January 1, 2011, 12:00 AM

Tight Ship

With shipping a key part of e-retail competition, merchants seek expert help to get the best deals.

Lead Photo

Business is brisk at Envelopes.com, where a catchy new brand and an upgraded web site combined with a perked-up economy to drive higher holiday demand for greeting card envelopes and other mailing materials.

“It’s been great,” President Seth Newman said halfway through December. “We went from single-digit percentage increases in 2009 to double-digits in 2010, and for the holiday season we’re up 20% or more.”

But with the rise in sales comes a tough problem in managing the cost of shipping, he adds. Shipping is, of course, a major challenge for most online retailers particularly during their peak selling seasons, when their own shipping costs can make a huge difference in their ability to provide attractive total-order prices to customers without sacrificing profit margins.

Newman says he’s negotiated on his own up until now with the two major nationwide delivery services, United Parcel Service of America Inc. and FedEx Corp. But it’s just gotten too complicated.

“We’ve negotiated with UPS and FedEx about incentive levels,” Newman says, “but at the end of the day we don’t really know if it’s really good for us—even though the carriers hem and haw like we’re getting a good deal. Now we definitely see the value of using a consulting firm who knows how to interact with UPS and FedEx.” Newman has decided to engage LJM Consultants, a firm that has been auditing his shipping invoices to find overcharges, for help in negotiations with UPS and FedEx.

And he isn’t alone. Other retailers that ship directly to customers’ addresses are drawing on a variety of specialized firms, sometimes to get the best deals from UPS and FedEx, or in other cases working with smaller carriers or third-party fulfillment providers that may be able to offer better deals for particular types of web merchants.

Some e-retailers are using consultants who provide services ranging from help in negotiating contracts to auditing complicated shipping invoices to ensure that the retailer was charged correctly. Other options retailers are using include shipping management systems from companies like Kewill Systems Inc. and RedPrairie Corp. that let in-house shipping managers choose the best carrier by rate and delivery time, and third-party logistics providers, or 3PLs, that forward consolidated shipments to UPS, FedEx and the U.S. Postal Service to get the best of delivery speed and shipping rates. Such firms also offer services including the ability to recycle shipping containers and pallets and to track shipments sent via the U.S. Postal Service. While FedEx and UPS provide parcel-tracking services, the Postal Service does not.

“One of the key things we’re seeing is an increase in demand for parcel shipping solutions to support home delivery,” says Mona McFadden, product manager for transportation applications at RedPrairie, a provider of supply chain and inventory management systems.

At the same time, UPS and FedEx are taking steps to make their services more attractive to direct-to-consumer retailers. UPS, for example, recently made permanent a pilot program, UPS Returns Flexible Access, that coordinates a service with the Postal Service that picks up packages from consumers’ addresses for return to retailers. The program complements an existing UPS Basic service that works with the Postal Service for standard ground shipments to residential addresses.

FedEx offers a similar service called SmartPost that coordinates with the Postal Service for residential deliveries and returns.

Complicated rates

What makes shipping difficult for retailers with high order volumes shipping all over the country and beyond is a complicated grid of rates and surcharges based on the size and weight of packages and their destinations. Each year, UPS and FedEx announce an average annual rate hike of typically 4.9% (or, as has often been the case in recent years, 5.9% minus a single percentage point drop in the fuel surcharge.) UPS and FedEx have each announced a 2011 average rate increase of 4.9% effective this month, though with slightly different drops in their fuel surcharges.

But as a 2011 rate grid for UPS shows, the rate increase over 2010 for any particular size and weight of package can vary widely based on the delivery destination zone and the length of delivery time, from an increase as low as 1% for a 150-pound package traveling via standard ground delivery to a nearby zone, to an increase as high as 8.4% for a 1-pound package going via standard ground to a more distant zone, according to an analysis of the UPS rate schedule conducted by LJM Consultants. Rate increases for next-day air and other expedited shipments range as high as 9.6%, the LJM analysis shows.

Moreover, the average 4.9% rate hike doesn’t factor in accessorial charges, such as the extra fees carriers charge for delivering to many residential and rural addresses or for address labels that aren’t filled out properly.

The complex shipping rates and annual increases can be particularly tough to absorb for small retailers who don’t have high enough volume to win contract concessions from the major carriers. But such merchants are finding alternatives.

Envelopes.com has used LJM Consultants for years to audit its invoices to check for overcharges by UPS or FedEx, such as shipments due for a credit because they didn’t meet promised delivery times. LJM has developed software that searches for inequities in invoices that can include hundreds or thousands of lines of data. The firm typically can save its retailer clients from 2% to 6% per invoice, says Ken Wood, LJM’s president. LJM then splits the savings with its clients.

‘We need help’

But with its shipping volumes increasing and shipping rate schedules and accessorial charges getting more complicated, Envelopes.com is planning to also hire LJM this year to help negotiate its contacts with the major carriers. “We need help with these contract negotiations now,” Newman says. “Customers don’t see it, but all the extra fees we pay for address corrections or residential or rural surcharges add up to a lot of cost.”

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