internationally. Following the 5 steps above, familiarizes yourself with the countries involved, providing detail descriptions, complete paperwork, accurate values, and consolidating box count, will reduce the amount of avoidable delays in your shipments caused by custom delays. This should in turn save your business money, increase your customer satisfaction and help us in getting even more money back for your business through our Small Package Auditing Services by putting the burden of delivering your packages on time squarely in the hands of your carrier. 

Fall is fast approaching and with it comes the Holiday Season. While it may seem early, FedEx and UPS have already issued their Holiday Schedules. To help you out, we’ve taken the extra step of combining the most important details of each into a single easy to read, and printable, one pager so you don’t miss a beat!

For a printer friendly PDF, click here

For the FedEx Holiday schedule from FedEx.com click here

For the UPS Holiday Schedule from UPS.com click here

Special Considerations for Package Auditing

As with every year, FedEx and UPS will be extending their transit times and even suspending their guaranteed service times for holidays and weather related reasons.

Dates already known to be impacted:

• Starting December 11th there will be a two week period where on-time guarantees will be suspended for Ground and Standard packages at both FedEx and UPS
• Starting the week of Christmas, December 18th, delivery times for Express and Air packages will be extended by 90 minutes.

Even during these periods, there are still over 2 dozen audit points which won’t be affected, resulting in what is traditionally our highest period of returns for our customers.

A Transportation Management System is a vital tool for shipping professionals. It helps to coordinate all of the available data points in a transport network, including rates, route options, warehouse supply, and distribution. Transportation management systems present this information in a clean, easy to understand format that then allows the shipping manager to make the best and most efficient decisions possible. In 2015, the state of transportation management systems is good, with the industry slated to see tremendous growth in the coming few years.

Traditionally Transportation Management Systems have been very expensive and complex, making them costly to implement and maintain over time. That made it impossible for most small and mid level shippers to employ them effectively. However, the cost savings and increases in efficiency have prompted most large companies to adopt these systems, giving them yet another edge over their niche competitors.

Today the state of transportation management systems is changing, as developments in technology are constantly making these products less expensive, easier to use, more functional, and less time-consuming to install. That is allowing smaller shippers to take advantage of the great benefits that these systems can provide, in cost, data acquisition, efficiency, and communication flow.

The Potential of Transportation Management Systems

Many people are claiming that the potential for Transportation Management Systems is enormous and that within ten years all serious shippers will be using them on a regular and sophisticated basis. That is because there are unquestionable advantages to making use of these systems to control and sort complex shipping networks. At the same time, as pricing drops it will make those companies that do not adopt these practices obsolete.

Another factor influencing the growth of TMS use is that vendors are starting to target untapped smaller companies. These businesses have not previously had the resources to implement these systems effectively. However now that pricing has dropped and there are now web-based transportation management systems which are easy to deploy the providers of this software are starting to increase their field of view to take in new prospective customers. That is fueling the market even more, causing these systems to permeate every corner of the industry.

At the same time the efficiency and function of these systems is making transportation management systems more desirable than ever to a wide variety of customers. Cloud-based products are cutting down on the time it takes to install and implement a Transportation management System in an effective way. This allows even smaller companies to leverage the power of high-end servers in order to achieve precise and insightful data analysis.

Reasons to Implement a Transportation Management System

One of the most important reasons to implement a Transportation Management System is  to access the best rates from transport carriers possible. These systems take cost information from a variety of providers, on a number of different routes, and organize it all into a simple to read list that lets the shipping manager make a quick and effective decision on how to move their freight from one place to another.

By providing shippers with the ability to rate and choose the carrier they want based on price, limit of liability and transit time, transportation management systems turn the entire process into a buyer’s market. At that point, all that the shipping manager has to do is sit back and choose the best option for that specific shipment that gets the cargo to the destination they need in the time frame required. That can lead to big savings, which can in turn impact the bottom line.

