Parcel giants UPS and FedEx appear to be getting even bolder in their message to shippers.  That message is that UPS and FedEx will not allow their customers to use Third Party Parcel Negotiators to negotiate their new pricing agreements.  Industry experts are mulling this strategy over to see if it is a good one or a bad one.  It obviously depends on which side of the negotiation table you are sitting on.

Certainly for UPS and FedEx this decision is one that may save millions of dollars annually.  So from their perspective it’s a BRILLIANT decision.  Shippers will continue to monitor UPS and FedEx’s quarterly profits and will see them rise steadily as they have over the past several quarters.  Some of these rising profits are coming out of the pockets of many of these unsuspecting shippers and that fact will not sit well with the shipping community.

On the other side of the negotiating table sits the defenseless shipper who will be at a distinct disadvantage.  It may not have the detailed information it needs to negotiate a favorable contract and therefore WILL pay more than they might have had they sought the advice and counsel of a Third Party Parcel Negotiator.  With limited competition in the parcel shipping marketplace, shippers really do have their hands tied behind their backs.  The real question that WILL ultimately have to be answered is whether or not this move by both FedEx and UPS is legal.  That decision will be left up to the legal community and perhaps even the courts.

According to a recent Tompkins Supply Chain Consortium survey of leading retailers and manufacturers, companies are more likely today to have senior level supply chain leaders.  The executive briefing titled “The Structure of Today’s Supply Chain Organizations” states that over the past five years or so, the organizational level of the senior most supply chain executive has steadily moved higher.  Today almost 50% of retailers and manufacturers have supply chain executives at or above the executive vice president level.

Now, many folks with any supply chain experience may be finding themselves in “C” level meetings, helping their companies drive operational improvements while at the same time reducing costs.  It has been a well known fact for years that many supply chain initiatives could have led many companies to improved profitability at a time when sales were steadily declining.  The only problem was upper management either did not understand the value these initiatives could bring to the table, or it wasn’t sold on the initiatives by the supply chain group.

Many corporate executives are afraid to “step outside the box” and challenge their peers to work cohesively to obtain better operating results for the company in the area of supply chain management.  Many companies today do not have a clear vision of the supply chain because many different corporate executives and departments have a little piece of the puzzle.  For example, when the inventory control group decides not to maintain duplicate inventories in east coast and west coast warehouses, the operations group is required to ship goods over longer distances to meet customer demands.  How many more dollars in freight costs have been spent compared to maintaining the inventories?  Is it cheaper not to maintain duplicate inventories?  The reality is no one knows unless these groups work together and analyze what is best.  First and foremost, what is best for their customer and then what makes more sense for the good of the company’s bottom line.

To take this one step further a company should always be looking at what supply chain functions can and should be outsourced.  With many different players protecting their internal domains, getting the proper factual information to evaluate these scenarios could be near impossible.  There must be cross functional accountability to each and every department operating within the supply chain operation.  On the other side of the coin, we have seen major corporations that have hired senior level supply chain executives to oversee entire domestic and international supply chain operations.  Unfortunately, many of these executives either lacked the technical expertise in all areas of the supply chain to be successful or didn’t know how to navigate the corporation’s political environment to get things done.  Either way there best intentions did not materialize.

We couldn’t agree more with the survey results.  However, we caution all companies to make sure the individual(s) they bring into the “C” suite not only understand all aspects of supply chain concepts, but also has the savvy to navigate the rough waters of corporate politics.  Without these skill sets the individual and the company will fail in its effort to achieve the intended results.

Yes it is true Wal-Mart is in the process of testing the use of item level RFID, (Radio Frequency Identification Devices) that will be attached to jeans and underwear at their stores.  They will be using this technology to assess needed inventory to ensure their shelves always contain enough products to meet customer demand.  It is clear that if this test works, RFID technology will be added to many, if not all products sold in Wal-Mart stores.

These devices are perfect for fashion apparel as there is a very short season for retailers to sell these products.  Therefore the more they know about the customer’s buying tendencies, and the location of the goods within the store, the better prepared they will be to stock those styles the customer is looking for.  When you look at jeans for example, very often buyers will place inventory where it does not belong, in another style or size bin.  With the RFID technology it is infinitely easier for the retailer to find the goods, place it back where it belongs and have another consumer find what they want and make the purchase.

For those retailers whose sales are much smaller than Wal-Mart, you’re next!

“Big Brown” has set a new goal of improving the overall miles per gallon in their tremendous fleet of vehicles by 20% between the years 2000 and 2020.  In 2009, UPS’ drivers logged in excess of 77.3 million more miles than in the year 2000, yet according to their records fuel consumption went down by 3.2 million gallons.  UPS achieved these results in a variety of ways including, improved vehicle technology, effective vehicle maintenance procedures, fuel conservation efforts, routing technology and operational initiatives, including a reduction in truck idling.

