Shipping Strategies

Commitment works for some online retailers, while others like to play the field

During busy seasons at the BuySeasons distribution center in southern Wisconsin, dozens of truckloads each day carry 40,000 or more packages to the costume and party supplies retailer’s customers. Nearly every truck rolls for UPS, and Terry Rowinski, BuySeasons vice president of operations, wouldn’t have it any other way.

In addition to an army of UPS trucks and drivers, the carrier also staffs BuySeasons’ 42-bay distribution center with logistics experts to help keep peak loads of Halloween and other types of costumes and party supplies moving as efficiently as possible.

“In our peak periods, UPS managers are in our distribution facility 16 hours a day,” Rowinski says. “We don’t have to call them to ask where a tractor-trailer is because they’re right here making sure the trucks line up properly and everything is running smoothly. We just pack everything up and hand it off to UPS.”

Making a commitment

BuySeasons is among online retailers that have chosen to commit almost all their business to a single carrier, figuring any loss in leverage is made up for with better service and rates.

“We don’t have a set plan to try to squeeze our carrier every year,” says BuySeasons president Jalem Getz. “We believe in building on our partnership and finding ways to improve efficiency.”

But other retailers believe they get the best rates when they can choose among several carriers—especially now that there is technology available to help them find the best deal on each delivery.

For BuySeasons, a reliable carrier is especially important because its customers demand on-time delivery, especially during peak times such as before Halloween. In addition to the consumers that buy from the company’s BuyCostumes.com and CelebrateExpress.com e-commerce sites and related catalogs, BuySeasons also operates a wholesale business that ships to the online customers of about 100 major retailers. “We account for 50% or more of all costumes purchased over the Internet,” Getz says.

The result of getting a peak-season service blitz from UPS, he adds, is a reputation for reliable delivery. “We get many high marks from customers,” Getz says.

BuySeasons, a unit of Liberty Media Corp. that absorbed the operations of party supplies retailer Celebrate Express last year, plans to build on that reputation to continue growing, as customers of Halloween costumes come back to purchase party supplies for birthday gatherings and other events.

Maximum service levels

Like other shippers dealing with high package volumes and limited delivery windows, including footwear retailer Zappos.com Inc. and start-up deal-of-the-day retailer UWantSavings.com, BuySeasons has chosen to assign all or nearly all of its shipments to a single carrier to get maximum shipping service levels at the lowest overall rates. UPS ships 98% of BuySeasons’ orders; the other 2% are handled by the U.S. Postal Service for a limited number of residential addresses and by FedEx Corp. for deliveries to wholesale clients who already use FedEx, Rowinski says.

Melissa Priest, managing director of consulting firm AFMS Logistics Management Group, says just about every shipper should go with a single carrier to get the best rates and service agreements.

“Everyone should have a contract with negotiated discounts, even if a shipper is doing only $50,000 a year in shipment costs,” she says. “We generally find it’s best for shippers to have not less than 90% of their business with one carrier so they can make sure, for example, that packages don’t wind up in the wrong shipping lanes and so they don’t have to deal with two or more carriers’ customer service departments.”

The choice an online retailer makes in how it deals with carriers, however, can depend on its business needs. While retailers like BuySeasons and Zappos put virtually all of their packages in one carrier’s basket, others say they can get better rates and service by shopping across multiple carriers.

“We find we can save hundreds of dollars a day by rate-shopping,” says Roy Racer, president of SoldierCity Inc., an online-only Army-Navy store that sells military-related merchandise at SoldierCity.com and ships to overseas military bases as well as throughout the U.S.

SoldierCity, which ships up to 8,000 packages per month, uses a rate-shopping tool from Harvey Software Inc. for orders within a certain weight range for which customers select ground shipping.

When a package for ground shipment of one to five pounds reaches a SoldierCity shipping station, a worker scans the order label and, within about five seconds, the Harvey Software Computerized Parcel System chooses the shipping option with the lowest available rate from carriers including FedEx, UPS and the U.S. Postal Service. The software also provides built-in Internet postage print-outs provided by Endicia, a unit of Newell Rubbermaid. “If we did this manually, it would slow us down,” Racer says.

