This day and age, as every part of the supply chain tries to squeeze out cost savings, with the turn of 2013 into 2014, logistics in general and parcel shipping in particular are dearer to the business while it scales and tries to maximize margins. Some of the reasons, which need companies to rethink their strategy on optimizing freight/shipping costs and look for cost savings in the long run are discussed below.
1. Remarkable Rise of E-Commerce sales
The below data points not just strengthen but are proof that there’s increasing demand for parcel carriers. It is often, retailers realize how the significant part of the pie of moves through parcel service providers.
- When one looks at the total online retail sales forecast for planning, its clear that Retail Ecommerce is set to Keep a Strong Pace Through 2017. By 2017, research reveals that the web will account for 10% of US retail sales – (source: Forrester Research)
- Ecommerce Sales are projected to be growing at an CAGR greater than 10% to close to US$ 300 Billion in 2014 to US$ 434 Billion in 2017 – (source: e-marketer Research report)
- E-Commerce as a percent of total sales has seen an increasing trend from 2012 – (source: Census.gov)
2. Drop Ship and Lean Inventories
In this internet age, every company is a Retailer and Companies are acquiring new capabilities to have lean inventories and use drop ship as a fetcher of supply chain logistics efficiencies. Parcel shipping is bound to increase with lean strategy to the fore and shipping of goods direct from suppliers to the customers to benefit overall agility.
3. Constantly rising Rates and shipping costs
Major carriers (UPS & FedEx) have continually been increasing the rates year over year aggressively. This trend of increasing rates is not applicable to the base rates alone but also various surcharges and accessorials. Overall, we see that the costs are seeing a double digit increases in total parcel shipment.
- Case FedEx: In a list of 40 surcharges analyzed for increase for 2014 (up from 2013), the lowest increase was 4.3% and the greatest increase was 33.3%; Note: a spike average of 4.2 percent.
- Case UPS: In a list of 35 surcharges increase for 2014 reviewed, the least increase was 2.7% and the greatest increase was 9.1%; Note: a spike average of 4.2 percent.
- FedEx and UPS rates have increased 28-33% over the past 5 years (just since 2009)
This trend continues to unfavorably impact Shipping companies who have neither the time nor resources to monitor and review dense and complex shipping invoices to understand the shipping profile
4. Omni-channel retail and Winning the customer
Omni-channel retail is fast becoming the norm (and was discussed at length in the NRF 2014 as well). It’s clear that today’s consumers are focused on convenience, and they expect their retailer of choice to provide this convenience across all channels. For example, if a product is out of stock, customers would prefer to complete the purchase in-store and have it shipped to their home rather than go through the hassle of visiting another store, but only if the retailer is prepared to ship the item for free. – (source: Forrester’s study, Jan 2014, Customer Desires Vs. Retailer Capabilities)
‘Leading Online Pure Plays Have Redefined Consumer Expectations for Shipping’
When buying online, if a product is available from multiple retailers at the exact same price, 75% of multi-channel shoppers stated that expedited 2 – 3 day free shipping would sway their purchase decision about the retailer. This is just to shed light on how the logistics strategy is deeply ingrained as a fundamental competence.
At the end, Retailers that don’t aggressively manage cost by pro-actively looking at ways to cut costs by understanding their needs contribute to the thinner margins and would be left behind peers with razor sharp focus on these freight costs and strategy changes. In this age of mobile commerce and omni-channel fulfillment by the Retailers, it is imperative that companies introspect their end to end logistics holistically, their overall strategy and manage costs better with expertise, internal or external by analyzing their shipment invoice data in conjunction with their contracts with the carriers.
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