Another important reason that more companies are adopting Transportation Management Systems in 2015 is that they can dramatically increase the efficiency of a business. Rather than having a single person keeping track of multiple products, shipments, and solutions, these systems organize everything into precise, easy to read lists that can then be used effectively to make the best decision possible. That eliminates human error while making the person in charge of shipping more effective at their job.

The ability to make shipping less expensive, and more efficient, is driving many businesses to invest in Transportation Management Systems in 2015. A 3PL can now provide a TMS at no charge to shippers as often a 3PL focused on transportation management will offer integrated services and make money off of margins. This ultimately means that the savings benefits for shippers are even more powerful at any size of the enterprise. At the same time, the ability to eliminate redundancies, human error, and increase the efficiency of the organization can result in realizing greater profits.

Beyond a Transactional Tool, A TMS is Now a Strategic Continuous Improvement Tool

However, Transportation Management Systems also have the ability to do much more than simply provide rate information. They are able to collect data points from multiple transport providers on various routes around the country. That wealth of information is incredibly valuable, but only when it is parsed down into a form that can be used effectively.

The challenge for Transportation Management System developers going forward will be to find effective ways to help shipping managers understand and interpret the wealth of data that these products can make available to them. They need to be able to understand what it means, and have it accessible to them when a decision point is reached. That will allow the shipper to make far more effective decisions about shipping across the entire organization.

Transportation Management Systems can also be beneficial to carriers who are willing to adapt to these products. While they do make the market more competitive, forcing prices down, they also allow more access to customers. That can increase the overall number of opportunities that become available, increasing the bottom line for them as well. At the same time, they can use these systems to make their own organizations more efficient and cost effective.

The state of Transportation Management Systems in 2015 is solid, but there is still tremendous potential for this industry. It’s estimated that only 35% of shippers are currently using these solutions. However advances in technology, and decreasing prices are making these products accessible to a much larger audience, and today even small and mid-level shippers are able to take advantage of the utility of these systems. At the same time, vendors are also starting to target these untapped markets as they become more accessible. This is leading to greater use across all logistical operations.

For a no obligation demo of LampreyTMS call 212-288-8908 or contact us today

About the Author

Adam Robinson

Calculating Dimensional Weight Pricing on Ground Packages.

Dimensional weight pricing is the same pricing method FedEx and UPS have been using for air and international packages for years. Beginning in 2015, UPS and FedEx have expanded their use of dimensional weight pricing to calculate charges for all ground packages as well as air and international. This means that now both the ground package’s weight and its size are taken into account when pricing for either a FedEx or a UPS ground shipment.

FedEx and UPS Dimensional Weight Formula

For both UPS and FedEx, the dimensional weight of a package is calculated by taking the length x height x width of a package and then dividing that number by a denominator called the “dim factor”. This dim factor can be negotiated as part of your contract negotiation process but each carrier has a default dim factor denominator. Once the dimensional weight of the package is calculated, it is compared against the actual weight of the package and whichever is higher is then used to determine the shipping price.

For UPS and FedEx ground packages, dimensional weight is determined by multiplying the the length, width and height, in inches, together and dividing by 166.

For example, in shipping a 2 pound inflated basketball you would take the box measurements of 12 in x 12 in x 12 in, multiply them together to get 1728 cubic inches and then divide that number by the dim factor of 166. The resulting dimensional weight would be 10.4 pounds, which would then be rounded up to 11, compared to the actual weight of 2 pound. You are now going to be charged for an 11 pound shipment instead of a 2 pound shipment. This results in a considerable price increase.

What Can be Done?

1. Reduce your box size. Shipping empty space now costs you money
2. Make sure FedEx and UPS are correctly measuring your boxes and not incorrectly overcharging you. Lamprey Systems has cutting edge no cost auditing solutions which track UPS and FedEx errors and automatically obtain your business any refunds owed
3. Negotiate your dim factor. Odds are your company didn’t pay much attention to its dim factor at the last negotiation. Lamprey Systems has helped 100′s of clients negotiate their carrier contracts, saving clients on average 15% a year on their shipping spend

Photo by Bill Ward

Rates expected to increase across the board.