UPS announced last year a similar effort to improve their carbon efficiency of its airline by an additional 20% again by the year 2020.  This initiative will give UPS a cumulative reduction of 42% since the year 2000.  Certainly a major step in the right direction!

By Bernadette Starzee - Long Island Business News

Name: Laura Schwier
Title: Vice President
Firm: ICC Logistics Services Inc.
Best Career Decision: “Not getting swallowed by the vortex of highs and lows that come with managing a business”

Laura Schwier has been promoted to vice president at ICC Logistics Services Inc. in Hicksville.  Her responsibilities include overseeing all company departments and working with department managers to improve efficiencies, streamline processes and provide optimal services to customers.

Schwier joined the full-service supply chain management company, which provides auditing and negotiation services in the areas of transportation and logistics more than 30 years ago.  Most recently she was chief information officer, a position that oversaw the information technology portion of the company.  Previously, she served as director of client fulfillment, responsible for client relations and accounts.

According the Schwier, many people don’t realize the potential financial rewards that can result from the effective management of a business’ supply chain.

“Our greatest thrill is being able to create a profit center for our clients based on the savings we can provide them,” she said, pointing to a recent example in which her company saved a client $1.5 million through the negotiation of parcel rates.  “Imagine how much sales would have to increase to see the same kind of effect,” she said.

Schwier, an accounting major in college, said she acquired her technology expertise at ICC, where she quickly learned that being at the cutting edge of technology was vital to success.  “We’re always searching for ways to save our customers money and time, and that can’t be done unless we stay ahead of the curve and leverage technology solutions,” she said.  “Everything that I know and learned has been from hands on experience and great mentors.”

Schwier said she stayed with ICC for more than three decades because she finds work challenging and her co-workers motivating.  She said she feels appreciated and she likes the opportunity to do different things.

Over the years, Schwier said she has been well-served by keeping and even keel through the inevitable ups and downs.  “Steady as she goes: the customers need to see that,” she said.  “And so do your colleagues and bosses.”

To our valued readers:

Once again we have compiled for you our quarterly business review, this time representing major transportation and logistics issues for the second quarter of 2010. We believe the stories we have covered here represent importatnt issues that every company will have an interest in. Our goal is to give our readers an overview of the key issues affecting their business in one way or another. It is our goal to continue with this Quarterly Business Review every quarter so that you are not only informed about the key issues but will also have our insight on what it will mean for your business in the weeks and months ahead. Information is power and we will arm you with all the information you will need to make a positive impact on your own business.

As always we welcome your comments as they are the driving force behind what we do and how we do it.

Tony Nuzio

Our good friend and parcel shipping expert Jim Lerose, founder of Lerose Systems, LLC has taken a very bold step to alert corporate CEO’s and other key corporate executives what many have known for a long time but have been afraid to say. In the May-June issue of Mailing Systems Technology, Jim provides bold insight into how UPS and FedEx doubled their profits last year. In many cases these huge increases in profits came at the expense of unsuspecting customers of these behemoth carriers.

Jim points out 10 ways shippers have helped to increase carrier profits at UPS and FedEx at the expense of their own. Here are Jim’s ten points to ponder:

· You got bamboozled into thinking you needed to give all your business to one carrier to get the best rates.

· Your company paid the UPS/FedEx invoice without reconciling each shipment. Yes, you did.

· You gave your employees a blank check to spend at will on UPS/FedEx.

· You tried but couldn’t enforce employee shipping policies although you knew it would cut costs.

· You didn’t benchmark or compare UPS/FedEx rates vs. what other companies paid.

· You allowed FedEx/UPS to deploy their technologies, such as Worldship and Ship Manager, which are designed to increase their profits but not help your business ship better or save money.

· You felt helpless to combat new carrier fees, so you left it up to someone else to deal with…and they didn’t! These fees now represent 15% of your entire invoice and you are blissfully unaware.

· You allowed your product to be shipped without the correct addresses. Shame on you!

· You left the contract negotiations up to an employee who had a relationship with the carrier rep. That cost you big time.

· You believed the carrier rep. when he/she said, “You have the best deal.”

As you can see from Jim’s statements he has provided some very keen insight into what goes on when shippers don’t fully understand the rates they are paying and what the carriers’ contract terms and conditions really mean. Many shippers also do not understand that there are many shipping solution options to help them save huge amounts of money. Shippers unfortunately sign these contract agreements every day because the carrier has assured them it’s in the shipper’s best interest to do so. We urge ALL of our readers to take a step back before agreeing to these contract terms and rates to solicit the expertise of a third party consultant to take a look at the contracts and analyze their shipping options BEFORE signing these agreements, not after when its too late.

