Where’s My Package?

No matter how wonderful retail e-commerce sites become—and they have come a long way in the past 10 years—they’re only as good as their ability to deliver the goods to customers. And just as consumers expect more of web sites the better e-commerce gets, they’re also expecting more and better options in delivery service.

But though retailers have more options than ever before for delivering goods, they’re also facing new challenges—like a new rate structure from the U.S. Postal Service based on the shape and size of packages, instead of just weight. Those rates are forcing retailers to think harder about the value of large and odd-shaped packaging designed for promotional purposes compared to standard size packages designed for efficient shipping. “A lot of times retailers pay all their attention to customer presentations in packaging and no attention to shipping costs,” says John Fontanella, vice president of research and retail industry analyst at AMR Research Inc. “That has to be addressed.”

New dimension

The new U.S. Postal Service rates were a response earlier this year to new package shipment pricing imposed by FedEx Corp. for its air freight. Forced to conserve space in its planes’ cargo holds, FedEx now bases air-freight rates on cubic measurements, or length times height times width, in addition to weight. The larger the container, the higher the expense, regardless of how heavy it is.

The Postal Service, which relies solely on FedEx for its air freight shipments, passed the new dimension-based pricing system onto customers in May for Priority Mail packages of at least one cubic foot, causing double-digit percentage increases in the shipping costs of many retail products, Fontanella says. “In one case a retailer’s shipping cost went up about 20% because of dimension-based pricing,” he says. Retailers can be especially hard hit, he says, for lightweight products like hats or jewelry shipped in large boxes stuffed with lightweight protective packaging material.

“Direct shippers are now experiencing what bulk shippers have known for years, that shipping packaged air can be expensive,” says Paula Rosenblum, managing principal with research and advisory firm RSR Research LLC. “It takes up cubic space in trucks, planes and even in distribution facilities and is more expensive to sort and deliver.”

UPS, as well as the Postal Service and FedEx, charges dimension-based pricing, though terms can vary for different contracts with shippers, a UPS spokeswoman says. Fontanella says he expects all carriers will eventually use dimension pricing for air shipments to go along with industry pressures. “I can’t see them not doing dimension-based pricing over the long term,” he says.

Searching for options

Dimension-based pricing challenges retailers, as well as their in-house product and packaging designers and even suppliers, to come up with more efficient shipping containers. While retailers will have the most control over packaging of their own private label products, broader product lines will require more cooperation among merchants and suppliers. “This is a challenge to the whole retail ecosystem, not just retailers themselves,” Rosenblum says. “It makes sense to re-think item packaging so the cost of a single shipment can be reduced to an absolute minimum. If you can get your merchandise to fit into a standard size package, you can take advantage of lower cost priority mail rates.”

That challenge extends all the way to product package designs. “When product engineers design something, they don’t think about logistics costs,” says Fontanella.

Rosenblum, a former CIO at a party supplies retail chain, suggests that retailers press both suppliers and carriers for additional options in packaging materials and containers. One way to encourage cooperation is to agree to a minimum purchase amount, which can make it more rewarding for a supplier to cooperate in designing particular packages by size and shape, experts say.

Special packaging

Indeed, market competition already appears to be providing shippers with more options, Rosenblum and others say. The Postal Service, for instance, is making available through local post offices and other facilities special standard-size packaging, including shoe boxes and special containers with padding materials for sending photographs and gift items. “We’ll help shippers find the right packaging,” says Jim Cochrane, manager of package services.

The pay-off can be lower rates to ship the same product. For example, mailing a CD in a large, protective envelope instead of a box can save 33 cents per unit shipped, he adds.

Product designers, merchandisers and shipping professionals will have to work out the best combination of packaging to support shipping efficiency as well as merchandising and marketing strategies—deciding, for instance, whether it’s better to ship jewelry in a decorative box that creates a distinct image for the retailer or a flat pouch that could be shipped at a lower rate. “We recognize that for some mailers the look of a mail piece is more important than its postage,” Cochrane says.

To help shippers decide, the Postal Service provides package planning tools and rate calculators in its Direct Mail section of USPS.com.

Some retailers are using systems designed to make it faster and more efficient to prepare shipments for dimension-based pricing, helping to get them out the door as quickly as possible.

