Posts in category: News Coverage

The 2019 rate increases announced earlier this week by shipping and logistics giant FedEx Corp. (NYSE:FDX) contains a stark message for shippers: Easily conveyed packages will see relatively modest increases. Heavier, outsized and less conveyor-friendly shipments, by contrast, will not.

The headline numbers show a 4.9 percent increase for shipments moving via FedEx Express and FedEx Ground, and a 5.9 percent increase for less-than-truckload shipments tendered to FedEx Freight. But long-time FedEx shippers, as well as regular customers of rival UPS Inc.(NYSE:UPS) know all too well there is scant correlation between the announced rate hikes and what their actual increases will be.

Next year will be no different, at least at FedEx. (UPS has yet to disclose its 2019 rates). Rates will rise 5 to 5.4 percent for one to 50-pound shipments moving via the two next-day delivery products: Priority Overnight and Standard Overnight. That is slightly higher than its published rate increases.

The pain comes when shipments enter the 50 to 100-pound range. There, the rates for the same products jumps by 9 to 10 percent, according to an analysis from enVista, a consultancy.

The pattern holds true for 2 to 3-day delivery services. For shipments less than 50 pounds, the increase will be between 5 and 6 percent. For the heavier weight breaks, the increases are in the 9 to 10 percent range, enVista says.

FedEx’s rates for 1-pound shipments moving less than 150 miles from the origin point which is considered the benchmark for the carrier’s minimum charges, will rise between 3.6 percent for ground and home delivery services to 5.4 percent for its priority overnight letter product, according to data from Shipware, LLC, another consultancy. Rates for FedEx “Smartpost,” a product it offers in conjunction with the last-mile delivery capabilities of the U.S. Postal Service will rise 4.3 percent for shipments in the 1-9 pound weight range, SmartPost’s bread-and-butter.

The skewing towards the heavier shipments are “part of the war on large packages” that are occupying more capacity in the two carriers’ networks, according to Joe Wilkinson, a senior director at enVista. Larger packages are harder to handle and not easily conveyable. Satish Jindel, head of SJ Consulting, a consultancy, notes that bigger shipments occupy a disproportionate amount of precious space in the carriers’ physical networks that are already near maxing out.

As a result, carriers impose significant rate increases in an effort to reduce their volume. Stiff accessorial charges on those shipments have become commonplace, as has “dimensional pricing” as many large shipments qualify for it. Dimensional pricing, which calculates rates based on a shipment’s dimensions rather than actual weight, is typically more costly for shippers.

Why do transportation management systems (TMS) implementations get off track? When the implementation team doesn’t know what they don’t know. A TMS can be implemented successfully, on-time and within budget, but it takes a lot of planning and subject matter expertise, not just around the software, but around the business case, transportation operations, upstream and downstream business processes, relevant order management requirements, enterprise resource planning software, warehouse management systems integration requirements, and the ever-important change management approach.

First, let’s define TMS – this is the software used to manage purchased transportation. All too often, companies conflate TMS with vehicle routing & scheduling (VRS) and fleet management systems (FMS) with TMS. Think about them as different functional buckets; while there are a few software companies that can meet the requirements across all three, it’s uncommon that a single tool can solve all of a diverse transportation operation’s critical requirements (supporting a robust business case) in North America or globally. So, for simplicity sake, let’s just focus on TMS.

TMS Strategy & Building the Business Case

A successful TMS implementation starts about 3 – 6 months before the implementation kick-off meeting. It begins with a strategy project that documents the current state process, information, and data flows. It involves understanding the ground-level requirements through observing the “3 actuals” – the actual people, doing the actual process, in the actual place. It requires gathering data, driving towards answering the question “Where is the money?” It includes a TMS-agnostic, but functional capability aware, future state process design, which typically leads to organizational changes and task re-alignment.

The integration design must be done with supply chain IT and corporate IT so that all parties understand the level of effort required. Then, the business case items and roadmap must be agreed upon by the internal stakeholders and signed off by executives, with a toolset identified. Once this is complete, the transportation leadership team can make an informed decision about what TMS is right for their organization.