To give you some insight into the power a parcel consultant can have on your business, we recently completed a parcel contract negotiation for a major electronics distributor. Our Parcel Appraisal and Negotiations Consulting Group generated an additional $1.4 million dollars in bottom line savings for our client. How many dollars in sales would your company have to achieve to put $1.4 million on its bottom line! Let’s talk real soon and discuss ways we can help your business become more profitable.

Tony Nuzio

To add some more fuel to the fire, we are now hearing rumblings that UPS and FedEx are telling their shipper customers they will not negotiate contract pricing with a shipper’s third party consultant. Even though this has been a practice for years. Many companies rely on these third party consultants because of their expertise in the field to negotiate unbiased and competitive contracts on their behalf with the parcel carriers. Some of the responses we have heard from the shipping public indicate that UPS and FedEx feel they can handle these negotiations more effectively because THEY have the shipper’s best interest at heart. In fact some sales representatives for these companies have put words to this effect in writing! Yeah right! That’s what the fox said when he suggested he would be best suited to watch the hen house. Imagine closing on a new home and your real estate agent stating you cannot use a lawyer to review the contract language before signing it because the sales agent obviously has the buyer’s best interest in mind! Or, imagine your primary care physician telling you he always has had your best interest in mind so he will perform the open heart surgery, no need to go to a heart surgeon!

While we jest here, there is a real problem when there is limited competition in the market place as in the case of UPS and FedEx. UPS and FedEx have apparently drawn a line in the sand. We must assume the decision to block out third party consultants in these negotiations was made independently of each other, at least we hope it was. Did you ever hear the term “restraint of trade”! We are pretty sure however that once one player knew the other’s position it was easy for them both to express to their customers that the shipper will no longer be allowed to seek advice from an industry expert for the betterment of its business! Well, what’s good for the goose is good for the gander. We know for a fact that UPS and FedEx both use consultants to help them run their business more efficiently and to help them improve profits, so what are the shippers … chopped liver!

With UPS and FedEx a duopoly in today’s parcel shipping world, taking this action will surely be tested by shippers and major shipper groups, perhaps even in the courts. It is time for shippers to stand up for their rights and let these carriers know that it’s the shipper’s business and the shipper will ultimately decide what is in their best interest, not the carriers. Stay tuned folks this is going to be interesting.

Tony Nuzio

Wal-Mart is using its $408 Billion in annual sales to gain even more control over its suppliers. Their latest initiatives have applied pressure to their suppliers to provide environmentally friendly products and packaging, as well as exclusive product sizes and joint advertising promotions. Now they are seeking to take control of inbound supplier shipments to reduce their inbound transportation costs.

According to Wal-Mart’s vice president of corporate transportation, Kelly Abney, Wal-Mart has contacted their suppliers in an effort to handle those supplier deliveries where Wal-Mart can perform the same function for less cost. Their overall goal is consumer oriented in that they are looking to use these savings to lower prices in their over 4000 retail outlets. And you can just imagine the buying power Wal-Mart will now have with their freight carriers. Their message to the suppliers is, lower costs mean more sales. They are also seeking lower costs from the suppliers for the products they ship because they will no longer be bearing the transportation expense.

Anyone who has been reading this newsletter for any period of time knows that we endorse this concept for all companies. The fact is if you are going to PAY for the inbound freight expenses, which by the way ALL companies do in one way or another, it is in your best interest to CONTROL those routings. Suppliers can ship products “freight collect” in which case the buyer would receive a freight bill from the transportation company; it can receive goods “freight Prepaid and added to the merchandise invoice”; or the freight costs can be factored into the price of the delivered goods. So in any of these scenarios the buyer is paying for the transportation cost. Corporate CEO’s should not believe their purchasing managers when they say we purchase goods “freight free”. Those terms just do not exist!

The price reductions Wal-Mart is seeking are significant. In some cases they are looking for reductions of 6% of the cost of goods sold, which by some supplier estimates is twice the price reduction the suppliers believe is equal to the cost of shipping. Wal-Mart has already met with over 100 of its top suppliers to negotiate new pricing terms. According to Abney, Wal-Mart ALWAYS works collaboratively with its suppliers so it expects the process to move along smoothly.

While all of this is good news for Wal-Mart and potentially for its retail customers, the news isn’t so rosy for the suppliers. The “buying power” now shifts from the supplier to Wal-Mart so the suppliers’ freight costs could be increased especially if they lose the efficiencies they had by utilizing their own fleets to deliver to the retail giant. So who will bear this increase in costs? Perhaps it will be the other retailers the supplier ships to.

A question that remains for suppliers is just how delivery shortages and overages will be handled with Wal-Mart. Under the current shipping method at Wal-Mart, the supplier’s carriers drop full trailers of products into Wal-Mart’s distribution center facilities to be unloaded at Wal-Mart’s convenience. Upon checking the goods into inventory there are often shortages, damages and yes, in some cases overages. If Wal-Mart controls the inbound routings with their own freight carriers how these issues will be resolved with the suppliers remains to be seen.

