enVista consultants and subject matter experts continually watch for trends in the industry and advise on events pending and prior. In this interview, Michael Falls, Director of Global Strategic Solutions, Mark Taylor, Director of Parcel Consulting and Joe Wilkinson, VP of Transportation, offer their insight into issues the industry experienced during the peak 2021 season and takeaways to provide actionable insights for peak season 2022.
What were shippers’ biggest hurdles this past peak season?
Joe Wilkinson: In my mind, it was a replay on a smaller scale of 2020. A more acute version. You had limited capacity, network bottlenecks and late deliveries but what really made these issues tougher in 2021 is that you didn’t just have those issues, you had those issues in addition to a much higher financial cost. It’s one thing to have received suboptimal service from your providers but getting that suboptimal service at a higher price is a little tough to swallow. In addition to the standard rate increases that we see every year, we saw multiple mid-year increases, expansions to surcharges, new surcharges and multiple adjustments to the fuel surcharge indices in 2020 and 2021.
It’s fair to say that the carrier’s cost to serve has been rising, right? We’ve all experienced labor cost and input increases, but the carriers are also making a lot of capital investments to their networks. If you go back and look at the carriers’ margins since the beginning of COVID-19, it’s also obvious that there was a certain amount of exploitation going on. I think that was, from what we’ve heard from our clients, one of the toughest hurdles through the past peak.
What were some success stories this past peak season?
Mark Taylor: I think one win was with the Postal Service, which has greatly improved its on-time deliveries from last year. They posted a 95 percent on-time service for the first week of December, which is a seven-point improvement from 2020. We take our wins where we can get them, especially in these conditions, and the Postal Service did make investments in both hiring 40,000 seasonal workers and implementing new machines to make that happen. Another thing about this past peak was it was a much better-managed peak and there were several contributing factors to that. Overall, some of the same constraints as 2020 but with more planning and with more proactivity towards the actual peak event between November and December.
What are some success stories from shippers?
Mark Taylor: When we look at retailers, there was success with more brick-and-mortar shopping, which was better overall because that took some of the constraints off online shopping as well. There was an increase in brick-and-mortar year over year that helped to dampen what would otherwise have been a very difficult peak from a shipping perspective. Buy online and pick up in store is a strategy that is really working to drive foot traffic inside of brick and mortar. Several different promotions of goods that they had in store were not available online and that was a carrot that they used to draw more shoppers inside of the physical buildings.
What level of effect will the new GRI have on the shipper’s bottom line?
Michael Falls: First and foremost, the questions are, does the shipper have a rate cap in place and what does that shipper’s overall service profile look like?
I evaluated a few of the enVista customers who are impacted one way or another by the GRI and there are three different scenarios to play out. Scenario number one would be that a shipper is going to be impacted by accessorial charges even if they have a good rate cap. For example, if you got a 2 percent rate cap, but you have surcharges that are impacted by high increases in the surcharge fees based on the service guide such as address correction, signature required, dangerous foods, non-dimensional-based surcharges, etc. Then you could potentially have a very high increase in your actual spend year over year in 2022.
The second scenario would be the introduction of brand-new surcharges, one of the ones that we’re seeing most commonly is for shippers who have rate caps in place but maybe using the FedEx Ground economy service, formally called SmartPost, who now are going to see a $1.00 increase on every single package they ship due to the $1.00 per package surcharge for all FedEx Ground economy, including returns. Then the third scenario would be we have a solid rate cap, but then we also have a situation where the accessorials aren’t being impacted very much by the increases. If there’s a solid rate cap in place on the GRI and your service profile lends itself to where you’re not seeing large projected increases in your accessorials and surcharges, then you could potentially fare better than the first two scenarios. This is true even if you have a higher overall spend, and that bears out in what we see in our customer’s data.
What advice would you have for a shipper with high parcel volume?
Mark Taylor: There are lots of things that we’ve been helping shippers with over the past two years, and one of the biggest topics that we’re tasked with, and we’ve been able to deliver value on is carrier diversification. Prior to 2019 and 2020, a lot of the questions were focused on how do I consolidate into one carrier and get the best pricing because of the scale? The past two years have been all about business continuity and incorporating new carriers into the fold because they’re constraints with the primary carrier or there’s no pick-up capacity or availability. What we’ve been able to do is to help shippers evaluate different carriers that they might want to include in their programs and give them some cost-based and best practice scenarios for them to be able to make decisions that will help them to get things off the dock.
Supply chain issues have been a hot topic. How much did supply chain constraints hurt a brand’s ability to stock inventory?
Joe Wilkinson: It didn’t help, right? But it wasn’t just a single bottleneck. What we had throughout last year was a number of stacked bottlenecks, if you will. I mean, at one point in mid-December, we had over 100 ships off the port of Los Angeles waiting for births. That’s billions of dollars of product waiting on a daily basis before it even gets into the US. Once it hits the port, that same product has to wait for drayage, clearance and trucks and it just goes on and on and stacks up down the line. The analogy I would use is it’s like a series of clogged drains, even if you unplug one, you’ve still got a problem. This is in my opinion, why many shippers have started or at least are considering onshoring. I mean it’s in the name – “just in time” only works if it’s in time. This doesn’t even consider the affect on shipper’s stocking plans, we saw a lot of shippers struggle to make adjustments to those delays. They hadn’t anticipated those delays. The trickle of inventory that was coming in, they didn’t really know where that particular piece of inventory should go. I think the only really positive thing I should say for 2021, in terms of the ability to stock inventory, was that it was better than 2020 in most respects.