Whenever someone tells us they need a TMS, we ask “Why?” The above process gives you the answer as to if and why a TMS is needed. This is important: Regardless of the exact details around the business case and design, organizations must go through the above exercise in order to create alignment, momentum, and a 3 – 5 year plan/justification for taking on the cost and risk associated with a highly-integrated software implementation that touches all parts of a business, including internal groups and external parties (vendors, suppliers, logistics service providers, customers, etc.).

Systems Selection & Budget

How important is the selection? Extremely. Not because there is only one TMS that will fit into the design, but because it is important to select the right partner that is willing to invest in your company. Selection projects involve a tremendous amount of time, energy, and money to do it right. During this process, the eventual buyer and seller agree upon objectives. This is a dating game. This project also validates the design and gets the buyer to a point where they understand the total cost of ownership (TCO) and refine their implementation budgets. Organizations should plan to add roughly 30 percent to their implementation budget for good measure, as there are still going to be unknowns. The selection process also includes identifying the super-user, aka the TMS administrator. We will come back to the importance of that super-user here shortly.

Project Plan

A well-run TMS selection project should take about 12 weeks, not including the time it takes organizations to contract, which probably takes another 4 – 6 weeks, depending on the speed of the legal teams. If both the strategy and selection projects succeed, then there is a greater chance that a TMS can get implemented on-time and within budget, but not necessarily.

While the legal folks are red-lining back-and-forth, it is a good time to build a detailed project plan. Please involve procurement/purchasing, materials management, the planning and forecasting group, warehouse operations, facilities, finance / accounting, IT, customer service / sales, and anyone else that will touch this implementation. There are likely other large-scale projects that will negatively impact the schedule, so try to find this out early!

Implementation Kick-Off

Now you’re at the implementation kick-off. Do you have a steering committee formed? Do you have a project manager in the business and in the IT group? Is the super-user identified with their operational responsibilities off-loaded and their calendar cleared?

The Executive Steering Committee will ensure that the leadership team has allocated the right amount of attention and focus within their parts of the supply chain. They will serve as the group to identify, manage, and pay for risks that arise throughout the implementation. They will also ensure that folks remain accountable throughout the organization. This group should meet once a month, or at the milestones established in the project plan.

IT and the business should have part-time (50 percent preferred) resources dedicated to this project. They do not have to be super-technical, but should understand the relevant systems touching the TMS, as well as have a strong understanding of the future state design (hopefully they were part of the previous projects!) They will track tasks, keep resources focused, maintain the budget consumption, and ensure that milestones are met throughout this slog.

The super-user should be damn near 100 percent dedicated to this project. It is very difficult, particularly for shippers, to take a resource out of the transportation operations and have them full-time on this project. We have seen folks pull someone in from another group within in the supply chain, hire from the outside (takes too long), or grab someone from a supply chain rotational program that is process-oriented, thinks like an engineer, and knows enough about transportation. Great TMS super-users are very hard to find, so developing one (and retaining them) is critical. Going into this, it is not necessary to have a seasoned super-user that already knows the selected TMS – that is over-emphasized. This person will learn the tool during implementation and be able to support the organization on the TMS long-term, if they have the right DNA.

As everyone knows, the price of fuel has been, and will likely continue to be, on the rise. The increases/fluctuations in jet fuel and highway diesel prices contribute to more than just carriers’ fuel tables. Back in February 2017, the fuel table calculations were changed from monthly to weekly. This allowed for fluctuations in surcharges due to the volatile fuel prices. Both major carriers (FedEx and UPS) have specific “bands” that connect ranges of fuel prices with a surcharge percentage. Similar to how we see fluctuation in gas prices, these bands allow for fluctuations without seeing skyrocketing costs for their customers. However, the beauty of these bands for both small parcel carriers is that even with the volatile fuel prices, they won’t take a hit to their bottom lines.

