“Free shipping does not exist. You wouldn’t believe how many times a week someone tells me they have free shipping. But somebody is paying for it, right? Nothing is free.”
-John Haber, CEO of Spend Management Experts
Historically, you could count on three things: death, taxes and that shipping rates would increase approximately 5% every January. About 5 years ago, however, the biggest three carriers in the United States, UPS, FedEx and the USPS, started changing their rates more often and in new ways.
Starting with fuel, new surcharges were put in place. They redefined the dates associated with peak season so that it covered most or all of the fourth quarter, when nearly 40% of retail shipping activity takes place. Finally, rural destinations were recognized as a higher cost driver, and rates increased by location.
In this conversation, Co-hosts Scott Luton and Greg White spoke with John Haber, CEO of Spend Management Experts, about how companies can mitigate the cost increases associated with FedEx’s 2020 rates. His team has extensive experience with the high and rising complexity of shipping cost management. They leverage their expertise on behalf of companies for whom the cost of shipping may determine whether or not they will be profitable.
John also provides insight into:
-The detailed list of 2020 surcharges already released by FedEx
-The market conditions driving shipping increases
-The potential of alternate approaches such as crowdsourcing, partnering with bricks & mortar locations and SME’s transportation optimization model
John Haber is the Founder and CEO of Spend Management Experts. With over 25 years of supply chain experience, John has helped some of the world’s leading brands drive greater efficiencies through their supply chain operations while reducing transportation, distribution and fulfillment costs. Haber began his career at UPS where he held various executive level positions in corporate finance and corporate strategy and was instrumental in developing profitability and costing models. He also managed the carrier’s National Accounts Profitability Group where he audited the pricing and profitability of UPS’ top customers. Haber’s finance background combined with decades of experience working with high volume shippers enables him to offer unique insights on strategic supply chain planning including distribution model optimization, transportation cost analysis and carrier contract optimization and compliance. An active speaker at industry events such as Parcel Forum, Haber is widely considered one of the logistics industry’s foremost thought leaders on transportation spend management. He is frequently quoted and published in national business and trade media such as the Wall Street Journal, Reuters, Bloomberg, USA Today, Fortune, Supply Chain Brain, Inbound Logistics, and Parcel magazine. In 2019, John was named one of the top 100 Supply & Demand Chain Executive Pros to Know for the eighth consecutive year. Additionally, under Haber’s leadership, Spend Management Experts was recognized by Inc. Magazine, being named to the 35th annual Inc. 5000 list as one of America’s fastest-growing private companies. Haber holds a BA in Political Science from the University of North Carolina, Chapel Hill. Learn more about Spend Management Experts here: www.SpendMgmt.com
In partnership with Spend Management Experts, Scott and Greg welcomed John Haber for the first episode of the Transportation Trends Series.
Intro: [00:00:05] It’s time for Supply Chain Now Radio. Broadcasting live from the Supply chain capital of the country, Atlanta, Georgia. Supply Chain Now Radio spotlights the best in all things supply chain the people, the technology’s, the best practices and the critical issues of the day. And now here are your hosts.
Scott Luton: [00:00:29] Hey, good morning. Scott Luton here with you, Live on Supply Chain Now Radio. Welcome back to the show. On today’s show, we’re kicking off a new series here on Supply Chain Now Radio, the Transportation Trend series, where we’re gonna be diving into a wide variety of the trends, the challenges and the issues facing what really is the backbone of the end to end Supply chain industry, the transportation community. We’re starting with a three part series on a critical development, the shipping pricing changes that FedEx and U.P.S. and some others are rolling out for 2020. In fact, FedEx has already published their rates, which we’re going to dive into today, UPS Will be publishing soon, which will be the focus of the second episode. And then the mini series will culminate with the third episode where we’re gonna be comparing and contrasting the two rate scheduled changes, as well as getting some other insights from our our experts here on Supply Chain Now Radio. So these three episodes, this three part mini series, All Brought to you by Spend Management Experts. Spend Management Experts provide strategic guidance, costs modeling technology and deep market intelligence to help companies optimize their transportation, distribution and fulfillment span. You can learn more at spendmgmt.com. Quick programing note like all of our series on Supply Chain Now Radio, you can find our replays on a variety of channels: Apple podcast, SoundCloud, YouTube, wherever else you get your podcast from. As always, would love to have you subscribe. So you don’t Miss anything. So let’s welcome in my fearless co-host here today once more Greg White Serial Supply chain, technology entrepreneur and trusted advisor. Greg, how you doing?
