Cost Control In A Tough Economy Controlling UPS & FedEx Costs April 16, 2009

Increasing Freight Rates and Accessorial Fees Increasing Freight Rates and Accessorial Fees Increased Awareness of the Cost of Transportation in the Supply Chain Increased Awareness of the Cost of Transportation in the Supply Chain Increased Customer Demand for Accurate Delivery and Cost Information Increased Customer Demand for Accurate Delivery and Cost Information Todays Pressure on Transportation and Logistics Survey of 200 Top Logistics Executives

Reduce Transportation Costs Reduce Transportation Costs Exceed Customer Expectations Exceed Customer Expectations Todays Challenge on Parcel Shippers With Constantly Rising Costs, How Do You

Quick Quiz on Parcel Carrier Pricing and Contract Negotiations Once a discount or incentive is negotiated and published in my Contract, the incentives apply for all of the shipments I tender to the Carrier under the terms of my Contract? True____False_____ Once a discount or incentive is negotiated and published in my Contract, the incentives apply for all of the shipments I tender to the Carrier under the terms of my Contract? True____False_____

Quick Quiz on Parcel Carrier Pricing and Contract Negotiations False! The incentives may not apply because you did not meet a particular revenue band The incentives may not apply because you did not meet a particular revenue band Rolling average calculation may prohibit you from meeting your minimum shipping volume commitment Rolling average calculation may prohibit you from meeting your minimum shipping volume commitment Certain Shipping, Receiving, and Third Party locations may not be covered in the Contract Certain Shipping, Receiving, and Third Party locations may not be covered in the Contract

Quick Quiz on Parcel Carrier Pricing and Contract Negotiations As a long term customer of my Parcel Carrier I am assured of lower rates than a new customer with similar shipping characteristics? True_______ False_______ As a long term customer of my Parcel Carrier I am assured of lower rates than a new customer with similar shipping characteristics? True_______ False_______

Quick Quiz on Parcel Carrier Pricing and Contract Negotiations False! Very often new customers are priced more aggressively than existing customers Very often new customers are priced more aggressively than existing customers Not all service types may be included in revenue goals Not all service types may be included in revenue goals Shippers should constantly review shipping activity against current Contract Shippers should constantly review shipping activity against current Contract

Quick Quiz on Parcel Carrier Pricing and Contract Negotiations Once I sign a Contract with my Parcel Carrier, the rates cannot be increased without my approval? Once I sign a Contract with my Parcel Carrier, the rates cannot be increased without my approval? True____False_____ True____False_____

Quick Quiz on Parcel Carrier Pricing and Contract Negotiations False! Each year, usually in January, the major Parcel Carriers increase their rates. Each year, usually in January, the major Parcel Carriers increase their rates. Shippers contracted rates are subject to these increases Shippers contracted rates are subject to these increases Carriers are free to revise pricing with 30 days notice Carriers are free to revise pricing with 30 days notice

Invoice Audit Invoice Audit Elimination of Shipping Errors Elimination of Shipping Errors Contract Negotiations Contract Negotiations Focus on Savings

Duplicate Billings Duplicate Billings Rate Overcharges Rate Overcharges Surcharge Errors Surcharge Errors Manifest Errors Manifest Errors Dimensional Weight Billing Errors Dimensional Weight Billing Errors Guaranteed Service Failure Refunds Guaranteed Service Failure Refunds Parcel Carrier Invoice Audits Types of Errors on Parcel Carrier Invoices

6 Pounds – Queens, NY to Manhattan Next Day Air Charge$16.36 Ground Charge 5.10 Savings$11.26 Savings Percentage 31% Parcel Carrier Invoice Audits – Actual Results Air to Ground Cost Comparison

7 Invalid Address Corrections$ Service Failures 13, Manifested – Not Shipped Incorrect Residential Fee 5.07 $14, $14, Parcel Carrier Invoice Audits – Actual Results 4-Week Period Findings

