Inside the Box

It's official: FedEx cuts one day from ground transit times

2010-08-04T23:25:00.001-04:00

FedEx customers received e-mail confirmation today regarding the improvements the carrier has made to their ground network and transit times; particularly in the eastern United States. The e-mail showed a color-coded graphic representation of a US map, similar to the one users can generate from the FedEx website to indicate the estimated number of transit days for the carrier's Ground service.

We heard about the improvements weeks ago, but details in the form of destination actual zip codes where the improvements were made were hard to come by. Ground service maps were updated at the FedEx website and are now available.

Marked improvements were noted over most of the network. From the Washington, DC area (where PA & Associates is headquartered), FedEx dropped a day of transit time to key markets such as portions of KY, TN, MS (previously a 3-day transit time). FedEx now reaches nearly the entire state of GA, with the exception of the Savannah region, within two days. Alabama, which previously had an almost equal coverage of half of the state at two days and half at three days, now is almost entirely two days.

But the big story is FL. Previous to August, any ground shipment destined anywhere in the state would have taken three days. Now every delivery zip code in the state is a two day delivery.

ND, MT and portions of WY also dropped a day, moving from a five day deliver to four days, as did a portion of NM.

FedEx made steady improvements over the years in getting to CA more quickly. In this iteration, CA transit times did not change. The next day ground destinations also remained unchanged. The improvements are readily visible in the maps below. Dark pink indicates next day ground from the Baltimore/Washington area, turquoise shows two-day, orange three-day, green four-day and fuchsia indicates five-day delivery.

FedEx Ground Delivery Map as of July, 2010

FedEx Ground Delivery Map as of August, 2010

While shaving a day from transit times might not seem like a big deal to the infrequent user of parcel services or even to the consumer, consider this scenario:

E-commerce operations are under considerable pressure to offer promotions for free shipping. Nobody is in business to lose money and e-tailers are no exception. There was a time when the profit earned on shipping was three times (or more) greater than the profit in the product being shipped. Consumer evaluation of the cost of shipping in addition to the product price has narrowed the margin available on shipping. This has led to the common practice of allowing online shoppers to "upgrade" their shipping method to receive products more quickly. Typically, this is positioned on the e-commerce site as an upgrade to express or "air" shipping (at UPS, the branded services are Next Day Air, Next Day Air Saver, 2nd Day Air and Three Day Select. FedEx uses Priority Overnight, Standard Overnight, Two Day and Express Saver).

A good e-tailer with a basic Transportation Management System can manage this upgrade to put them back into the glory days of profit-center shipping. An upgrade to Two Day Air, for example, might mean an increase in the charges to their customer of $15 or more.

I just tried this at Goldman Brothers website. I put a pair of Under Armour shorts and polo shirt into my cart and proceeded to the check out. My cart total qualified me for free shipping ($59 or more). Goldman Brothers is located in NY, so that would actually get to me in one day by Ground service. However, you would never tell the consumer that! According to their website, I saved $7.61; their rate to move my new apparel to me via Ground service.

Let's say I really wanted those items here by the weekend because I had tickets to the Baltimore Orioles and it was going to be hot this weekend (tickets are easy to come by for an O's game these days). So I'd better upgrade my shipping to the two-day option for $17.19. A TMS could compare the destination to the ground delivery commitment schedule and determine that Ground service would suffice to meet my delivery demand. However, I just paid for 2nd Day Air. Who cares? I got my package when I expected it and the e-tailer just pocketed the difference. Everyone's happy, right? In fairness to Goldman Brothers, they state they use UPS to ship to consumers. Although they still benefit from this scenario, the improvements which are the subject of this post have to do with two-day delivery points on FedEx. Still, FedEx just created an opportunity for some of the more savvy shippers to line their pockets and no one will be the wiser.

What's next at FedEx? We're hearing rumblings that something big is coming this Fall regarding LTL services.

Kindle for your Chaos Contest

2010-04-19T12:13:00.000-04:00

Kinaxis, providers of on-demand supply chain analytics, released a contest recently called Kindle for your Chaos! through their online community and blog called Kinaxis Supply Chain Experts Community.

Congratulations to our own Clorisee Canada [web bio | Facebook | LinkedIn] for her submission and story which one her a brand new Kindle. Great job, Clorisee! Here is the story that she submitted:

In a previous job, I met with customers who were considering switching their business from one shipping carrier to another. My role was to evaluate the customers supply chain process and help sales win the business by presenting technology solutions that would help improve the process. The challenges that I faced were many, but gaining the customers trust by being honest with them about capabilities was a great way to help win business.

I remember going to Michigan to meet with a company that shipped lots of international packages. They had 3 systems setup and 35 people to do a 2 person process. You see, their systems were all setup to do a small piece of the shipping process due to limitations in their systems. So the staff walked from one system to another to complete the shipping process on one shipment. When I first walked into the warehouse and they showed me their shipping process I looked around the room to see if I was on “Candid Camera” because in this century with all of the technology available no one should have a very manual process for creating a carrier shipping label and documents needed for international shipping. Once I determined I was not on candid camera I asked a lot of questions and proposed a GREAT solution to pull all of their manual processes together to make it easy and more efficient to ship.

I am sure by now you are wondering how I knew my solution was a great one. Well here is what happened next. The Carrier I worked for did not win this business because of pricing. The Carrier that won the business did not present a solution to help streamline the shipping process but their rates came back so low which allowed the customer to still save money. Once the customer announced the carrier that was chosen they called me to ask if I could present my proposed solution to the winning carrier because they could not explain it and the winning carrier could not think of anything. This was wrong on so many levels. I of course turned them down for so many reasons but this validated that my solution was really good.

Without going into a lot of details enhanced automation of information would have solved their issue but getting to that required out of the box thinking because this customer had network connectivity limitations. Orders were sent to the warehouse via email because the warehouse was down the road from the customer service office and the internal systems were not connected via a network. To make all of this happen the carrier needed to build a bridge using a server with a make shift network connection so that communication could happen from system to system. Once this internal fake network was setup we could solve their other issues and eliminate a lot of their manual processing that they did.