Greg White: [00:02:03] I’m doing great, Scott. Great to be here.
Scott Luton: [00:02:05] It is great. Great to have you back in the studio. Yeah. Brand new space. We’ve been partner for a while with our friends over at Vector Global Logistics. Yeah, we moved into the new innovation center at Sandia. And it’s really worked out well. Had a great show last week with Tony Sciarrotta and the Reverse Logistics Association as well as a member of the Home Depot team. Yeah. And we’re moving right along with a a home run guest here today, right?
Greg White: [00:02:29] Yeah. Big innovations happening in Atlanta. Just a quick shout out. Venture Atlanta, which is a big venture conference for a lot of companies here in the southeast is this week. And I’ve got a couple of companies that I am advising there. So we’ll shout out to them at Cypher and Flourish. But yeah, really excited to be here with John, you know, and hear about this topic that frankly baffles me. So I’m I’m really interested to get some clarity on this, and I think it’ll help the listeners out there.
Scott Luton: [00:03:00] Yes, you did look foreshadowing there. So we need to announce our big guests we have here today, John Haber founder and CEO of Spin Management Experts. John brings more than 25 years of Supply chain experience to the table. And he’s helped some of the world’s biggest, most recognizable brands drive greater efficiencies through their supply chain operations. John, good morning. How you doing?
John Haber: [00:03:20] Good morning, guys. Thanks for having me.
Scott Luton: [00:03:23] Great to have you here. You know, we’ve been, I really enjoyed the warm up conversations, these kind of what Greg alluded to. We have learned a ton just in the prep calls with you and your team about these changes that evidently take place every year. I used to ship back when I worked for a mom and pop manufacturing company in Columbia, South Carolina. And I wasn’t aware of some these things. And so we’re really looking forward to kind of getting your expert, your insights. You know, been there, done that and how some of our listeners and the companies can can it kind of mitigate that the seems to come.
John Haber: [00:03:58] Yeah. Yeah. And you’re right. In fact, they’re not these changes are not happening every year. They’re happening every month, which makes it even more complex. Okay.
Scott Luton: [00:04:07] Well, before we dove into the kind the red meat, the conversation that we want to kind of paint a picture for our listeners. So you kind of tell us about yourself first kind of your journey and then we want to make sure that we get a good understanding of what SME does. Sure.
John Haber: [00:04:23] Yeah. And the journey that I’ve taken to to get where we are at Spend Management Experts, it’s a it’s an odd journey. As I was telling you guys, I grew up in Chapel Hill, North Carolina, went to UNC, was a political science major and thought I was gonna be a lawyer. I didn’t dream that I was gonna be a supply chain expert. I don’t even think Supply chain was a word or two words when I was in school. Right now, Supply chain is really hot. And so I also took a lot of finance classes and came out of college and took a Job in accounting at GlaxoSmithKline in Research Triangle Park decided I wanted to come down to Atlanta before the Olympics and ended up luckily getting, I got a job in corporate finance at UPS And so I came in through the finance route not intending to become a Logistics expert. The great thing about U.P.S. is that they train you very well across a lot of different categories and functions. And so I got a lot of operations experience while I was working there for about a decade and along with the finance experience. And so U.P.S. did a great job of training me.
John Haber: [00:05:45] And I saw about 13 years ago when I was at UPS from 1996 to 2006, about 13 years ago, I saw an opportunity and need in the marketplace for large shippers to better understand the complexities of negotiating their contracts. At the time, I had been running a group within U.P.S. called the U.P.S. National Account Profitability Analysis Group. I was auditing the profit margins of their largest customers and saw that they were making too much margin on a lot of the larger customers. And so I started Spend Management Experts to help the shippers. And we’ve been doing that for the last 13 years. We started off in small parcel. We’ve extended to all modes of transportation. If you’re moving goods from point A to point B, we are. We will come in, we will analyze the cost structure and look at really what we think provider margins are. And I will provide feedback usually for free of charge to potential as the potential savings opportunities. We also do that on fulfillment. So if you’re using a 3 P L, we can we can evaluate that. We help run RFP for thepeople’s, we help with bid selection. And we also do a lot of strategic supply chain consulting where we’re helping companies optimize our distribution networks. We’re looking at whether or not you should have an internal fleet. We look at outsourcing versus insourcing operations. So what really started off is really a very focused, small area of supply chain helping companies optimize their contracts because we know there’s a lot of room. We will come in, we’ll do the work and you only pay us. So if we save your money, as is our business model and has been we’ve expanded that to helping the larger shippers in the world really manage their transportation distribution fulfillment, which is really the most key area, the supply chain. Absolutely.