Both major small parcel carriers calculate the fuel surcharge percentage based on the national average fuel price published by the US Energy Information Administrations from two weeks prior, which means there is a lag between the index and the carriers’ fuel surcharges. This year alone, the major carriers have collectively raised rates numerous times. Fuel is typically evaluated on the net package charge plus any transportation related charges/surcharges. Each carrier has separate accessorials that get factored into the calculation as well. See the tables below for perspective on the carriers and their applicable accessorials.

FedEx and UPS tend to stay hand in hand with their surcharges for both Express and Ground. As one goes up, so does the other. The variance between the two is consistent within a percentage point.

So, what does all this mean when it comes to calculating fuel and savings to the bottom line?

Let’s Take a Hypothetical Situation

Say we have a Ground package that is 50 pounds, Zone 8, list rate $90.00, with a residential accessorial of $3.75 and a delivery area surcharge of $4.25. The shipper has a 20% base package discount, no discounts on accessorials, and has a 10% discount on fuel. The Fuel Surcharge percentage for this package is 6.25%.

The basic calculation is (Net Freight + Applicable Accessorials) X Fuel Surcharge %. With the above information:

$90.00 (list rate)

– $18.00 (base package discount)

$72.00 (net freight)

+ $3.75 (residential surcharge)

+ $4.25 (delivery area surcharge)

$80.00 x 6.25% = $5.00 (gross fuel surcharge)

Now we need to take the discount of 10% off the $5.00- $0.50 = $4.50. The total cost of the package is now $84.50 (net freight + accessorials + net fuel surcharge).

Now that you know a little more about how fuel is calculated, what can YOU do?

Review your current small parcel carrier contracts and the discounts currently listed.
Negotiate discounts not only on fuel, but transportation related accessorials and net freight discounts to reduce the overall impact.
Evaluate a multi-carrier strategy or evaluate a single source with extra volume discounts.
Be informed about carrier changes.
>UPS already increased their Ground FSC indices by 50 points in June. In October, both Domestic Air and Ground went up 25 points again.

>FedEx already increased their domestic air indices by 75 points in September AND made changes to import and export to mirror UPS’ pricing.

>Will the carriers increase the indices by the time the GRI rolls around? My suspicion is they will reduce fuel, increase transportation charges, and level out the GRI.

Kaitlyn Parsons is a Manager of Parcel Audit at enVista and is responsible for preparing audit metrics both internally and externally, in addition to overseeing the analyst team responsible for auditing billions of dollars in enVista’s customers’ small-parcel spend. Prior to her role as manager, she held various positions at enVista, including transportation analyst and parcel audit and team lead.

Despite the disparate levels of sophistication between cold chains in developed markets versus those in emerging ones, the common goals are generally the same: maintain food safety standards and protect brand reputation, reduce operating costs, and keep pace with changing consumer demands, which includes online grocery shopping and home delivery.

The cold storage sector is tasked with meeting all of these requirements, which is driving significant changes across the board.

Taking a Global View

Emergent Cold, a newer cold storage provider that was founded by industry veterans, operates facilities in both developed markets, such as Australia and New Zealand, as well as emerging ones like Vietnam. This gives the company a unique view into the global cold chain.

In emerging markets, the lack of infrastructure is one of the biggest challenges for the food industry, says chief operations officer West Hutchison.

“There are a lot of markets around the world that have no temperature-controlled infrastructure at all,” he says, or they are “mom-and-pop companies that maybe don’t have some of the design experience and security systems in place from a physical facility perspective or IT perspective.”

While the construction of the physical infrastructure is underway, Emergent is working with enVista, a global consulting and software solutions firm, to build an overall IT suite that ensures it will be able to track-and-trace products that are in its care custody and control.

While regulations in the United States require the capture of “one up and one down traceability,” so that if there’s a request for that data, the appropriate party can respond, in New Zealand, the regulations are even more stringent, notes Hutchison. In particular, the data must be “pushed” to regulators.

These variances in both the physical infrastructure and country-specific regulations make it a necessity to implement a robust and comprehensive IT solution that can be applied globally. It also provides a foundation for continued growth across multiple global regions.

Different Markets, Different Labor Issues

Mike Rader, managing partner at enVista, notes that labor issues are also different in emerging markets like Vietnam compared to developed markets.