No More "Unlimited Weight" UPS Letters - a 44% Increase in Your Shipping Costs

2010-04-10T12:28:00.000-04:00

For years, UPS has made sure that shippers comparing their express envelope shipping with FedEx, or even premium US Postal Service offerings, know that a shipper can stuff as much paper as they would like into the UPS letter and legal-sized envelopes without any restriction on weight and still obtain the "letter" rate. In contrast, the FedEx terms place a limit on letter and legal envelopes at eight ounces and everything more than eight ounces is billed at the actual weight.

For shippers or organizations like PA & Associates, which help shippers with their spend management strategies, special consideration needed to be given when negotiating and comparing UPS envelope shipments to FedEx envelope shipments to ensure that shippers considering a move from UPS to FedEx did not realize an increase in shipping expenses in this area.

However, UPS changed this policy for 2010. As noted in the UPS Tariff/Terms And Conditions of Service for Package Shipments in the United States, UPS will now charge by scale weight (rounded up to nearest pound) for letter and legal envelopes weighing more than eight ounces (see page 23, section 35.3). Interesting to note that the Terms and Conditions document is buried four clicks into the UPS.com website.

It isn't surprising that UPS changed its policy for this segment of shipments given their intensive focus on package yield which began in 2009 (more about this fundamental, strategic change in managing profit margins which has already begun to affect end-user pricing and discounts in a future blog post). What some may find surprising is how UPS has (or has not) conveyed this change to their users.

At PA & Associates, we have been monitoring our client data for changes to UPS charges for letters. We have noted that the earliest instance of UPS changing the way they charge for letters weighing more than eight ounces was for the week ending January 23, 2010.

Yet, phone calls and e-mails to a number of UPS account executives to inquire about this issue were met with the same initial response, which went something like this, "No; UPS allows customers unlimited weight for envelope shipments". When we supplied the UPS contact with the reference to the Terms and Conditions document and section stating this change, the response was varied from the honest "I didn't know about this" to the embarrassed "I'll have to check on this and get back to you".

To date, none of our clients which we have inquired with about this change have been made aware of it by someone from UPS. For some of you more cynical users of UPS (or FedEx, for that matter), you may not find this surprising. After all, both companies have issued annual increases and raised surcharge amounts and have been less than helpful in providing the information the average shipper needs to fully understand the impact of increases to their bottom line.

What is the impact to an average UPS shipper?

For illustration purposes, let's create an average week of shipping for a user of UPS services to determine the impact to the shipper's bottom line.

On any given week, our shipper sends 100 letters (in addition to their regular UPS packages). This would not be an uncommon or high amount for someone in the financial services industry (e.g.; mortgage or title business). The shipper is well-aware of the UPS policy to allow for unlimited weight in the envelope and, frequently, sends more than eight ounces of paper per envelope. In fact, this had been a point of consideration in choosing UPS over FedEx for the type of shipping they do.

Of the 100 letters per week, let's say that 25% are contracts or checks and the remainder are loan packages or escrow closing information...stuff that would weigh anywhere between 2 and 7 pounds (we have some creative shippers that, somehow, get upwards of 12 pounds into envelope products!). For pricing purposes, let's divide the 75% of eight-ounce plus shipments evenly over 1 to 7 pounds (about 10 pieces for each weight per week). And, for ease of calculation, let's say that each of these pieces are destined for a Zone 5 recipient.

The results

Prior to the change in pricing, our hapless title shipper was spending $1,717.50 per week to send 100 letters to Zone 5 (this would just be the base rate shipping charge -- at the list rate for 2010-- not including any applicable surcharges or accessorial charges).

After the change in pricing, the same packages now cost $3,887.50; an increase of $2,160 per week or a whopping 44% increase. Over a period of 52 weeks, that's an additional $112,320 in shipping costs that our shipper probably didn't account for in their last re-work of the 2010 budget.

And the sad truth is that the average shipper who does not employ spend management strategies in this critical spend area probably has no idea that costs have gone up. Those that do monitor costs closely might see that something is out of whack, but have no idea what it is or where to find the changes.

What can you do?

The obvious (and biased) answer is that you should contact PA & Associates for assistance in managing your costs. We can assist most shippers, regardless of annual spend, with either a formal spend management project or even just free strategies if you don't qualify for one of our projects. In fact, I'll provide my number here and you can reach me directly: 866-200-SAVE (7283) x 201.

However, there are areas to consider when reviewing your agreements. If you are considering a move to FedEx and ship a critical number of envelopes in your shipping profile, make FedEx aware of this (provide relevant data with service type, weight and zonal breakdown) and request that they make a provision for you in your agreement for unlimited weight envelope shipping. A word of caution, however; the new focus by FedEx and UPS on package yield and a change in honoring discount requests is beginning to take hold in the mass market. Your chances of obtaining such a provision may be slipping away day by day.

If you are a UPS shipper, you can make a similar request of UPS. While FedEx has a formal program to bring parity in this area between their pricing and the way UPS used to honor the unlimited weight envelope, UPS does not. This makes it easier for a FedEx shipper to make such an appeal, while a UPS shipper will be reviewed on a case-by-case basis. So far, UPS has honored our requests to allow a shipper to ease into this change by offering some limited weight, limited time (or both) provisions that do not bring an abrupt change to shipping costs. Note, however, that we're experts at this. Your results may vary.

I've yet to find any of our clients or a shipper in the general population that actually reads the Terms and Conditions when they are published every year. I once had a bout of insomnia and took a read of the T&C document; worked just as good as an Ambien!

FedEx Express Not Out of the Woods Yet

2010-01-16T09:11:00.000-05:00

Martha Coakley, the MA Attorney General and candidate for the Senate seat vacated by the late Ted Kennedy, paid a visit yesterday to a UPS facility in Watertown, MA to meet with Teamsters Local 25 and to sign on to support the Express Carrier Employee Protection Act.

UPS and the Teamsters claim that FedEx has operated at an unfair advantage since its inception by being allowed to classify employees of the Express business unit as railroad and airline employees. UPS employees are organized under the Teamsters.