[00:08:00] Do you think sidebar question back in the day, traditional supply chain. You’re back in the maybe 70s and 80s and early 90s, there wasn’t as much financial expertise in Supply chain. And and clearly that’s that’s part of what you bring to the table is this financial acumen. And now it seems like there’s a lot more that that supply chains are looking to get, more the analysts, more the the financial prowess into their supply chain organization team. Does that. Is that kind of what you’re seeing and where you all on it was your firm kind of on the tip of the spear of that that movement?
[00:08:36] We were on the tip of the spear, that movement. And it’s an interesting story, not just an supply chain, but also in sourcing and procurement. You know, when I was at u._p._s the day I was, there was time for me to do a rotation. And I said cause I was doing a lot of work with the sourcing people. I’m looking at what companies are spending with u._p._s. And then I’m looking at what U.P.S. is spending with those companies. Just so I have an idea of the overall relationship.
[00:09:03] And what I saw was that they had they didn’t have good people in procurement. They called procurement the graveyard and. Yeah, they did. And I said they said, what do you think? You make the biggest impact? So similar to sourcing. I mean, you it’s tens of billions of dollars of cost and spend. You need to have your smartest people there. So you see people the job growth is growing and Logistics and the sourcing areas. And that’s where you’re seeing talent. And the higher paying job is really, you know, coming out of college. You know, you look at Georgia Tech, the Supply chain majors going to Georgia Tech in Tennessee and you get state and those are high paying jobs. You need talented people in those jobs that have backgrounds that understand finance and understand planning, understand strategy.
[00:09:57] It’s really interesting that you say that. You know, I had a technology company one time and that’s we saw a very similar situation, right? We we found it was often somebody who was really good in the warehouse and they didn’t know where to promote them. So they moved him to purchasing or procurement. It was the salesman who couldn’t sell. Right. It was the owner’s brother in law, things like that. But professionalising that role was. I mean, that that was sort of a crusade that we’ve been on since the 90s. And at a at E3, a company I worked for in that Blue Ridge, the company that I owned for a while. And the return on investment is so dramatic there that it does completely pay off to put good talent to nurture that talent, to to have people with supply chain finance and and mathematical skills in that area. And it you know, it really accrues to the benefit of the company to have that much talent in setting up those relationships and managing those relationships with your suppliers.
[00:11:03] So to both of your points, we are seeing it’s interesting to hear kind of what the company at the time called procurement, you know, a while back, because we’re seeing I mean, we have a procurement series here in Supply Chain Now Radio. We have a lot of procurement pros come on regularly and offer their expertise, because that’s that is one of the demands procurement. And we always talk about Supply chain has set the table unlike ever before. And in a global business environment where procurement is right there with him. Yeah. To to to both of you, all’s points. All right. So moving right along. We want to get into it. Just a we want to set table a bit more on the background of these increases that we’re gonna talk about. You know, to your point, John, SNI, even a yearly increase is a monthly increase. So if you could just around these, especially the FedEx and U.P.S. rate changes that that come out regularly kind of set the table, give us some background behind them.
[00:11:55] Historically, U.P.S. and FedEx and the post office, which are really the three primary providers that dominate the U.S. domestic small parcel market place. They will raise rates once a year. If you look back over time, that started changing about five years ago. And now what we’re seeing is, you know, customers were just sort of ingrained to expect the a 5 percent rate increase every January. If you look back over the last decade, U.P.S. and FedEx raise rates at least 4.9 percent every year. And it’s it’s so predictable. I mean, it’s it’s one of the most predictable things that is out there.
[00:12:48] Like the sunrise. Yeah, like the sunrise. And but what happened?