SoldierCity tends to use UPS for shipments of packages weighing five pounds or more, and it relies mostly on the U.S. Postal Service for packages under one pound. But for many of its shipments between one and five pounds, such as its popular t-shirts embroidered with the image of a World War II navy ship, it turns to the Harvey Software application to sort through what can be a complicated array of shipping options, such as certain addresses for which UPS may charge extra, putting its rate far above that of the U.S. Postal Service, Racer says. “Harvey accounts for all of those variables,” he adds.

Steering through data

Alibris, a web-only retailer of used books that handles from 500,000 to 1 million orders a month, also relies heavily on Harvey Software to manage how it directs shipments through UPS, FedEx and the U.S. Postal Service, says Mark Nason, Alibris’ vice president of operations. Each carrier has about four modes of shipment, such as standard ground, one-day and two-day; rates, surcharges and delivery times can frequently change, Nason says.

So Alibris uses the Computerized Parcel System to constantly review updated shipping information from each carrier, then sets business rules within the software to assign each order—based on destination, size of package and requested delivery time—to a particular combination of carrier and mode of shipment.

“We look at the Harvey system’s history records to see the average shipment costs in given service areas,” Nason says. “Because these are constantly changing, we learn more about the system all the time.”

Without the Harvey system, he says, Alibris would lack a common shipping data repository with tables for analyzing service combinations based on such factors as weight, geographic areas, rates and service levels. “We would have a much more complex problem,” he adds.

Alibris sells books sourced from a network of about 15,000 suppliers, many of which drop-ship orders directly to Alibris’ customers. Other suppliers ship to an Alibris warehouse, where the retailer manages the fulfillment.

But whether customers receive their packages directly from suppliers or from an Alibris warehouse, Alibris relies on the Computerized Parcel System to provide information on the best combination of carrier rates and time in transit. For suppliers who drop-ship, Alibris offers to reimburse them for delivery charges based on the carrier service it identifies through the Harvey system, Nason adds.

Harvey’s Computerized Parcel System is priced from $895 to $2,595 for the first six months, depending on the number of carriers included in the system and the volume of address-checking required by a shipper, says president and CEO Bert Hamilton. After six months, the price ranges from $595 to $1,095 per year. Harvey also offers a separate version of the software called CPS Basics, designed to integrate with Google Checkout and other online order-processing systems, for an annual fee of $495, Hamilton adds.

Best of both worlds

Nason, a former logistics technology manager for UPS, says using a third-party system enables Alibris to deliver reliably while dividing shipments among multiple carriers. “We get the best combination of service level and efficiency as if we were using one carrier, but also the best mix of rates and delivery times through a combination of carriers,” he says.

For some shippers, however, nothing beats having an exclusive or nearly exclusive arrangement with a single carrier. Like BuySeasons and Zappos, UWantSavings ships from a primary warehouse located minutes from a major UPS airport shipping center. Working with a single carrier has enabled the retailer to charge a flat rate of $5 for the first item in an order, plus $3 for each additional item, for delivery within three days to the entire eastern half of the U.S. and within four days to nearly all of the western half, co-founder Jeff Anderson says.

That has helped lead to 32% of orders coming from repeat customers, putting the young retailer on a course to do $1 million this year, he adds.

Zappos, though it has used UPS for nearly all its shipments since the retailer launched in 1999, continues to leverage its arrangement with the carrier as Zappos grows in sales and product categories, says Sean Kim, director of business development at Zappos. While UPS has been a good partner from the start, he adds, it has been flexible in key areas such as increasing the number of times it pulls trucks out of the retailer’s distribution center located near the UPS WorldPort terminal in Louisville, Ky., to get shipments heading to customers as soon as possible.

“Instead of pulling all their trucks out of our facility at once late in the day, they now do multiple pulls each day as necessary,” Kim says. “That is a great example of how UPS helps us provide the best service to customers.”

Like BuySeasons, Zappos keeps a line of communication open with other carriers, and may use FedEx, DHL and the U.S. Postal Service for certain domestic or international shipments. The two retailers also are testing a new returns service offered jointly by UPS and the Postal Service.

Although they don’t comment on the specific terms of their contracts, which may last for a year or more before being renegotiated, each retailer says it has been more advantageous to continue developing their relationship with the same carrier instead of accepting the periodic contract offers they receive from competing carriers.

For now, Kim says, Zappos will stick with its policy of working with a primary carrier for nearly all shipments because it supports the retailer’s strategy of customer service and ongoing growth.

paul@verticalwebmedia.com