Coakley's support comes after last month's ruling that the IRS would drop all pending investigations into FedEx Ground operations. The Ground business unit was under investigation for the same employee misclassification which would have lead to the IRS' involvement in auditing previous years of FedEx revenue.

Also present was Sean O'Brien, president of Teamsters Local 25. "This loophole has allowed FedEx to operate on an unfair playing field," O'Brien said. "Most workers at FedEx in the Boston area don't have anything to do with aircraft operations, yet they are trapped under the jurisdiction of the Railway Labor Act. These sorters, drivers, truck mechanics and package delivery drivers deserve the opportunity to join a union to improve their working conditions and benefits."

The Express Carrier Employee Protection Act is cleverly attached to the FAA reauthorization bill which will be heard and discussed by the Senate in the coming months. Some government action is expected.

Teamsters Gain Support From Coakley for FedEx Express Carrier Legislation -- BOSTON, Jan. 15 /PRNewswire-USNewswire/ --

Retail Pricing at Pack and Ship Stores - Is There a Better Way?

2010-01-09T13:56:00.000-05:00

[note: this article is in response to the large number of new Facebook fans PA & Associates has garnered since last month; many of which are not commercial shippers, but retail consumers who will, from time to time, need to ship a package FedEx or UPS]

A few years ago, I was in a pack and ship store (the type of retail operation offers post office boxes/mail receipt, shipping supplies, ships packages FedEx/UPS, etc.) picking up some mail. At the counter was a delightful, elderly woman with one small, beautifully wrapped holiday package.

She approached the counter and the clerk asked if he could help her. She said, "Yes; I'd like to send this Christmas present to my grandson in Boise, Idaho. Can you tell me how much that would cost?". Recalling his sales training, the young man working the counter went right in for the kill, "sure -- I'm assuming since its a gift its valuable and you want to make sure it gets there, right?". Grandma replied, "yes, I would guess so". And with that, the clerk had the open door to scare the kindly old woman in the hazards of blindly handing Junior's package off to the black hole that is the US Postal Service versus sending the package through the highly-reliable and trackable service of a parcel package carrier. The whole time, I'm eavesdropping while I pretend to sort the mail from my box.

She seemed very thankful that the clerk had taken such an interest in her and the package's well-being. After her crash course in parcel shipping, she was sold on the value of sending the package UPS. The clerk took the package from her and placed it on the scale. He called out the weight of the small box to her, "Looks like five pounds...from here to Boise would be $65". She seemed bewildered at the price, but knowing that it was important to have the extra care and handling of Brown on her side, she nodded her head. I just about had a coronary. It took everything in me not to come to her rescue, put my arm around her shoulders and escort her outside to safety -- and ship the package on her behalf at about a 90% savings.

To understand the independent pack and ship retail pricing, you need to know that FedEx and UPS provide three levels of pricing: daily rates, retail rates and discounted rates. Simply put, daily rates are undiscounted "list rates" offered to commercial shippers who have a daily UPS pickup. Retail rates are also undiscounted and provided to shippers that do not have a daily pickup with UPS -- in the past, these were also called counter rates. Retail rates are usually 13%, or so, higher than the daily rates. The remainder of the shippers have some carrier agreement in place with UPS and/or FedEx that provide some level of discount from the daily rate based on package volume and spend.

Independent pack and ship facilities -- those not part of the FedEx Office (formerly Kinko's) or UPS Store system -- usually use the retail rate and add a markup to the price. Remember that the retail rate is already 13% higher than the "list" rate published at ups.com or fedex.com. The "independents" frequently have discounts with UPS and FedEx and make a significant profit margin between the amount they charge their customers and what the carriers charge them.

Is there a better way?

For the average person needing to ship a package FedEx or UPS, here are some tips to reduce the cost:

If you're employer has a daily pickup and relationship with FedEx or UPS, inquire with your managers or mailroom about shipping the package for you (check with your Human Resources department about company policy). Offer to reimburse your employer for the shipment. If you use one of the "user defined" fields when you create the airbill to include your name or other identifying text, it will be quite easy to find that shipment in the billing data from the carrier for reimbursement.
Use the US Postal service -- although the tracking isn't as sophisticated as FedEx and UPS, they offer a number of options at a much, much lower rate. For example, Granny's box would have shipped for $4.95 using the Flat Rate Box (inclusive price, no surcharges, boxes and pickup are free).
And a tip for reducing the shipping fees for items you order online; look for an option to use your own account number (if you have one). Always try to send the package to a commercial address, such as your place of employment, if given the option. Online retailers will pass on the FedEx and UPS residential delivery surcharge to you when you state your home address as your delivery address.

2009: The Year of Paralysis - How Business is Like Surfing

2010-01-05T20:52:00.000-05:00

Now that we've turned the corner and closed the last chapter on the year 2009, I'm seeing many posts, tweets and status updates about people ready to say goodbye to the year that was. I will agree that 2009 certainly wasn't the best year for many (in the way we all usually measure success). For some businesses, though, 2009 was a critical and pivotal year for business.

For starters, most trials of any type usually produce something positive. The old adage, "what doesn't kill you will only make you stronger" tends to be true most of the time. Considering the trial by fire that 2009 was for many individuals and businesses, the tough times do serve to burn away the dead brush and make way for healthy growth to come. And, in some cases, the fire got so hot under some businesses that much of what was built (or, really, the unnecessary bloat that was piled on over the years) was burned away so completely that refinement took place; not unlike the way that impurities are scoured from gold to create a more pure and valuable form.

I was recently reflecting with my business partner on what this past year has brought (and what it hasn't). We discussed how interesting it was that the year started with so much activity. Smaller, more nimble businesses were among our new clients as their CFOs and CEOs were about cutting costs and managing indirect spend categories in an effort to thoroughly ensure the careful stewardship of their organizations and to go about the hard tasks of making difficult decisions designed to weather this storm and ensure that the value of what they serve their market would survive when their market returned. Thinking about a matrix for a second, I'll put these leaders and their businesses in the lower, left quadrant -- SMB market leaders at the early part of the year that took advantage of cost reduction, spend management and looked after the health of their organizations.