[00:12:53] I you know, five years ago or so as they started introducing changes throughout the year, and some of that was driven by, you know, fluctuations in the price of fuel, you know, fuel when the costs decreased significantly. And FedEx was in a position back in 2015 where they there was no fuel surcharge based on their fuel tables. And that was not going to work with them being a public company. And so they had to come in and make some changes to the fuel tables in order to generate a fuel, the fuel revenue. And and since then, you’re seeing changes all on. I’ll let you know, last year only there were only two months of the year where there wasn’t some sort of pricing change or by U.P.S. or FedEx. And right now what we have, which we’re just put it in place October 1st for peak season surcharges. And so from this year with U.P.S., for example, the peak season surcharges started on October 1st. Right. And so you’re looking at the entire fourth quarter is now at peak season surcharge. And, you know, if you’re shipping certain times of types of packages with additional handling, you know, is required or larger, bulky items, the oversize items, you’re looking at a huge upcharge that’s in place for the entire fourth quarter. And look, you know, if you look at a lot of our retail customers, 40 percent of their shipping, your annual shipping is in the fourth quarter. And so they’re all being heavily impacted by these types of policies.
[00:14:42] Well, let’s let’s talk about it. Just walk you when you say the average 4.9 percent over the last 10 years, it might not sound like a lot. You know, it’s still hey, every every penny these days is try to squeeze every efficiency out of supply chain is a lot, but. But talk to us about how, especially over time and how you have multiple different areas where they were rate increases may take place, just how important this is.
[00:15:11] It’s critical for a lot of companies. Shipping is one of the largest line items and it’s very complex. U.P.S. and FedEx have over. They have hundreds of different surcharges. I mean, if unless you’re an expert, it’s nearly impossible to read your bill. And what’s also very misleading is this thought that it’s just it’s only a 4.9 percent increase. We’ve never been able to mathematically get back to a four point nine percent increase because it’s not just a straight 4.9 increase. If you look at a rate chart for a next day or shipment. The pricing varies depending on how far the package is going and how much it weighs. And the price is different for a zone, two pound package that weighs 10 pounds versus a zone for prom package that weighs 20 pounds. And third, you know that there’s it’s just very complicated. And so the four point nine percent really is never 4.9 percent. It always seems to be higher based on our clients volume distribution.
[00:16:21] But the 4.9 percent does not include the surcharges. And if you look at the surcharges, the surcharges are going up much higher than 4.9 percent, rural deliveries. You know, there’s a. Depending on where a package is delivered to a certain zip code, they’re classified as delivery area, a surcharge, zip code, extended delivery, a surcharge, zip codes or not a delivery or a surcharge zip code. The overwhelming majority of zip codes in the US fallen to deliver a surcharge, one of the two.
[00:16:58] A lot of them are falling into the extended, which is the more rural with the FedEx rate increase, that surcharge is going up almost 30 percent just from twenty twenty to twenty nineteen. And so when that goes up 30 percent and you blend that with the 4.9 percent, the weighted average of that is going to be closer to 6, 7, 8 percent.
[00:17:21] So you’ve got to look at all of the charges and not just the freight charge to Greg, speak to the, you know, kind of demystifying this complex rate schedules. I mean, speak today a little bit.
[00:17:34] Yeah. To me, I think one of the big questions I have around it is how do they get away with it? Right. I mean, how how do the carriers in this environment where if they don’t already have a substantial competitor in fulfillment in Amazon, they will. I mean, there’s no doubt that Amazon is going to do with their fulfillment network what they’ve done with their their server network. And that is monetize it at some point. Right.
[00:18:04] How how do they get away with it is just simply because of the lack of information or the lack of ability to discern the information because of the complexity of these rates. I mean, you showed us at a table. Right, which unfortunately we can’t show on a podcast, but you showed us a table. And I mean, it was it looked like hirer Gilt Glick’s to me. So that’s putting me on it. It is. I mean, and some rates going up over the course of years, 70, 75 percent. I mean, look, a 4.9 percent rate increase doubles your cost after 14 years. So it’s not insignificant, even 4.9 percent. And if it’s greater than that, then that accelerates the rate at which it’s doubling your cost of shipping. So are companies just not informed enough on this? Can they not discern the rates or do they not have any leverage?
[00:18:55] The the if you think about four point nine, it doesn’t sound that high, but it’s it’s more than double the CPI increase over time. So it’s there’s really two main factors that cause this issue. Number one, it is very complex. It’s very hard to understand.