Gain insight into strategic vs. tactical sourcing and how placing transportation procurement into these categories can reduce the complexity.
What does a good carrier assortment look like for a shipper in this new environment?
Joe Wilkinson: There is no single right answer. What I can say is, is that carrier diversification is a topic that every shipper should be looking at, not just today, but tomorrow the next day, they should always be considering that because without options, you’re basically at the mercy of a single carrier’s ability to perform, and you’re at their whim in terms of price. But it’s not that simple as saying carrier diversification is good, right. Shippers are often constrained by their technology, by their facilities, by their personnel, by their client commitments and requirements. And you’ve also got the fact that carriers often try to corral spend by using revenue-based carrots and sticks. One good thing to come out of the last few years is the number of new carriers that have come on the scene, we’re talking dozens if not hundreds of new carriers that have sprung up in the US over the last couple of years. True, you need to vet your carrier options, right? Not all carriers are created equal. Some lag on technology, service options and things like that. But some do represent real opportunities for capacity safety valves, reduce transit times, reduce costs, or sometimes all three.
The point I’d like to make is that carrier mix is a strategic decision, one that you need to look at frequently and on a regular basis. You have to incorporate all of those variables to arrive at an optimal solution. An optimal solution that’s likely to evolve over time.
Shippers that are doing it right are constantly evolving across the transportation maturity curve. Hopefully, you’re looking for ways to remove the technological constraints that you have today going forward. As your constraints are reduced, your options open up.
Do most shippers have visibility into their business’ transportation data to the level our customers have in the myShipINFO® solution?
Michael Falls: No, most shippers don’t have visibility into their transportation data to the level that our customers do. The reality is that most shippers have access to some level of information, usually for shippers that information exists across multiple disparate data sources and it’s typically in the form of dashboards or reports sometimes those reports are branded as business intelligence. However, the reality is that most of the time they don’t offer an efficient way to implement actionable intelligence.
What myShipINFO®, the enVista solution, does is it actually allows shippers to aggregate their carrier data across all modes of transportation, for all global regions and then it integrates that carrier data round trip. It ties to upstream order data or executed shipment detail data from a warehouse management software (WMS) or an order management system or an enterprise resource planning (ERP) solution and then it’ll also feedback downstream to financial systems of record, including that same ERP solution. The integration is there across all the data sources and then what that unlocks with having one single source of truth is a world-class business intelligence product that provides actionable intelligence and analytics which helps shippers achieve their two main objectives. The first objective is to reduce their costs, and the second is to delight their customers. They want to improve their transit times to better serve their own customers. enVista’s myShipINFO® solution does that, and it does it for all transportation stakeholders. The reality is that whether you’re in finance, operations or if you’re in supply chain, you do not have time to waste on nonvalue-added activity. You need a tool that’s going to help you optimize your workflow and effectively achieve your business outcomes. And myShipINFO® frankly, is that solution.
What should shippers start doing now to prepare for peak 2022 planning?
Michael Falls: It’s frequently said that peak 2022 is right around the corner and it’s true, now is the time to begin planning. The best thing you can do is to wrap your arms around your data, understand your profile and take lessons learned from the most recent peak. And from there, every shipper is trying to achieve the same two things. They want to secure capacity for the upcoming peak and manage their costs. If I had a silver bullet to every shipper’s sourcing needs across all modes, I would try to solve that problem for them immediately. The reality is, it is hard work, but we do have tools that enable shippers to achieve their desired outcomes.
From an actionable intelligence perspective, one thing I’d encourage all shippers to track is their average transit times by lane and by service level for the most recent peak. This will give shippers insight into what carrier issues they may need to anticipate and plan for in 2022 and in some cases that may drive shippers to budget for a different service level. In other cases, it may drive them to source a different carrier for specific lanes or regions. So that’s number one.
Number two, I would encourage shippers to help be an internal partner by helping their finance team budget correctly. This is one of the biggest things that you can do to advocate for yourself as a shipper is to understand where your costs go during peak and what do you need to advocate for in the upcoming peak season. This is based on maybe either what were surprises or maybe what wasn’t a surprise, what we’re lessons learned and you need line or charge level visibility to do that. You can’t just see freight level or statement level visibility, you need to understand your costs at a charge level and to that point, beyond charge level visibility.
Shippers who are successful understand their profitability by SKUs from a landed cost perspective. What I mean by that is you have the opportunity as the transportation business partner within your own business to become a strategic internal business partner that can help your business understand that there are certain items you’re shipping today that probably cost more to ship than the company obtains from a revenue or a sales cost perspective. Having that product level visibility and providing that information to your business to weed out high cost SKUs from your network, whether it’s through your reporting or your freight audit and payment provider’s business intelligence tool, is extremely critical
Are you prepared for the 2022 peak season? Let’s have a conversationTM to discuss how you can increase efficiency and reduce costs throughout your transportation operations.