At the other end of matrix -- larger companies and later in the year -- we found that most of them couldn't get out of their own way to make a decision. Was it the confusing signals coming from employment numbers, the stock market, the media? A number of false starts and no real turnaround to the economy? I think that's part of it.

Another part of it that we found so very interesting was how organizations make decisions. I'm not talking about the obvious differences between the bureaucracy of large organizations versus the lack thereof in smaller ones. This is something much more subtle; almost like the big (leveraged) organizations were so close to the edge that any decisions -- good or bad -- were not being made. Not unlike the avalanche survivor that can see a pinhole of sunshine as they're buried under the snow, yet so afraid to make a move toward it for survival in fear of the rest of what's around them caving in and taking their life.

And, so, we scratched our heads throughout the last quarter of 2009. Never in the nearly 20-year history of PA & Associates did we have a year in which we spoke with more prospects and issue more service agreements for review. Never, or at least as far back as my now 44-year old memory will allow, can I remember a time when CFOs and others considering our services were more enthusiastic about our approach, our references and our results. Yet, many of these same organizations never figured out how to push past whatever was holding them back; likely the fear of making any decision...good or bad. The paralysis had taken hold.

In my younger years I did a fair bit of surfing and windsurfing. Anyone that's spent any amount of time in the ocean with waves knows that swells come in sets; increasing in size and strength. Good surfers understand where to be at all times. This not only allows for them to catch the best waves, but also provides safety. As waves increase in size and power, they can also break further from shore. This requires paddling TOWARD a wave...and not away from it. Counterintuitive, until you've been caught in the impact zone and you get pounded. That's a feeling you never forget and are not keen on reliving soon.

A long way around to get you back to the point...2009 (and 2010 -- a New Year's celebration doesn't mean this is over) saw some organizations paddling to stay out of the impact zone. It expended energy, but their still alive to catch the next great wave. Others were paralyzed -- caught like a deer in the headlights as the monster waves mounted one after another and pounded them.These were the organizations that needed to paddle the hardest and many of them had the resources to do so. They froze in fear. Shaking their head from the last beating and coming up in the white water, they're big enough to weather another set. They're also over-analytical and fearful of making any decision, good or bad. The sets don't seem to be letting up any time soon. I wonder how many will paddle toward the waves and how many will wash up on the shore licking their wounds from the safety of the beach.

As always, your comments are welcome.

Snap out of it -- one person and one task at a time

2009-12-08T10:28:00.002-05:00

This blog entry is meant to be an encouraging appeal to people in businesses everywhere, from the mail room to the CEO suite. Examine your personal philosophy about how you do what you do. The premise is simple and is one that I conveyed to my children just recently: singular, repeated excellence has a funny way of snowballing into corporate excellence (no, I do not talk corporate governance/motivation with my kids).

I am reminded of a well-worn quote that has stayed with me for years from one of the more quotable characters in our rich history, Teddy Roosevelt, who stated,

"It is not the critic who counts: not the man who points out how the strong man stumbles or where the doer of deeds could have done better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again, because there is no effort without error or shortcoming, but who knows the great enthusiasms, the great devotions, who spends himself for a worthy cause; who, at the best, knows, in the end, the triumph of high achievement, and who, at the worst, if he fails, at least he fails while daring greatly, so that his place shall never be with those cold and timid souls who knew neither victory nor defeat."

So what is the application to our daily lives? Well, this life is your story. You have to live the story. Why live it in a mediocre way? You are not designed for mediocrity. Rather, go out and sweat and bleed in the dust and in the arena, as Teddy says, so that you can know, at the very least, what it means to pursue high achievement. In all tasks, micro or macro, tell your story by the manner in which you approach your life, your work, your tasks. No matter where you fall on the corporate ladder; you have a job to do. Do it well.

Recently, I had occasion to be in the Midwest for business at the headquarters of a Fortune 500 company. As we waited in the vast lobby for our meeting to begin we were introduced to Fred. Fred is a security guard at the front desk and he greeted each and every person by first name! Now, to paint a clear picture of the scene, there were literally hundreds upon hundreds of people walking in and out of the building past his station during this particular lunch hour and he knew every single person’s first name. We came to learn that this small but impactful (and repeated) gesture resulted in Frank’s presence at national sales meetings and board meetings for this company for the purpose of illuminating excellence in customer service and attention to detail.

Bottom line: get in the arena and live your story.

IRS Reverses FedEx Ground Ruling

2009-11-12T15:08:00.000-05:00

In what appears to be the latest chapter in a series of long-awaited FedEx rulings on their independent contractor woes, the IRS announced that it has dropped the last audit of FedEx. At present, FedEx does not expect any more audits on the company for this matter.

The IRS ruled in late October that it will reverse its earlier stance and previous assessment that FedEx had misclassified some of its package delivery drivers as independent contractors. The reversal squarely backs the FedEx stance that its classification of certain drivers in the network as independent contractors is appropriate. Furthermore, the ruling drops a potential $319 million assessment by the IRS. FedEx broke the news in their SEC filing.

For the past three years, it has been common for us to hear UPS warn our clients during presentations about the status of FedEx independent contractors and to watch for a huge move by the federal government to push for the classification of these drivers to employees. That would open the door for potential labor union representation and a more level playing field when it comes to how this part of FedEx's business is managed (UPS drivers and other parts of UPS are represented by the Teamsters). Now that appears to not be the case.

What we're seeing as we complete a record number of projects in 2009 and slated for 2010 is that FedEx has made aggressive moves to gain market share among dwindling and finite package volume. Most recently, FedEx announced the introduction of their SmartPost service; a low-priced ground residential delivery service that has significant cost savings in the 1-10 lb range. The delivery of SmartPost packages is handled by both FedEx and the US Postal Service.

At the same time and within the same climate, we're seeing backward moves by UPS. Although most pricing remains competitive, UPS is tendering odd documents with their new rounds of pricing; including loosely-worded early termination agreements. For nearly two decades, UPS has been overt in their education to the shipper that their pricing documents are "Carrier Agreements" (as worded clearly on the top of every document) and not a "contract". With the advent of early termination, one would construe that there must be a term...and with the statement of penalties for early termination, it would appear that these are now contracts.