[00:19:18] And you just you really need to work with people that can help you understand this. And so you need to pay. You need to dedicate time and resources to understanding this number to the U.S. marketplace. When it comes to small, partial, it is not competitive enough. Then there’s not enough competition. You’re dealing most a lot of our clients, it’s either U.P.S. or FedEx and they’re very smart. It’s like Coke versus Pepsi. Right. You know, there’s price signaling. You know, the they don’t want to destroy each other margins. And so they don’t get. Pricing wars. There is some. There is competition. If you look at other modes of transportation, like full truckload or less than truckload, you have way more options, you have way more providers.
[00:20:14] There’s way more competition, which leads to the less ability to pass on these types of cost increases. The truckload market is very dependent on capacity. I mean, we saw what happened last year where there just wasn’t enough capacity in this ship and the rates skyrocketed. Well, we’re seeing the opposite this year. Rates have dropped considerably. There’s excess capacity in the marketplace. So it’s very capacity driven. Passel is more driven by an influenced by lack of lack of competition.
[00:20:50] So we’re going to talk more about some of the market conditions that are driving the increases. But before we get there, the we want to make sure we have all the surcharged changes. The most important ones out on the table. But can you comment? Lu. We’re quick on the U.S. Postal Service, because I understand from one of our followers on the show that they’ve posted their 20:20 rates for approval with the Postal Regulatory Commission.
[00:21:15] They have. Yes, first class stamp. There’s no change. For the most part, we’re seeing much smaller increases from the USPS, which is great news for shippers. The their hybrid products that both U.P.S. and FedEx use with the USPS to do the last mile delivery, U.P.S. Sheer post, FedEx, SmartPost. That means that we’re not going to see the type of large increases for our clients that use those products, even even though it’s not directly with the post office, there’s a pass through. So the post office rate increases are much more mild. Last year we saw price increases, you know, in the 10 to 20 percent range depending on on parcel slacked, which is what most people are using with the post office for package delivery. We saw huge increases. So we’re not seeing that, which is great news. The question that we have is why not?
[00:22:19] Why aren’t there larger increases? The post office lost over 2 billion dollars last quarter. And so when how are you going to change the tide there? You can’t do it without larger cost increases. Favorable ruling on the International United Postal Union, where we’re going to U.S., we’ll be able to more effectively set prices on our international shipments, whether where they’re losing a lot of money starting July 20 20.
[00:22:47] But to look forward to that, that may help make it more.
[00:22:53] The ship won’t be sinking as much if that well, they need to sell their pension problems. The pension obligations is really driving that, but that’s a whole nother topic. So we’ll cover that separate episode 18. Yeah.
[00:23:06] All right. So let’s say that the FedEx and U.P.S.. U.P.S. has not published yet. FedEx has. Yes. And they you’re speaking to some of the surcharge changes already. But let’s make sure we get all those out on the important ones out on the table. So any other surcharge changes related to the FedEx rate schedule?
[00:23:25] Yes. Yeah. What? E-commerce is driving a lot of the surcharges because it’s a much heavier delivery to residential. And there also are trying to make it more convenient for residential commerce customers, which you’re setting up. You’re seeing retailers setting up returns. Kohl’s is doing Amazon returns. FedEx announced last week it’s partnering with Walgreens. They’re partnering with Dollar General. And so it’s much cheaper to deliver to a commercial location than it is to a residential location. So they’re trying to set up these these, you know, deliver to at a commercial location that sets up lockers that create up more surcharges. And so the big increase in surcharges that we see. And also what we’re seeing is that because of e-commerce, people are shipping different things than they used to years. You know, there’s t.v.’s going through the small parcel networks. There’s furniture, tons of furniture. If you look at how much Wayfair is shipping through small parcel, it’s hundreds of millions of dollars. And so what’s being shipped is changed and it’s created new surcharges. And where the where what creates cost for U.P.S. and FedEx are large, bulky items. And those get hit with additional handling charges. They get hit with oversized charges. They get hit with an over max.
[00:24:56] And if you get hit with a. Over Max Charge, which is a package that either weighs more than 150 pounds or the dimensional weight is more than 150 pounds that goes into the over max category. The surcharge on that particular package is eight hundred and fifteen dollars with U.P.S. on one package on the package.