Most Preventable Shipping Errors Cause the Highest Percentage of Carrier Accessorial Fees. Most Preventable Shipping Errors Cause the Highest Percentage of Carrier Accessorial Fees. UPS and FedEx Contracts Contain Over 90 Different Accessorial Charges. UPS and FedEx Contracts Contain Over 90 Different Accessorial Charges. Accessorial Fees Account for 30-35% of Total Package Cost. Accessorial Fees Account for 30-35% of Total Package Cost. Elimination of Shipping Errors

Software Is Available to Correct, Standardize, Validate and Properly Format. Software Is Available to Correct, Standardize, Validate and Properly Format. Address Correction Fees – UPS Address Correction Fees – UPS –$7.00 for Ground –$10.00 for Express Address Correction Fees – FedEx Address Correction Fees – FedEx –$8.00 for Ground –$10.00 for Express Elimination of Shipping Errors -- Address Corrections

91% of the 140 Million Delivery Points Are Residential. 91% of the 140 Million Delivery Points Are Residential. UPS and FedEx Add Surcharges for Residential Deliveries. UPS and FedEx Add Surcharges for Residential Deliveries. Prepay and Charge Orders Might Not Contain Correct Charges. Prepay and Charge Orders Might Not Contain Correct Charges. Elimination of Shipping Errors -- Residential

21 Pound Box 48 (L) x 24 (H) x 24 (W) From Dallas, TX to Burlington, NC Not Dimensionally Rated$10.72 Correctly Dimensionally Rated$98.83 Elimination of Shipping Errors -- Dimensional Rating Problem Shipping Scenario

Know Your Shipping and Receiving Characteristics Know Your Shipping and Receiving Characteristics Know How Your Characteristics Rank in Your Parcel Carriers Profit Scale Know How Your Characteristics Rank in Your Parcel Carriers Profit Scale Know Your Carriers Profit Margin Know Your Carriers Profit Margin Contract Negotiations The Key to Success

Hundreds of Factors Determine Carrier Costs Hundreds of Factors Determine Carrier Costs Carriers Look to Minimize Costs and Maximize Profits Carriers Look to Minimize Costs and Maximize Profits You Must Have the Ability To Do the Same Due Diligence You Must Have the Ability To Do the Same Due Diligence Contract Negotiations How Rates Are Structured

Sales Reps Know Exactly How Their Incentive Offerings Affect Their Revenues and Bonuses Sales Reps Know Exactly How Their Incentive Offerings Affect Their Revenues and Bonuses Negotiations Are Quite Calculated – Nothing Is Left to Chance Negotiations Are Quite Calculated – Nothing Is Left to Chance Contract Negotiations Dont Go It Alone

Operating Ratios Differ Greatly From Carrier to Carrier Operating Ratios Differ Greatly From Carrier to Carrier A.Labor Costs B.Equipment Costs C.Marketing Costs D.Sales Force Compensation Contract Negotiations Not All Carriers Are Created Equal

Weekly Gross Revenue Weekly Gross Revenue Weekly Net Revenue Weekly Net Revenue Average Net Revenue Per Piece Average Net Revenue Per Piece Average Weight and Distribution Average Weight and Distribution Zonal Average and Distribution Zonal Average and Distribution Air to Ground Ratio Air to Ground Ratio Contract Negotiations Get the Upper Hand The Critical Data You Need

Many Shippers Pay More For Less Many Shippers Pay More For Less Survey Finds 82% of On-Line Buyers Consider Shipping Costs Paramount to Their Buying Decision Survey Finds 82% of On-Line Buyers Consider Shipping Costs Paramount to Their Buying Decision Contract Negotiations The Facts

Step 1: Consolidation Single Largest Opportunity for Freight Savings Single Largest Opportunity for Freight Savings Multiple Orders in Same Box Multiple Orders in Same Box Banding Boxes Together Banding Boxes Together Hundred-Weight and Multi-Weight Programs Save 40% Hundred-Weight and Multi-Weight Programs Save 40% Contract Negotiations 12 Steps to Lower Freight Costs