The months of January and February are always interesting in our organization, as we're fielding calls and requests from clients and prospects for assistance with the rate increases that they knew were coming, but didn't know how they would affect their bottom line. This winter will also be an interesting time to watch the continued jockeying of the two remaining global service providers in this space.

IRS Drops Last FedEx Audit
IRS Reverses FedEx Ground Ruling

When Rates Caps Aren't Enough in 2010

2009-11-04T21:15:00.006-05:00

The 2010 general rate increase will impact your business in more ways than one. Don't let 2010 be another year when the carriers raise your base rates well over 5% and also increase the surcharges that will ultimately drive up your overall cost of doing business. For example, the FedEx accessible dangerous goods surcharge will increase over 9% going from $65 to $70. Another example is the FedEx Express oversize charge increasing by 9% from $45 to $50 per package. We are all experiencing one of the most challenging economic environments in recent history and the road ahead is treacherous at best. PA & Associates is poised to take your carrier negotiations to a new level with a financial model that has produced an industry leading 42% average savings for our clients. Our value stems from over 18 years of logistics and financial expertise and a team of logistics professionals that deliver quantifiable results.

PA & Associates understands your desire to elevate your ROA (return on assets) and effectively streamline your supply chain. We provide solutions and deliver financial results. Call PA & Associates today at 1-866-200-SAVE to discuss your potential for savings!

website:www.paaa.com

Contributors: Steve Syverson, Clorisee Canada, Scott Guldin

Help! My Bus With The Right People On It Is Sinking In The Blue Ocean

2009-11-03T10:49:00.003-05:00

Sorry to mix business self-help metaphors but I cannot stand empty slogans and war cries! It is a real chafe.

For example, many companies now espouse a “spend management” platform. Like so many hackneyed terms in business, spend management is now overhyped by those companies that are trying to use it as a sword but their services prove to be a meat cleaver instead. Let’s be clear; spend management is more than just cost reduction. Spend management is a philosophy, a practice, a discipline, and ongoing best practices management. And CFOs beware; there is a lot of “sizzle” but no “steak” with many of these service providers and consultants that purport to adhere to spend management principles. Spend management should be the manner in which companies control and optimize the money they spend. So, while cost reduction is the immediate impact, spend management presumes an ongoing discipline and internal practices to control and optimize the spend environment.

Well then, Chris, how can I seek out true spend management companies you might ask? I am glad you asked. Characteristics to be mindful of when considering utilizing a vendor to provide spend management services include: proven data-driven results; the breadth of expertise within that spend area; the makeup of the project team to ensure they bring relevant acumen to the table that is of value to your company; technology solutions--technology solutions--technology solutions; a client list that speaks to your specific industry and spend criteria; white papers, and a consultative and partnering mentality that they bring to each and every project. Experience has shown that such characteristics would indicate that the vendor is capable of not only cost cutting but also implementing far-ranging spend management practices.

The number of indirect spend areas that are in the crosshairs of the vigilant CFO is growing (energy, waste management, logistics, telecom, office supply, accounts payable, printing, cost segregation, etc.), so would the real cream please rise to the top?!!

Importer Security Filing Fines, Penalties, and Their Mitigation

2009-10-24T00:17:00.009-04:00

As noted in the previous posting, up until recently the required Importer Security Filing (ISF) information was typically provided after the order had shipped.

Because of the change in information and document flow ISF compliance requires, U.S. Customs has allowed a period of “flexible reporting” and “flexible enforcement” ending January 26, 2010. This is when fines, penalties, and “Do Not Load” messages will begin.

Flexible Reporting –

The actual manufacturer or supplier, country of origin, HTSUS (U.S. customs tariff classification), and final ship-to party may not be accurately known 24 hours before the cargo is loaded. Until January 26, 2010 importers will be permitted to submit an initial response based on their knowledge or data available at the time of filing. They must then update the ISF with accurate information no later than 24 hours prior to arrival at the first U.S. port.

Flexible Enforcement –

CBP will refrain from assessing fines or penalties as long as the importer is “showing good faith” in filing accurate and on-time ISFs during this period. CBP has begun issuing “report cards” documenting current accuracy and timeliness, and expects continued importers compliance improvement.

The “flexible reporting” and “flexible enforcement” period ends January 28, 2010, when CBP will begin issuing fines. They will then also issue “Do Not Load” messages via AMS to the carriers, effectively “stranding” containers at origin.

ISF Penalties and Mitigation

CBP has now released their guidelines for determining and levying ISF penalties and what it considers potential mitigating circumstances regarding severity of the penalties.

The ISF ruling and guidelines on penalties and mitigation are written vaguely. They provide CBP almost unprecedented discretion and a wide range of actions in both assessing and resolving claims of infraction. In fact, CBP may simply allege failure to file, incomplete or incorrect data, and treat as breach of the importer’s bond; i.e. the importer failed to comply with U.S. import laws and regulations.

First offenses are subject to fines and penalties (liquidated damages) up to us$5,000, and may increase with subsequent violations. The most serious violation is obviously failure to file and blatant deception.

Major offenses under ISF include failure to file, filing late, filing inaccurate information, failing to file updated information, and failure to withdraw a filing the importer has learned is inaccurate.

Published mitigating factors for importers include:

√ Evidence of good faith progress providing ISF data during the “flexible period”
√ Relatively low number of violations compared to total ISF filings
√ ISF failure due to reasons beyond the control of the importer (i.e. carrier had to divert ship to another port)
√ Faulty ISF data was based on commercial or shipment information from another party but within normal international commercial acceptance.

Cancellation of ISF fines and penalties may be possible if the importer can demonstrate it was not able to verify the data before the filing and / or it was reasonable to believe the information was true, and corrective action has been taken. Up to 50% reduction of fines is possible if the ISF importer is C-TPAT certified.