[00:25:24] And that does not include the freight. It doesn’t include the fuel. That package five years ago cost fifty seven dollars or it’s that it’s the price has gone up fifteen hundred percent over the last five years for that particular package. And just to clarify that over, Max, that applies to just FedEx, not just u._p._s. I’m sorry. No, it applies to both U.P.S. tax. OK, and so the big bulky items, you know, the stuff with the large package surcharge, which is not as big as in over, Max. That charge has gone up over 100 percent over the last five years. If you look at the delivery surcharges is where they’re more rural and extended deliveries. Those costs are increasing, you know, 40 to 50 percent over the last three years. And more and more volumes go in there. And you’re just seeing, you know, exponential growth on the cost side on these surcharges and these surcharges. People don’t understand it. They don’t know they’re not spending the time to really take a look at the fully landed cost people what people look and say, all right, here’s my freight rate, OK? What did you put the dimensions in? Because if the dimensions are greater than the actual weight, there’s gonna be an upcharge. Did you put the fuel in there? Did you put the delivery surcharge in there? Did you put the residential surcharge? The surcharges can and uncertain shipments. They can be as much or more than the freight charge.
[00:26:58] So you really need. Some sort of complex mechanism to even know.
[00:27:06] Whether you ought to be paying these or will be paying these surcharges, right. I mean, you could really get caught on the back foot if you’re a shipper and you discover too late that it’s going to cost you eight hundred fifteen bucks to sit’s ship something you’ve got four hundred dollars for, you can one of the first things that we look at with our customers or are you charging your customer for freight?
[00:27:24] And when do you charge them. And what is your process? We see the customers. Our clients are vastly undercharging for freight and they’re having to subsidize it because they can’t go back after the fact and try and charge them. And so you really got to have good policies, procedures, methodologies set up on the front end to try and maximize your shipping cost.
[00:27:51] And looking at the whole enchilada is what I’m hearing you speak about and going back to some of the things you’re doing in terms of really helping to advise on supply chain strategies, transportation strategies. It’s more than what I’m here, at least more than just looking at, know, cell D7 and your master transportation spend spreadsheet. It’s it’s looking at the big picture and understanding and diving deep into all the data, right?
[00:28:14] Absolutely. I mean, one of the Ghar International companies we looked at and said, OK, you’re your distribution centers in Atlanta, your importing goods from Asia. You’re you’re you’re bringing them into the port of California. You’re trucking everything. Otherway your DC and Atlanta, your largest customers in California. Why do we set up a cross doc California and do a deconsolidation and you can keep the goods there. They’re ready to go. You’re not doing anything dumb. And then we can rail or truck to the rest of the stuff, to the to the D.C. and Atlanta district on the East Coast. I mean, it’s things like that. We’re just not negotiating contracts and rates. We’re really trying to help companies optimize both the service levels, the commitment to the customer, the cost, and in Gillet, build them a competitive advantage. We want our clients to have a competitive advantage in the supply chain.
[00:29:13] So let’s talk more about the market conditions you’ve already alluded to. I think we’ve talked, as mentioned, e-commerce 17 times today on the show, which is a state we live in, this world we live in. Right. Speak more about, you know, that notion of, quote unquote, free shipping in and these new entrants coming into the marketplace. How the ever evolving world of e-commerce is putting more pressure and driving some of these increases. Give us more background.
[00:29:42] Yes, free shipping does not exist. Yes. I mean, that is a fallacy. Okay. The subsidized shipping exists to our audience.
[00:29:52] I’ll use an air quotes when we said yes. Shipping, right? Yes, we can verify that. Yes.
[00:29:56] That doesn’t exist without paying for it. You wouldn’t believe how many times a week. Someone tells me they have free shipping. Somebody is paying for it, right? Nothing’s free. Although I did see Amazon just announced they’re going to be offering like a dollar shipping on goods that they’re selling for less than $5 or something crazy. I haven’t read the whole article, but it may. I don’t know how anybody I don’t know how they’re not losing money on them. Free shipping is customers expect it. They expect it because of Amazon Prime. Amazon has changed the paradigm in customer expectations. People didn’t realize they needed it in an hour. They don’t. You know, most of the stuff they were. I order you know, it needed three or four days. But Amazon changed everyone’s expectations because there’s guaranteed two day delivery. And so now the expectation with all of retail is I need you need I need to get there faster than anyone and I need to get it cheaper than anybody. And shipping costs are a huge can be a huge competitive disadvantage for retailers. And you know, what we’re seeing is the change in delivery profiles. U.P.S. now delivers more residential packages than commercial and it’s much more costly. And that is driving the surcharge, the creation of new surcharges and the overall cost. And they have to build out infrastructure. And you know, what you’re also seeing is that because so much there’s so much volume shipped in the fourth quarter, you need to have facilities and infrastructure to handle that. But you don’t have enough packages during the rest of the time. And so there is excess capacity. And so how do you do that? You charge higher prices. You also need you know, U.P.S. has got a 20 billion dollar CapEx budget over the next several years. Somebody has got to pay for that. And it’s the shippers. Yeah.