UPS and Fedex have announced plans to switch to dimensional pricing. The carriers plan to begin factoring in the dimensional size of packages in their pricing for US and Canada ground packages starting in 2015. The changes in effect bring the same pricing structure the carriers use in their air shipments to their ground services.

In a press release on May 2, 2014 Fedex stated:

“Effective January 1, 2015, FedEx Ground will apply dimensional weight pricing to all shipments. Currently, FedEx Ground applies dimensional weight pricing only to packages measuring three cubic feet or greater. This change will align the FedEx Ground dimensional weight pricing with FedEx Express by applying it to all packages. Dimensional weight pricing is a common industry practice that sets the transportation price based on package volume—the amount of space a package occupies in relation to its actual weight.”

UPS followed suit on June 17th citing that the change in pricing addressed industry trends while promoting efficiency and environmental responsibility.

What is dimensional pricing?

“Dimensional weight pricing is a common method to determine prices in the transportation industry. It takes into account exterior package size, which is the amount of space a package occupies when in the cargo area of the transport vehicle, in relation to its actual weight to determine the appropriate price. The dimensional weight calculation will apply if it is greater than the actual weight.” – UPS

Basically, starting next year both the weight and size of each package will be measured and packages will be priced based on which measurement yields the higher price.

How does this impact my business?

Your business is at highest risk if it ships large but lightweight items.

The pricing changes are expected to result in increased overall carrier costs with companies shipping large but lightweight items feeling the largest impact. The move to dimensional pricing on ground packages has been seen to be in part a response to the increased shipping of items such as paper towels, diapers and shoes, all of which take up a great deal of truck space but weigh very little. These large light weight items have been taking up an increasing amount of carrier truck space and the shift to dimensional pricing will allow Fedex and UPS to benefit from this trend.

In a Bloomberg interview, BB&T Capital Markets analyst, Kevin Sterling, exemplified the impact of the changes by stating that the price to ship a box of paper towels could jump from $8 to $20 under the new pricing model.

What can my company do to mitigate the impact?

• Reconsider your box sizes. As a shipper you will want to make sure that you are not shipping any air with your packages. You will want the optimal and minimum box size for your packages starting in 2015 as empty space will have the possibility of increasing your costs.

• Negotiate a new carrier contract. As 2015 and the pricing changes approach, now is the ideal time to begin negotiations with UPS and Fedex to both lower your rates and quantify the impact of the upcoming changes.  Lamprey Systems’ team of former carrier executives can help with a free invoice and contract analysis leveraging our years of experience and data from over a 1000 clients.

Contact the Lamprey Team for more details

Lamprey Systems will join the BizUnite Marketplace as the exclusive small parcel auditor starting November 2010.  The marketplace represents 60+ organizations across the United States representing both small and large corporations.  “We at Lamprey Systems are constantly looking for ways to help our customers reduce their bottom line costs and BizUnite offers a perfect program to help businesses acheive these results”, says Founder and President Gregory Ahnert.

BizUnite offers 20+ cost savings programs specifically designed to help small businesses reduce business costs and increase profitability – elevating your organization to a higher level of success. It’s because of our power and scale that we’re able to secure discounts on world-class products and services – discounts previously only available to larger corporations.

On average, small to medium sized businesses are saving $2,000 to $6,000 per year with BizUnite. That number represents savings on payment processing, office supplies, package delivery, wireless services, and payroll processing alone.

About BizUnite

As a division of CCA Global Partners, BizUnite reduces the costs of membership organizations, and their affiliates, while increasing profitability and elevating them to a higher level of success. BizUnite is proud to be a member and/or supporter of the American Society of Association Executives (ASAE), International Franchise Association (IFA), National Cooperative Business Association (NCBA), and the Better Business Bureau (BBB).