Published aggravating factors are:

X ISF failures were intentional deception, part of smuggling, or supporting violations of other import laws or regulation
X Consistent faulty data or violation for the same data field
X Consistent multiple errors on the same ISF
X Obstruction or failure to cooperate with Customs investigations of any violation

Due to the fast approaching final deadline (January 26, 2010) to be in full ISF compliance, it is highly recommended that U.S. importers advise their suppliers of these new requirements. It would also be appropriate to revise and amend foreign purchasing agreements, Letters of Credit, etc., to clarify and define supplier or seller support for this data collection. If you are a Supplier or Agent for a U.S. Importer and have not been contacted by your clients please reach out to them now.

If you do not fully understand the Importer Security Filing requirements, need assistance in selecting a partner or implementation, or have any other questions, please contact us immediately!

Full Importer Security Filing Compliance Deadline Fast Approaching!

2009-10-19T21:42:00.008-04:00

In only three months the Importer Security Filing, also known as ISF or 10+2, will go into full effect. Many importers are still unaware of the consequences of non-compliance, or have simply been postponing implementation. Now, however, it is really time for action.

Basis of ISF

The Importer Security Filing is based on the USA’s SAFE Port Act of 2006. U.S. Customs and Border Protection (CBP) published its ruling on the Importer Security Filing on November 25, 2008. Similar to the 24-Hour Advance Vessel Manifest (AMS) rule, C-TPAT, Container Security Initiative, and other security measures, ISF is designed to improve national and international security.

Since January 26, 2009, all U.S. importers (definition also amended by CBP for this ruling) have been required to electronically submit 10 data elements, plus bill of lading numbers, 24 hours prior to the loading of containers and break bulk cargo onto ocean vessels at the foreign port. The ocean carrier must also file 2 data elements - the vessel stow plan and the container status messages. This is the “+2” of 10+2. The key or connector to the ISF, the AMS, and the customs entry is the house bill. The 24-hour advance “timing” is based on the AMS filing and container status message data.

This ISF information must be filed for all ocean shipments entering, or even just transiting the USA, including shipments going into Free Trade Zones (FTZ). For In-Transit or FTZ shipments only 5 of the 10 data elements must be filed. Please contact me if you are interested in a comparison chart of the individual breakdown of data elements for these shipments.

Filing the ISF

U.S. importers may choose to file this information themselves, or contract with an agent to do this for them. However, only those entities certified for transmitting electronically to U.S. Customs via AMS (normally forwarders and NVOCCs) or ABI (customs brokers) interfaces may submit the actual ISF filing. Obviously most ISF filings will be submitted via a “Filing Agent”, much the same as most customs entries are filed by a customs broker. Either way, legal culpability for filing in an accurate and timely manner remains entirely with the importer.

The best ISF filing programs support web-based, user-level access, allowing both electronic download or manual input of data by the shipper (or its supplier / vendor), and allowing the importer or customs broker to verify / edit data prior to filing. This is a very important aspect as U.S. Customs will later compare the ISF filing with the actual customs entry to verify accuracy of the importer’s ISF data.

Acquiring the ISF Data

Much of the required ISF information has historically not been available until later in the time-line of events, as the export and commercial documents have typically been issued well after the shipment was loaded and placed in transit. U.S. importers must work with and educate their foreign-based suppliers regarding the new information requirements, and develop a method to submit or provide this information to their Filing Agent in a timely fashion. This “need” is critical because fines of $5,000 per incorrect or late filing can be issued.

Because of the change in information and document flow ISF compliance requires, U.S. Customs has allowed a period of “flexible reporting” and “flexible enforcement” ending January 26, 2010. This is when fines, penalties, and “Do Not Load” messages will begin.

I will address this “flexible” period as well as ISF fines & penalties, and their potential mitigating factors in my next post.

Panelist appearance on BlogTalk Radio: Spend Management vs Spend Intelligence

2009-09-24T14:29:00.004-04:00

I had the fortune today of being part of a panel discussion on Jon Hansen's BlogTalk Radio show PI Window on Business. Jon's topic for today was around the topic of Spend Management and, specifically, the difference between spend analysis and spend intelligence. The panel consisted of two other business professionals; an author, speaker and consultant on management consulting and a professional that handles Sarbanes-Oxley compliance issues within businesses.

Hansen's idea for the show stemmed from an article titled Spend Intelligence: The Next Wave of Spend Analysis (Sudy Bharadwaj - Supply Chain Management Review 9/1/2006). The show covered a number of interesting points including the idea of there even being a difference between spend analysis and spend intelligence, the role of on-demand reporting and Software as a Service (SaaS), change management issues that organizations face in adopting a new, best practice approach and other interesting topics.

The show aired live on 9/24/09 and the on-demand audio is hosted below. I look forward to any comments you may have.

Scrapping or mothballing ships may keep capacity articially low and rates high

2009-09-15T14:58:00.005-04:00

The story by Simon Parry of the UK’s Daily Mail is an excellent overview of the true current crisis in the ocean freight sector ( http://www.dailymail.co.uk/home/moslive/article-1212013/revealed-the-ghost-fleet-recession.html ). This is a “must read” article if you want to know what is really happening in ocean freight and how it will continue to impact all of us over the next few years.

Like many supply chain professionals I like and read the Journal of Commerce daily, and am up-to-date on the changing numbers side of this issue. In short, the current (depending on your sources) idle ship statistics are approximately:

Container traffic = 12-15%
Roll On – Roll Off traffic = 20%
Tanker traffic = 2-15%

While oil production has dropped about 13%, only about 2% of tankers are listed as idle. This is partly due to incomplete reporting, but more likely due to oil producers leasing the idle ships to store crude and keep “market” supplies lower – http://www.msnbc.msn.com/id/29495753/

Simon’s article, however, not only presents the numbers, but has also covered personal viewpoints and details that are typically missing from mainstream industry-related publications. It is really quite good.

You may want to check with the Journal of Commerce occasionally to get updates. Here are links to a few of their recent articles (FYI - Box ship = container ship. TEU = 20 foot container. Divide by 2 to get 40 foot container equivalent).

This year container lines are set to scrap ten times more ships than average and the most ever recorded in one year – http://www.joc.com/node/412132.