[00:32:00] So we’re we’re seeing some some crowd sourcing also that that’s. Driving some of this, this, this. These activities speak more to that.
[00:32:09] Yeah, the crowd sourcing model is certainly something that you see being used from all types of delivery services. A lot of lot of stuff, a lot of, I would say, mixed results. I mean, I see the differences, you know, with a U.P.S. FedEx driver. I know them and they’re in their uniforms. And there is a comfort level when they pull a driveway, when there’s the crowd-sourced sort of model. There’s less of a comfort level. And, you know, just I say less professionalism, different standards, different compensation models. In some cases, you know, U.P.S. drivers are all union employees. They’re held accountable for standards and how many packages they deliver an hour and things like that a lot more stringently than the crowdsource model, the crowdsource models, much more cost effective because, you know, there’s no you know, and a lot of cases the benefits are medoff minimal. Right. Right.
[00:33:18] So it’s it’s you see, that is continuing to shape this this ever evolving paradigm. And while one thing I heard there, though, is how as much as Amazon Prime and the Amazon effect that we’ve heard about for years now is definitely shaping customer expectations and delivery preferences, even though to your point, we don’t need the pair of socks for three months, we want it today or in two days or something, it is crazy how the mindset shift has changed. But also on the flip side and the crowd sourcing side, I’m curious to see I never really thought about call it the security or the professional concerns that may cause because these companies may not know exactly who’s delivering or in terms of knocking on the door with the package. I’m curious how that plays out in the marketplace. I never really thought about that nearly as much until you mentioned it, especially with the increase in how much proliferation we’re seeing with this crap.
[00:34:22] This crowd sourcing element, I experienced it firsthand when Amazon introduced same-day delivery just for fun. Something I needed I didn’t necessarily need today. But you know a part that I needed for my boat. I. I ordered it and said, OK, it’s no more to deliver it today than it is to deliver tomorrow or two days from now. So let’s see you guy rolled up in front of my house, thankfully didn’t pull in my driveway. It is 94 Lexus, L.S. 400 with a bunch of tiny bags on the seat. You know, the small, small packages that he was delivering handed me my little rubber stopper thing and and drove away. And I wanted to talk to him about it. I wanted to understand, you know, this whole concept. So, yeah, it does run the gamut from somebody doing a side hustle. Right, to somebody who’s gone through extensive training with extensive accountability and safety training in and compliance requirements.
[00:35:24] So it’s been interesting to see how the market continues to digest. You know, just how these packages get to their door. So the other thing. 1, pick your brand. So these new entrants you’ve already mentioned company some at some of the unique partnerships we’re seeing some neat collaboration. We’re seeing, you know, from the Wal-Marts, Targets and some of the startups the world speak more about some of the new entrants that are coming into e-commerce that are also impacting some of these. Right.
[00:35:54] Are you talking about retailers or are you talking about delivery company?
[00:35:59] Yeah. Sorry. Retailers, especially how retailers are are acting in a very deliberate and practical way to offer some of the pickup conveniences and delivery conveniences that that Amazon’s kind of set the bar on.
[00:36:14] Yeah. What you see, what we’re seeing is that retailers need to also be Logistics companies. They have to be supply chain companies because they need to. I set up the most efficient way for their customers to purchase goods up goods and get get goods in the time frame they need. So, you know, buy online pickup in store is huge. That usually leads to additional purchases. You know, a lot of what it’s convenient to have commercial location where you can pick up your packages and and you don’t have to go to the store. A lot of people order online and then they like to go in the store and get their packages there.