Wal-Mart has been announcing that sales at its US stores have been down for the past four quarters so Wal-Mart is sharpening its focus on transportation expenses to offset these reduced sales. The suppliers seem to be between a rock and a hard place as no one wants to lose a customer like Wal-Mart. The bottom line however MUST be the profit margin for the supplier. If there is none, they will never make it up on volume!

Tony Nuzio

In another cost cutting initiative Wal-Mart’s marketing team ran a very creative TV commercial during the second quarter of this year. In the commercial a Wal-Mart truck driver states that their “Green Initiatives” of reducing empty miles and consolidating shipments were a major reason Wal-Mart was able to roll back prices for the consumer. A very powerful message because most people do not associate “green initiatives” with cost savings. We are here to tell you that all of these “Green Initiatives” will provide additional greenbacks in the corporate pocket.

Many other corporations have implemented cost savings “Green Initiatives”. For example, Kraft Foods took on a huge green supply chain initiative when it implemented an environmental effort by taking 50 Million truck miles out of their distribution network. The process involved moving truck shipments to barge along with consolidating loads and eliminating empty miles.

To put this into perspective, on average long haul trucks get about 6 miles per gallon on diesel fuel so this effort by Kraft alone saved over 30 Million gallons of diesel fuel.

At PepsiCo, environmental sustainability has been called “performance with purpose”. Pepsi’s supply chain executives from their four major business units are accountable for defining and driving the company’s environmental goals which include reducing water consumption by 20% and fuel consumption by 25% by the year 2015.

PepsiCo works with each of its 210 national carriers to score and track mileage efficiency and CO2 emissions per mile. One PepsiCo unit installed shut-off equipment on tractors to prevent idling for more than five minutes. This process alone is saving about 17,500 gallons of fuel annually.

The company is also expanding its use of intermodal transportation and is building alliances with other shippers. They’re looking for partners to fill up boxcars to take trucks off the road because rail transportation is more efficient from a fuel consumption and emissions standpoint. Do you think Warren Buffet knew something about these efficiencies when he purchased the BNSF Railroad a few months back!

It is clear the major shippers are driving these environmental processes with their freight carrier partners. Therefore the carriers are being forced into these green initiatives whether they like it or not.

On the carrier front, UPS has more than 100,000 delivery trucks on the road each day. They travel more than 1.3 billion miles annually and deliver billions of packages, combusting millions of gallons of fuel each year. UPS’ Green Fleet today contains over 2000 vans running on everything from Compressed Natural Gas to Electricity. The CNG vans shave 15% in fuel costs over the former diesel fuel powered engines.

Recently UPS added 200 new Hybrid/Electric vehicles to its Green Fleet. The combined fuel savings for these 200 vehicles alone is equivalent to saving 176,000 gallons of diesel fuel per year.

UPS’ Package Flow Technology optimizes the routes for every package before it is loaded onto a delivery vehicle. Since its inception this technology has eliminated 100 million miles driven.

UPS’ Delivery Information Acquisition Devices (DIAD’s), which electronically records delivery information, saves over 89 million sheets of paper each year, the equivalent of 7,308 trees annually.

UPS and FedEx who combined operate over 150,000 plus delivery vehicles are looking into a variety of cleaner technologies including diesel-electric hybrids, and hydrogen fuel cell vehicles. They’re doing this to satisfy Washington’s push to cut emissions since trucks produce more than 30% of urban smog. Don’t let anyone fool you; in addition to the Green Effect the biggest motivator is cost savings!

The numbers are beginning to add up. JD Powers and Associates estimates there are more than 500,000 hybrid vehicles on the road today with 40% of them trucks.

YRC Worldwide, one of the nation’s largest LTL carriers, is aggressively addressing Green House Gas reduction strategies by limiting truck speeds to 62 MPH; implementing extensive use of intermodal services with railroads; setting limits on daily truck idling and enforcing tire pressure inflation and monitoring programs.

YRC has also recently introduced the Green Balance Calculator to measure a company’s emissions and voluntarily offset the carbon footprint of its shipments. The calculator evaluates eight transportation activities that produce carbon emissions, among them, fuel usage, rail miles, air miles, and other factors.

YRC has taken direct aim at the airfreight industry. Airfreight tends to be very expensive and less environmentally friendly than ground transportation. A shipper might consider using YRC’s or other carriers’ expedited ground service which would reduce costs and carbon emissions. For example, shipments that are picked up on Thursday and Friday in California, and are delivered in New York City on the following Monday. Just think of the cost savings this change alone would bring along with its carbon reduction initiative.

Tony Nuzio