Close to 15% of container ships may stand idle by end of 2009 – http://www.joc.com/node/412342.

Roll On – Roll Off = car, truck, equipment carriers – http://www.joc.com/node/412397.

By the way, Baltimore Ro-Ro shipments (the nation’s top overall Ro-Ro port and No. 2 in automobile exports) are down 14 % this year.

Scrapping or idling ships in this manner serve to drive capacity down and provide the basis for higher rates. We have spoken to rising ocean freights rates in a recent post (see below).

When it comes to parcel mode optimization, AP reporter gets it "kind of" right...

2009-09-02T09:59:00.011-04:00

When The Associated Press reporter Samantha Bomkamp released her piece As consumers slow down, FedEx and UPS adapt (AP News, September 1, 2009), she got it kind of right. After all, sending paper overnight through the guaranteed services FedEx and UPS provide might be considered a luxury for businesses that have the alternative to use USPS or the "deferred" services that FedEx and UPS provide [see inset frame below for full article].

Bomkamp's contention is that consumers and small businesses that have relied on the overnight services (FedEx Priority Overnight and UPS Next Day -- both services offer next morning delivery of documents and packages by 10:30 am) have re-evaluated their spendthrift ways of days gone by when times were good and revenues plentiful. For those that still require the enhanced offerings for delivery -- including tracking, delivery signatures and guaranteed services -- the solution has been to opt for the carriers' less-expensive modes of delivery, such as two-day and three-day delivery services. And while there is no doubt that these deferred services are priced lower than the overnight services, the knee-jerk reaction to cost-reduction misses the mark as a cost-reduction strategy for those who need overnight delivery as a competitive advantage.

A trusted connection of mine who was formerly employed by one of the top-three global commercial real estate firms forwarded me an internal e-mail communication from the company's CEO that urged all employees to cease the use of overnight delivery services in favor of the slower, less expensive carrier offerings. Think about that for a minute. These are some of the most successful and driven real estate professionals in the world being asked to relinquish a competitive advantage of timely delivery of urgent and important real estate documents (offers, contracts, plans, payments, etc.). Competitors that get offers in ahead of others stand to gain an advantage.

It would seem that a better option would be to reduce the cost of the service that is required. In the example above, our organization attempted to position our logistics spend management service offerings in front of the corporate office to do just that. Bomkamp's article below discusses a small media relations firm in VA who's CFO was trying to strike a balance between reducing headcount and reducing indirect spend. He was able to make a mode optimization, like that referenced above, which saved the organization $14,000 annually. The firm reported that they employed a staff of 13. Not a bad savings, but not the optimum approach. I would doubt that his $14,000 in savings accounted for any of the thirteen's annual salary.

That said, we have been hearing this message for the last 24 months; its reduce expenses or reduce headcount. When the full costs of hiring (and re-hiring) are evaluated, reducing headcount is a backwards approach to cost-cutting. Granted the balance sheet effects are immediate and the modeling compelling, but the approach is short-sided. Services like PA & Associates' make more sense to explore prior to the last-ditch measure of cutting headcount. Ask CFOs if they have taken cost-cutting measures during the last year and they will report they wrung the general ledger dry of all expenses. However, when we dig down into many of the indirect spend categories we find that best practice procurement, strategic sourcing and true spend management techniques have not been employed. Its a mentality of, "we flip the light switch on in the morning and turn it off at night; we're going to get an electricity bill and there's nothing you can do about it". That's just not the case.

The economic downturn has produced two sets of cost-cutters; those who have made the easy and obvious cuts to survive and those who have fully changed their mindset on what it means to run lean. Our clients comprise the latter group and have employed our methodologies as best practice spend management techniques in multiple areas of their operations for real and lasting cost reduction and continuous improvement (spend management). Many are saying that we'll never be the same when things completely recover. I differ with them in that human nature is to resist change and opt for the path of least resistance. We will see some that will make lasting change and it will become their new culture. We will, however, see a large number of those that will go back to their old, wasteful ways when revenues return. How easily we forget.

Ocean Freight Rates Are On The Rise! Have You Renegotiated Your Rates Lately?

2009-08-27T12:31:00.000-04:00

Ocean freight rates are on the rise. This is particularly true of ocean container shipments. In the last three months average ocean freight rates (container transport particularly) have climbed up to 55%. Have you renegotiated your rates lately? If not, now is the time!

Effectively negotiating ocean freight is not so simple and depends on knowing a fair amount of detail. Will you have many “one-time” shipments, or more a repetitive business with each shipper? How much product are you shipping at one time, or if repetitive, each shipment? If repetitive, how often? The answers to these questions also determine if you want to use a freight forwarder or negotiate directly with the ocean carriers.

Door to door transit time is also a huge consideration. Will you ship to a major or “gateway” port and then truck to multiple distribution centers? Or will it all go to one DC? If you are planning on moving the containers intact to an inland DC, some difficulty may arise depending on the ocean carrier, and rail charges can be quite high.

There are quite a few charges that may be a part of the total ocean / delivery transport costs on a typical import shipment. Some may be negotiable with the carrier / forwarder (given sufficient volume and frequency) and if you understand how ocean freight rates are calculated.

Some of the most common ocean freight cost components are:

BAF - Bunker Adjustment Factor Surcharge
CAF - Currency Adjustment Factor
PSS - Peak Season Surcharge

… and 10 to 15 more depending on your actual contract and shipments.

Depending on your terms of sale (Incoterms) you may pay origin charges including:

ORC - Origin Receiving Charge
ODF - Origin Documentation Fees
THC - Terminal Handling Charges

If your shipment is moving inland from the port you may pay:

DDC - Destination Delivery Charges
IPI - Inland Point Intermodal or MLB - MiniLandBridge
IFC - Inland Fuel Surcharge

In addition, your container freight rate may depend on the actual commodity being shipped.