For example, the adoption of technology lags, in part, because it’s simply cheaper to hire people and maintain paper-intensive processes.

“It’s going to be interesting to see how receptive they are as we roll out technology solutions in emerging markets, especially Vietnam,” he says.

In many developed markets, though, labor availability is tight, and attracting workers to the cold storage sector can be even tougher, given the generally harsh environment.

According to Hutchison, Emergent’s philosophy is “to have fewer, but more highly compensated associates, through a blend of automation and performance-based pay packages.

“As we look at our facilities, there are a lot of opportunities for automation. AS/RS facilities have been around forever, but they are getting a lot more capable of performing lower-level tasks such as layer picking and case picking,” he says, adding that even the use of automated guided vehicles (AGVs) can have a positive impact in a tight labor market

When Luxottica Group S.p.A. decided to build a new 713,000-square-foot distribution center in McDonough, Ga., the Italian manufacturer and retailer of eyewear, accessories and fashion had three primary goals, according to Massimo Sapone, the senior vice president of logistics and planning for North America.

The first was to consolidate locations in Georgia, Ohio and California into one North American hub that handled all of Luxottica’s brands and provided one face to the customer. But, it wasn’t just a consolidation of Luxottica’s order fulfillment operations.

Take an inside look into Luxottica’s new fulfillment center

In addition to the distribution hub, the McDonough campus features four buildings totaling 1.1 million square feet, including a 50,000-square-foot aftersales distribution center for processing returns and a center for sourcing and planning. In all, 2,000 employees support the logistics and ophthalmic manufacturing operations.

The second was to improve speed to market. “The idea is that we want to be simpler and faster, and we can do that through consolidation of our facilities and the simplification of our processes,” Sapone says.

Third, they put in one place manufacturing and distribution processes, a move that would position Luxottica as the industry leader in customer service. “Our ambition is to gain the No. 1 operation in our industry, and I believe we are already pulling away from our competitors,” Sapone notes.

It is a unique facility, essentially three 238,000-square-foot facilities with 12-foot ceilings stacked on top of one another. The three levels—unusual in North America but more common in Europe—connect with a high-speed elevator and conveyor for lighter weight loads and two heavy-duty freight elevators for heavier pallet loads. Putaway, replenishment and picking operations are directed by a warehouse management system (WMS), RF scanning and lights, depending on the process. The facility also features an extensive conveyor and sortation system, a put wall area and automated packaging for small and medium-sized orders. As part of this project, Luxottica also implemented SAP in McDonough—its global enterprise resource planning (ERP) platform.

At the moment, the ground floor handles receiving and shipping along with order fulfillment processes for a common pool of frames for Luxottica’s wholesale and e-commerce eyewear businesses. The second floor is the manufacturing lab, where prescription lenses are created and married with frames that are stored there to support the lens business. The third floor is reserved for Oakley branded apparel, footwear and accessories—Luxottica and Oakley eyewear are on the first floor.

A facility with 12-foot ceilings might seem unusual in an era when most DCs are more than 30 feet tall or higher. But Vince Pusateri, the senior director of engineering and network strategy for North America, notes that given the size of the products handled in the eyewear business, the ability to efficiently store and pick about 55,000 SKUs in the facility is more important than ceiling height.

“This was a giant project that we launched in 2016, building the campus from scratch,” adds Sapone. “But we now have a distribution facility that enables our business model and allows us to service almost 6,000 stores from one location.”

Made in Luxottica
Luxottica is a leader in the design, manufacture and distribution of fashion, luxury and sports eyewear. According to the company, its portfolio includes proprietary brands such as Ray-Ban, Oakley, Vogue Eyewear, Persol, Oliver Peoples and Alain Mikli. It also licenses brands, including Giorgio Armani, Burberry, Bulgari, Chanel, Coach, Dolce&Gabbana, Ferrari, Michael Kors, Prada, Ralph Lauren, Tiffany & Co., Valentino and Versace.