Step 2: Shop Your Dates What Day Does Your Customer Want Delivery? What Day Does Your Customer Want Delivery? Shop For Least Cost Service to Meet Delivery Date Shop For Least Cost Service to Meet Delivery Date 80% of Shippers Overpay By Not Comparing Service Levels 80% of Shippers Overpay By Not Comparing Service Levels Contract Negotiations 12 Steps to Lower Freight Costs

Step 3: Compare Multiple Carriers The Post Office May Be an Option The Post Office May Be an Option Regional Parcel Carriers May Yield Savings Regional Parcel Carriers May Yield Savings Who is Best for International Shipments? Who is Best for International Shipments? Contract Negotiations 12 Steps to Lower Freight Costs

Step 4: Negotiate For Better Rates You Get What You Negotiate You Get What You Negotiate Always Consider the Competition Always Consider the Competition Hire a Parcel Consultant to Lead the Way Hire a Parcel Consultant to Lead the Way Contract Negotiations 12 Steps to Lower Freight Costs

Step 5: Understand the Carriers Service Language Priority, Overnight Express, Express Saver Priority, Overnight Express, Express Saver Which One Is Right For You Which One Is Right For You Survey – 31% of Budgets Spent on Next Day Shipments Survey – 31% of Budgets Spent on Next Day Shipments Compare to Ground Services Compare to Ground Services Contract Negotiations 12 Steps to Lower Freight Costs

Step 6: Make Freight a Profit Center Add Shipping and Handling Charges Add Shipping and Handling Charges Flat Dollar Amount or Percentage Flat Dollar Amount or Percentage Charge Standard Rate – Keep Discount Charge Standard Rate – Keep Discount Always Reduce Your Costs to Enhance Profit Always Reduce Your Costs to Enhance Profit Contract Negotiations 12 Steps to Lower Freight Costs

Step 7: Never Pay for Shipping and Handling Dont Purchase on a Delivered Basis Dont Purchase on a Delivered Basis Suppliers Should Use Your Account Number Suppliers Should Use Your Account Number Establish Concise Routing Instructions Establish Concise Routing Instructions Average Routing Guide Savings – 25% Average Routing Guide Savings – 25% Contract Negotiations 12 Steps to Lower Freight Costs

Step 8: Watch the Accessorials Accessorials Can Destroy Your Budget Accessorials Can Destroy Your Budget Address Corrections Address Corrections Correct Dimensional Weight Factors Correct Dimensional Weight Factors Residential vs. Commercial Residential vs. Commercial Contract Negotiations 12 Steps to Lower Freight Costs

Step 9: Audit Your Carrier Invoice Invoice Errors Could Equal 7% of Total Spend Invoice Errors Could Equal 7% of Total Spend Money-Back Guarantees Should Be Credited Money-Back Guarantees Should Be Credited Are You Being Charged Late Fees? Are You Being Charged Late Fees? Contract Negotiations 12 Steps to Lower Freight Costs

Step 10: Ship Accurately to Save Money Cost to Re-Work Orders – Wrong Goods Cost to Re-Work Orders – Wrong Goods Return Freight Costs Return Freight Costs Associated Handling Charges Associated Handling Charges Dissatisfied Customer! Dissatisfied Customer! Contract Negotiations 12 Steps to Lower Freight Costs

Step 11: Third Party Shipping Systems = ROI Service Shopping Across Carriers Service Shopping Across Carriers Rate Shopping Across Carriers Rate Shopping Across Carriers Custom Designed to Meet Your Needs Custom Designed to Meet Your Needs Tracking and Management Reporting Is Centralized Tracking and Management Reporting Is Centralized Contract Negotiations 12 Steps to Lower Freight Costs

Step 12: Get Creative Reduce Dimensional Weight Costs by Redesigning Packaging Reduce Dimensional Weight Costs by Redesigning Packaging Are You Insuring Your Packages Through Carrier? Are You Insuring Your Packages Through Carrier? Is Association Pricing Available? Is Association Pricing Available? How About a Rebate to Impress Your Boss? How About a Rebate to Impress Your Boss? Contract Negotiations 12 Steps to Lower Freight Costs

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