One major web-only retailer that asked to remain anonymous has configured a fulfillment and shipping system designed to expedite shipping through dimension pricing while taking advantage of the best available rates.

Rate shopping

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Using the laser-based CubiScan package-measuring system from Quantronix Inc., the retailer gathers the dimensions and weight of packages during fulfillment. The CubiScan system integrates through XML with a broader system that includes the HighJump Supply Chain Advantage application from HighJump Software and a shipping management module from Kewill Systems.

Once CubiScan measurement data is in the HighJump application, the fully web-enabled system—using XML-based application integration and browser access to data—can use the Kewill module to connect with multiple carriers and determine the best carrier rate for a particular package, HighJump says. “We do rate shopping, because one carrier might have a better rate for certain dimensions,” says Chad Collins, vice president of global strategy for HighJump Software, a unit of 3M.

A retailer’s openness to multiple options in shipping rates and packaging, of course, will help its delivery services keep up with the fast pace of change in e-commerce.

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The customer wants it at noon on Tuesday
In addition to the trend toward dimension pricing, retailers are facing more pressure from customers for more delivery options. Some delivery companies including FedEx, Velocity Express, NVC Logistics Group and Yellow Transportation Inc. offer delivery to homes during particular time windows, and most offer web-based systems to manage the outgoing flow of shipments as well as the ability to track shipments online.

“Time-specific delivery is definitely a growing trend,” says Kevin Collins, senior vice president of business development for Velocity Express, which operates 150 distribution centers in 43 states and delivers to stores as well as homes. “In the past, just delivering on a specific day was a big accomplishment, but now with our tracking system we can deliver at a specific time.” Velocity equips 6,000 drivers with handheld scanners that transmit delivery status to a retailer’s web site as well as to Velocity itself.

FedEx Corp., which has been experiencing increases in its home-delivery service, also offers a range of services that guarantee delivery at a specified time of day as well as during evening hours or within a certain number of days.

NVC Logistics operates nationwide as a freight management company under the name NVC Direct. It partners with more than 300 delivery services companies. It also offers delivery services with its own truck fleets in the New York City area, with plans to expand this service to other major cities.

Other carriers are also expanding services. DHL is extending its DHL@home service—which delivers packages from shippers to the U.S. Postal Service for the last leg of local delivery— to provide similar connections with foreign postal companies. DHL@home delivers to about 22,600 local post offices for delivery times of two to four days, says David Marinkovich, senior vice president of sales and marketing.

Newgistics Inc., which specializes in providing a returns service in conjunction with the Postal Service, is launching a service this year that also handles local delivery to homes. In the returns service, consumers can return an item through the Postal Service; Newgistics then picks up the items from a Postal Service bulk mail facility for delivery back to the merchant or manufacturer.

Getting it out the door on time
At outdoor sports and apparel retailer Moosejaw Mountaineering Inc., an integrated system that coordinates online ordering, inventory and shipping management is key to quickly shipping orders and keeping customers happy, says CEO Robert Wolfe. “We don’t want to be the biggest in what we sell, we just want to be the best in how we serve customers,” he says.

At Moosejaw, which this month is moving into a new warehouse with available space of up to 83,000 square feet, a web-enabled order management, inventory and shipping management system provides for the most efficient use of space while making it possible for the retailer to ship out on the same day orders received by 2 p.m.

Moosejaw has integrated its in-house developed order management and inventory management system with the WorldShip shipping management system from UPS. As orders come into Moosejaw.com or its contact center, the in-house order management system produces a packing slip that prints out in the fulfillment center, where workers scan the slip into the UPS WorldShip system, then create a shipping label.

To handle its increasing volume—July orders were up 80% over July 2006, Wolfe says—Moosejaw is expanding its number of WorldShip terminals to 12 from four. It will have 10 dedicated for domestic shipments and two for international. “Right now 10 packing stations feed one WorldShip terminal, so the extra WorldShip terminals will help us get more packages out the same day orders arrive,” Wolfe says.

The extra terminals will come in especially handy during the rush of the holiday shopping season, when in the past Moosejaw has had to impose an earlier order deadline for same-day shipping. “In the holiday season we usually move our order deadline from 2 p.m. to 1 p.m., noon or even 11 a.m., but our goal is to not push the clock back in peak periods,” Wolfe says.

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