The group’s global wholesale distribution network covers more than 150 countries and is complemented by a global retail network of approximately 9,000 stores, with LensCrafters and Pearle Vision in North America; OPSM and LensCrafters in Asia-Pacific; GMO and Óticas Carol in Latin America; Salmoiraghi & Viganò in Italy; and Sunglass Hut worldwide. In 2017, with approximately 85,000 employees, Luxottica posted net sales of more than $10.4 billion.

The head of Daimler Trucks has questioned, but not completely written off, the business case for heavy-duty truck platooning in light of other emerging technologies and fuel gains from new combination vehicles operating independently.

Tests using combinations of the latest aerodynamic tractors and trailers showed the gains in miles per gallon were “not as high as expected,” said Martin Daum, head of Daimler AG’s trucks and buses divisions. He delivered his comments during the recent IAA Commercial Vehicles show in Hanover, Germany.

“When it comes to automated vehicle technology, there is a very compelling business case for these systems,” Daum said. “However, platooning might not be the holy grail we initially thought. Therefore, I am a little bit critical of platooning today.

“But at Daimler, we will continue testing this technology and see where it eventually leads us.”

The earliest tests of two closely spaced Class 8 trucks and trailers in a platoon — whose braking and acceleration are linked through software and wireless communications, while steering remains manual — showed gains in fuel efficiencies of about 4% for the lead vehicle and about 10% for the trailing truck.

Meanwhile, in the United States, one group of researchers is looking into an autonomously controlled platoon.

The American Center for Mobility at Willow Run announced organizations representing defense, academia and the public sector will research and test automated convoy platooning during a two-year study that will feature military and commercial trucks in a closed environment and on public roads.

The study will analyze controlling vehicles’ throttle, brake and steering autonomously while maximizing fuel efficiency and safety, according to the Ypsilanti Township, Mich.-based nonprofit, which is one of 10 U.S. Department of Transportation-designated automated vehicle proving grounds.

“Truck platooning will pay safety and environmental benefits that we can only begin to imagine,” Kirk Steudle, director of the Michigan Department of Transportation, said in a statement. Steudle also is ACM’s interim CEO.

At the same time, a European consortium called Ensemble is getting underway to demonstrate multibrand truck platooning on public roads in 2021.

DAF, Daimler Trucks, Iveco, Man and Scania, and Volvo Trucks and Renault Trucks, are involved in the project, according to Ertico, the European intelligent transportation systems public-private partnership.

Significant advances in platooning technology have been made in the past decade; however, a multibrand approach is now required, according to Brussels-based Ertico.

The main benefits from platooning are the cost savings in fuel and some relatively easy miles for the driver in the trailing truck, said Eric Grice, project manager of transportation solutions consulting for enVista, a supply chain consulting and IT services firm, based in Carmel, Ind.

For a shipper with a private fleet or dedicated contract carrier covering long distances, platooning makes sense, he said.

“There will definitely be a perceived operational cost from planning and coordination of drivers and routes to get them traveling together at the same time within service hours and having the same breaks, etc.,” he said.

“As far as shippers choosing from the common carrier pool, in the end it comes down to pricing in most cases. If carriers are able to effectively use platooning to reduce their overall costs and pass those along to shippers, then they will have a competitive advantage and be able to acquire additional business,” Grice said.

In the meantime, if it makes sense to platoon two trucks over a long distance, it also might make sense to run double or triple trailers pulled by a single truck over a long distance — an option blocked in many areas by regulations, another consultant said.

“You can find an argument in there for something that is less technologically challenging,” said Rick Mihelic, president of Mihelic Vehicle Consulting in Lewisville, Texas. “But there is more of an investing sexiness to platooning, which is on the verge of becoming a reality. There are prototypes out already, but production use of it is still a little ways off.

“I was kind of surprised that Daimler came out and said that. I would agree it is getting harder and harder to make a single tractor-trailer combination better aerodynamically. We have had 10 to 15 years of refinement in the aerodynamics.”

But Mihelic said data he collected when involved in tests that platooned the ultra-sleek Super Trucks developed in a U.S. Department of Energy program showed double-digit gains in fuel efficiency were possible.

Other companies involved in commercializing platooning did not respond to a request for comment.