Rich Harkey is a logistics and transportation expert. Rich is the Corporate Director of Sales for Lojistic, and helps companies find ways to save money on shipping. With 27 years of experience working in the transportation/logistics industry, he brings a wealth of experience, knowledge and perspective to his clients. Rich is an Associate of Strategic Choice Partners.
3 Ways to Best Prepare for Increased Distribution Costs in 2021
Yes… it’s that time of year again when the two big shipping carriers, UPS and FedEx, announce their standard annual rate increases and businesses everywhere begin the tedious task of shifting things around to accommodate the inevitable increase.
Unsurprisingly, UPS and FedEx both recently announced a General Price Increase (GPI) of 4.9% for 2021, which is consistent with previous annual increases from the last decade, despite this being a pretty bumpy year for shippers and a historically profitable year for both carriers. What has changed, however, is the frequency and criteria of the changes being implemented with regards to additional surcharges that are applied to your shipments.
What Does That Mean?
It means that in addition to a 4.9% average increase across the board, UPS and FedEx have not only implemented several new surcharges in 2020, but they’ve also lowered the threshold on the criteria that trigger these surcharges, such as the weight and size of your packages and which zones you ship to and from. This means that while the announced average increase of 4.9% is accurate, in actuality your company is likely looking at an overall rate increase of somewhere closer to 10-15% on cumulative annual shipping costs.
Let me repeat that, because it’s really important: your company is likely to see a cumulative rate increase of 10-15% on your shipping costs!
So What Should You Do to Prepare for These Increases?
* Understand your costs
The first step in adjusting to cost increases is to have a thorough understanding of your specific distribution costs. This requires you to look at the comprehensive impact of the rate and surcharge increases, apply them to your historical shipping characteristics and then lay out a complete overview of the costs your company specifically incurs, and how that impacts your overall business.
You may feel like you have a good handle on your actual distribution costs, but the devil is in the details. My experience shows me that even the most attentive company doesn’t fully understand the nature of certain aspects of their shipping costs, especially when it comes to the factors driving cost increases. Too often companies just accept their shipping expenses as “the cost of doing business,” and adjust everything else to accommodate for what they don’t actually understand.
Commit time now to understand every aspect of your distribution costs, not just the total costs.
* Optimize your shipping
It probably goes without saying, but finding ways to cut costs at the source is something every company should be doing. That may be changing packaging sizes to avoid surcharge thresholds or adjusting shipping cutoff hours to save on costs related to warehouse management. It may even lead to an evaluation of whether in-house shipping or working with a 3PL company is a better solution for you.
Again, while direct sales companies are great at finding ways to optimize a compensation plan, lower inventory costs or even raise prices, most dismiss optimizing their shipping costs. Shipping costs have a direct impact on every order that leaves the building, so it should be at the top of your list for areas to assess and optimize.
Bottom line, there’s at least one element of your overall distribution cost that’s within your control, so start with that.
* Push back on the shippers
UPS and FedEx explain cost increases as being necessary for the best interest of the industry because they ensure the ability to consistently move products from seller to consumer. While that is true in principle, it is by no means a fixed metric. Both shipping giants are actively invested in securing and retaining your business and will gladly discuss ways of offsetting your increased costs…if you ask them.
And therein lies the rub: Most direct sales companies aren’t comfortable or confident in having these conversations. But they are crucial! There are numerous ways built into both shippers account models that would allow you to mitigate fees, put a cap on your cumulative increase, and potentially eliminate certain limitations, fees, and surcharges. Your carrier account manager won’t share this information voluntarily, so it’s up to you to be proactive and get them to work on the best solution for you. You can even enlist the help of a logistics professional to navigate the waters.
Big picture, increased costs for shipping is not a new thing – it happens every year and it’s universal. An increase is unavoidable but the material impact of these increases is something that you definitely have the ability to manage and mitigate. While there may be hundreds of surcharges and fees, there are still thousands of small but meaningful ways to ensure that the impact of distribution cost increases has very little effect on the success of your business in 2021.
There are many tools, like the free platform that Lojistic provides, that can easily and quickly help you break down the details of all of your actual costs, and highlight areas that could be optimized or negotiated.
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