Of course for your full “landed cost” there are the myriad of other costs not directly associated with the ocean freight or container rate, some of which include:

Importer security Filing (ISF or 10+2)
Customs Brokerage
Duty & Taxes
Stripping and / or Transloading of Containers
Interim warehousing

and, and, and …

If you need more detail or clarification, we will be happy to work with you to setup a bid or RFP (Request For Proposal), or to audit or review your current rates and processes for possible improvement.

Whatever you do, plan for success! Poor planning can result in much headache and unnecessary expense. Great success will follow your good planning.

Contact us today at ray@paaa.com for more information.

Welcome to the New World of Spend Management (or the world you just noticed!)

2009-08-26T12:44:00.006-04:00

As history and B-school case studies reveal, it is often only through adversity that companies recognize and then embrace systems and processes that make them "better" but were there all along. Take, for example, the somewhat esoteric term, "spend management" in the business community. This term is now on the lips of CFOs, controllers, CEOs, finance directors, etc., across the globe. But why now? Or, more important, why not earlier?

C'mon, let's face it, we rarely try to change things up when we are fat and happy, right? you know how the old addage goes, "If it ain't broke ..." The truth of the matter is, though, that spend management practices and initiatives have been around for decades. The glaring difference now is that companies seek to incorporate them into EVERY aspect of their business. A concept too long in coming (and, for many, too late).

What we find in the logistics spend management space (see, there ya go; every aspect of your business!), are companies working diligently to find resources to get lean but to get SMART as well. For example, and on the one hand, a medical device company in New Jersey works with PA & Associates to get "lean" in its logistics environment with a parcel carrier agreement negotiation project that saves the company hundreds of thousand of dollars. But then, on the other hand, the same company takes it a step further and gets "smart" by managing that spend area moving forward with better software and analytics, and, therefore, better practices in the environment. The same could be said of a PA client in Omaha, Nebraska that availed itself of PA's wildy successful domestic parcel negotiation project and followed it up by implementing savings projects for its international freight spend under PA's direction and counsel.

With spend management as a ubiquitous term in our present condition, one also finds unqualified peddlers preying on the hopeful CFO like vultures on a carcass. At the end of the day, however, working with a true solution-providing consultant is all about trust and value, two of the more hackneyed terms today. But, like beauty, you will know trust and value when you see it.

FedEx/UPS Resemble Candidates in an Election Year

2009-08-08T15:45:00.008-04:00

What's going on?

The raging battle between FedEx and UPS looks more like mudslinging congressional candidates in a fierce battle for office than the top-tier corporations they claim to be.

First, take the allegations that surfaced late last week regarding UPS employees being coerced into letter-writing and lobbying against FedEx. UPS has already admitted that it paid for employees' time and supplies to write letter lobbying representatives that the present classification of FedEx as an airline creates unfair competition (UPS is classified as a trucking company and, thus, uses Teamsters labor resources). UPS claims the participation in the campaign to be voluntary.

Although alleged at this time, a number of reputable sources have been reporting that the UPS characterization of the activity is incorrect. Some (now former) UPS employees have been vocal about thier employer's heavy-handed tactics and their expectation that employees would follow lock-step.

Although aggressive and disturbing, UPS isn't the only one at fault. FedEx launched a website months back to put its own propaganda into the market. In the offices of PA & Associates, we received more than one e-mail from FedEx staff encouraging us to visit the site and side with the FedEx position that UPS is just another large corporation seeking federal government financial assistance.

As a normal course of our projects, I have sat in a number of UPS and FedEx presentations where representatives attempt be on their best behavior in hopes of landing the small package business of our clients. Underneath the calm demeanor and clenched teeth, each exhibits a seething dislike for the other; remembering the echoes of their Zig Ziglar training and sales manager's admonitions to only sell on the merits of their service and not to disparage their competitors. Unfortunately, most of them (on both sides) can't help themselves.

It remains to be seen as to the outcome of the FedEx issues and the discussions which are ongoing as to the status of their network. One thing you can be sure of; the propaganda machines are hard at work on both sides -- be it a "Purple" spin or a "Brown" spin.

Harness the Power of the WWW Community (for logo design!)

2009-08-04T09:30:00.012-04:00

Remember the early days of the Web? When we referred to it as the World Wide Web (www)? We did that for a few reasons. First, it was brand new to most of us and we were just using the parlance that others created.

But second, and more substantially, it literally was a "world wide" web; doing something that had never before done...demolishing the geographic barriers between people, ideas and the collective talents of the entire world. With all of the creative uses, applications and Web 2.x features, the real power of the web lies in the leveraging of entire communities worldwide to produce a true market-driven outcome.

Take, for example, the simple and powerful idea of LogoTournament.com.

One of a number of these types of competitive sites (you may be familiar with the widely-advertised LendingTree -- where you apply for a home loan and lenders submit their offers), LogoTournament.com allows an individual or business post a creative brief and request for a logo design. Attached to this request is any amount over $250 the requesting party agrees to pay for the final logo.

Designers from all over the world submit their offerings and work through revisions based on feedback. All against the backdrop of a contest deadline. In the end, the client gets a number of creative directions to choose from and camera/web-ready artwork.

I recently used the site in the creation of a logo for our service methodology, 3-Part Logistics Spend Management (3PLSM for this article). Creating an account was straightforward and I had a pretty good idea of what our brand is and the use of the logo being requested, so moving through the forms used to create the creative brief were fairly easy. That said, you're not locking yourself into a direction once you submit, as you can return to the project and edit these ideas for the designers at any time.

LogoTournament encourages you to consider putting a higher "prize" (the amount you award to the winning design/designer), the idea being that a higher prize will attract the top-tier designers registered on the site. I'll leave this up to you. I will say that the project for 3PLSM carried a $250 prize and the submissions, both quantity and quality, were adequate for my use.

A great concept isn't enough these days. You need great tools to make the experience worthwhile. LogoTournament offers the latest Web 2.0 interfaces, allowing you to view designer submissions. sort and rank logos, make comments, and interract with the designer community.

If you've engaged a designer...or, worse yet, a marketing/advertising firm, to create a logo you probably paid more than $250 and had the creative energy of one designer. Offering a pittance of a fee for a varitable universe of designers is harnessing the true power of the world wide web and its community.