August 30, 2004, 12:00 AM

New shipping options are delivering savings

The delivery companies provide an arsenal of web-based tools to help online retailers choose the best rates and routes for shipping orders.

Looking over his shoulder at Amazon, Andreas Katsambas, owner and founder of online music retailer The End Records, knows how difficult it is to run a music products web site. It takes more than an attractive selection of hip CD titles and collector vinyl LPs, it takes great service, he says. “A small company like ours that operates in the same pool as Amazon has to offer as many service options as possible to be competitive,” he says.

TheEndRecords.com processes 150-200 orders a day with a staff of about 10, but until recently its fulfillment and shipment operations slowed its overall operations, cutting into customer service, marketing and the attention a small business needs to build customer relationships and grow.

But now, using a web-hosted e-commerce software suite that integrates with UPS shipping management software, The End Records saves up to two hours a day of processing shipping data and has re-allocated three employees to spend that time developing customer relationships. “In the past, we spent hours every day typing addresses, now we put more time into marketing and refining customer service procedures,” Katsambas says.

An effective shipment-management system, he has found, can mean the difference between a site that struggles to process all of its orders every day, and one that builds customer relationships and revenues. “We’ve been doubling sales in each of the last few years,” Katsambas says.

The shipping services industry, meanwhile, is offering more ways of managing shipments, as UPS and rivals FedEx Corp., DHL Express and the U.S. Postal Service compete with a broad selection of web-based tools that provide retailers more shipment options, including automated methods of printing shipping labels and packing slips, and more ways of tracking shipments. The competitive trend has evolved over the past several years as shipping companies realized they could use value-added services to build loyal customers, industry analysts say.

Free Software

Tom Ryan, transportation analyst at research and analyst firm Aberdeen Group, says carriers were first nudged to offer value-added services several years ago when independent small-parcel rate-comparison services offered shippers the ability to analyze industry shipping rates and delivery options to minimize shipping costs. A shipper based in the Midwest that was considering sending 400 packages to the West Coast via UPS or FedEx, for example, could use such a service to save money by shipping them on a less-than-truckload carrier to Los Angeles, then transferring them to UPS or FedEx for local delivery. Even though they paid UPS or FedEx the higher rate for a shorter distance, the combination of shipping methods saved money, Ryan says.

It didn’t take long for UPS and FedEx to offer clients free software that would help them choose the most cost-effective shipping routes and rates within their respective systems, successfully pushing down demand for the small-parcel shipping comparison services, Ryan says. Now UPS and FedEx, as well as DHL and the Postal Service, have extended their services strategies to offer additional shipment management tools to build customer loyalty.

Positioning for growth

A shipping market in which third-party providers as well as carriers themselves provide additional services is putting retailers in a better position to choose among providers, process orders faster, get volume shipping discounts and increase customer satisfaction that leads to repeat orders, industry experts say.

And while retailers spend less time on mundane shipping chores like re-entering shipping addresses or answering customer calls about shipment status, they’re increasing marketing and customer service. “For retailers that live by small parcels, this is an exciting opportunity to get real savings and position themselves for the next level of growth,” says David Doran, global director of transportation solutions for A.T. Kearney Procurement Solutions, a logistics services unit of consultants A.T. Kearney.

The new tools address one of the biggest headaches that online retailers face-answering questions from customers about when their order will arrive. “The most common question we got before integrating with UPS was, ‘Where’s my order?’” says Donald Cohen, managing partner of Tool King LLC. Questions about shipments used to account for 25% of Tool King’s calls from customers.

Now that customers have online access to UPS shipping information, “it eliminates me from being the middleman between customers and carriers, and it has minimized our number of canceled orders,” Cohen says.

Like The End Records, Tool King has been able to re-focus workers’ time on improving merchandising and customer service. “We were able to redirect our staff into sales-driving activities,” Cohen says. He notes that Tool King, which does 80% of its business through ToolKing.com, the rest through a 10,000-square-foot store near Denver, has been doubling sales for the past two years and is on course to grow to $100 million by 2007.

Integration costs

Reaping the benefits of online shipment management doesn’t come without a price, which can vary depending on the degree of integration a retailer deploys. While some retailers may offer customers just the option to track shipments online, others may decide to integrate shipment data from their order management systems directly into a carrier’s shipment management software, saving the retailer the trouble of re-keying shipping addresses into a shipment management system. And while some retailers may opt for third-party software to manage connections with one or multiple carriers, others, such as CompactAppliance.com, choose to build their own network connections.

The leading carrier services, UPS, FedEx, DHL and the Postal Service, all offer online shipping tools for several basic services, including scheduling pick-ups, viewing rates for routes and services, printing packing slips and shipping labels, automatically verifying shipping addresses, and processing returns. But UPS, FedEx and DHL provide additional services like shipment tracking and integration with third-party shipping and order management software applications. The Postal Service, which has been increasing its range of services in recent years, offers the lowest starting rates for small parcels.

UPS, FedEx and DHL also each have their traditional fortes-UPS in U.S. ground shipments, FedEx in U.S. air shipments and DHL in international shipments-but they’re all trying to match one another in offering customers a full range of shipping options.

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