Put Guarantees to Work

Put Guarantees to Work

Copyright 2003, Traffic World, Inc.

Most shippers were encouraged in 2002 when UPS and FedEx announced money back guarantees for all late shipments, including residential and commercial ground shipments. Finally, the carriers were willing to stand behind their service and refund late shipments. Many shippers thought these refunds could help offset ever escalating shipping expenditures.

What''s been the reality? Shippers haven''t seen a whole lot of change back from the carriers. Auditing for money back has been both a time consuming and frustrating experience. Not withstanding their published policies, the carriers have made it difficult if not impossible for shippers to effectively file and collect service claims.

What are the limitations? First, the carriers water down their guarantees by excluding certain shipments from auditable service levels. According to Phil Ramsdale, president of Transport Solutions, a Long Beach, Calif.-based freight audit and payment firm, these catch-all exceptions make up about 60 percent of all service failures and aren''t eligible for any refunds. By relying on carrier-provided service audits, not only do shippers lose out on potential refunds, but perhaps more importantly, they may not be getting an accurate picture of service levels.

Moreover, the carriers have decreased the window in which shippers can file claims from 30 days to 15 days. Realizing that it is both time consuming and costly for many shippers to manually audit for on-time delivery, some carriers have implemented additional charges for excessive tracking and proof-of-delivery requests.

UPS imposes a 30 cent per shipment additional charge if shippers want to track more than 30 percent of their shipments. Imagine having to pay a premium just to find out if your package was delivered.

Given the limitations and costs of the manual audit, many shippers have turned to electronic reporting and auditing. While this approach is much more effective, once again, the carriers have put restrictions in place.

As an example, FedEx''s electronic billing file includes a field that actually blocks shippers from filing claims. UPS transmits its shipment status report (214 File) on a completely separate file from its Billing File (210 File).

Why do the carriers put these roadblocks in place? They view service claims as another way to reduce rates for the service they provide. Not only do the carriers lose revenue from these shipments, it is costly and time-consuming for them to process the claims and adjust their invoicing. Finally, even though the package was delivered "late," the carriers still incurred the cost to transport the package and deliver it to the consignee.

Given these restrictions and challenges, what then has the money back guarantee accomplished?

For starters, overall service has indeed improved. Service guarantees have forced carriers to internally measure service commitments and performance, leading to improved delivery times and more consistent service. Airborne, FedEx, and UPS all are delivering in the 95-99 percent on-time range for both air and ground shipments.

Rather than battle with the carriers over each late delivery, a better approach for both shippers and carriers is to use delivery information to manage service levels and to make more cost effective shipping decisions. By focusing on overall delivery performance - not just the failures - shippers have the opportunity to gain information that will improve service and drive down total shipping costs, which is what they want in the first place.

For example, shippers can use actual delivery information to implement time-definite shipping or "need by" routing policies. And, measuring overall performance and not just failures allows shippers to evaluate whether or not they have partnered with the "right" carrier.

As an example, one shipper successfully used service information to shift shipments from air to ground. Upon a review of delivery performance, this company discovered that almost 40 percent of all two-day shipments were going to Zone 2. Using their carrier''s commitment to provide Next Day Ground delivery within Zone 2, this shipper moved all of these shipments to ground delivery. Not only did they maintain delivery commitments, the company slashed annual costs by almost $150,000 with no service dilution to their clients.

Shippers can also use service information is to track internal usage and monitor compliance to internal shipping/routing guides. Managers can identify departments or individuals that ignore routing guidelines, and can create reports to show real time budget and costs for every department.

Another valuable exercise is to develop reports that track and monitor accessorial charges. Many shippers are surprised at the end of the year to find out how much they spent on these add-on charges. One multi-million dollar shipper recently quantified that 11 percent of their shipping spending - about $1 million dollars, as it turned out - was spent in accessorial charges. It is amazing how fast fees for address corrections ($10.00) or Saturday deliveries ($12.50) can add up. Of course, as a major source of revenue to the carriers, the delivery company are unlikely to volunteer the totals on such information.

Knowing the overall impact of these charges upfront allows shippers to proactively address the issue. Many times, accessorial charges can be negotiated away at contract time with the right information.

The fact is, auditing solely for service failures may not pay off for shippers in the end. But using service information and holding carriers accountable for verifiable service performance can yield significant savings.

At a minimum, knowing what you are paying for is worth a lot.

-- Sailor is principal of Navigo Consulting Group, which specializes in renegotiating carrier contracts and helping shippers manage their shipping dollars. He can be reached at (562) 432-2299 or tsailor@navigoconsultinggroup.com.