[00:37:07] If you live in New York City, which is in you know, most everybody lives in an apartment building. I mean, I have a lot of clients up there. And I’ll go visit some friends and I walk into the lobby of their apartment building. And those there are literally packages scattered everywhere and they’re not secure. I mean, there there’s just there’s too much stuff being delivered to these apartment buildings for they don’t have the space to storm and in the office. There are a lot of don’t even have an office. When you walk in the apartment buildings. And so these solutions for the commercial delivery locations are very convenient. I mean, it doesn’t have to be a target or or a big brand. You could be the local bodega, which is going to be a U.P.S. access point. It could be a restaurant that where you can go pick your packages up. You can’t speak to the notion these alternative delivery locations that are being utilized more and more. Yeah. Yeah. Alternative delivery locations, lockers are huge. And that’s that is what we’re seeing. And so Locker’s going into 7-Eleven’s. You know, I was in Arizona last week and I saw the U.P.S. lockers at the 7-Eleven. So I read, you know, retailers are really trying to come up with great solutions returns. Solutions are big. You know, if you look at historically Staples and Office Depot for a long time, even when I was at U.P.S., they were they had U.P.S. shipping counters in those stores. They were much earlier to market and building those types of relationships. And now a lot of the other retailers are catching on. Michael’s department stores, who’s a client of ours, has got a program with U.P.S. as well.
[00:38:58] So speaking of these cloud, these creative arrangements, the JRC, the news within the last week or so about Target and Toys R US. Yes. And as I was unpacking that over the weekend is fascinating. You know, Toys R US went through the huge downturn. It sold off in bankruptcy, sold off all or most of their assets, but they held onto their name and law, their branding. And now, according to Lisa, seeing CNBC articles reading, they are shifting over to the Web site traffic that hits Toys R US dot com. Once a customer clicks buy, they’re going to take some target to finish the the transaction. Which is fascinating in of itself. We’ll see how how powerful the tip. Toys R US name brand and web traffic still is. But what also found really interesting about this, this this news article in this development was Toys R US is partnering with a group called Beta B 888 to open tin, brick and mortar stores. And they are completely outsourcing the operations of these. So they’re driving revenue just. Surely it’s a branding activity. So really curious, see how this plays out for Target and for the store operators.
[00:40:11] It’s going to be very interesting in Toys R US is their problem and their demise was because they became a real estate company. Right. They had all the building, they had the buildings and the land. And that was their major problem. I wasn’t selling the toys. And there’s a huge toy market that’s gone, sort of missing without Toys R US in there. It’s going to Amazon.
[00:40:34] And I bet when you look at that, I think you said the 40 percent of how much volume is here in the last few months of the year. But all there’s toys. Absolutely. Yeah. It’ll be curious to see kind of how this development adds to some of these, uh, these market factors that continue to evolve. All right. So we want to finish up and wrap up on the last segment here of this interview where we’re talking with John Haber founder and CEO of Spend Management Experts. Let’s talk about agnostic early. I know obviously SMB does this for a living, right? Sure. You jump out and you help companies, whether strategically with their overall supply chain footprint or a little bit more tactically with the transportation spending part, but all points in between. But how would you advise companies to attempt to mitigate these increases each year? You’ve already kind of dropped a couple pieces of advice, but what what else can a shipper do?
[00:41:28] There’s there’s a model that we use at spend management. We call it the top model, the transportation optimization model. The first thing you need to do is have visibility. You need to have access to the information. And that’s where a lot of companies fail. It’s unbelievable, some of the companies, how big the companies are and how much shipping they do. And they have no visibility. And if you don’t have visibility, you don’t have control. And you’re reactive. You don’t have the ability to make decisions. So you’ve got to have visibility.
[00:42:04] Then you need to have transparency. And we get what we call that is making sense of the information that you have. You need to have people that understand it, whether it’s SMB or somebody internally. You need to have resources dedicated to create the tens transparency and provide information for good decision making. Then you need to have a strategy. You need to in the strategy, you need the supply chain is not a static object. It changes every single day. And you need to be monitoring what’s happening on every single day. And in some cases, every hour. And so you need to have a strategy. You need to have a plan.
[00:42:43] And you need to have tools to get to the fourth component, which is execution.
[00:42:50] And you need to execute and you need to measure your execution. And you need to not just implement. You need to measure compliance.
[00:42:59] And that if you have those four pillars in place within your organization, whether you’re using an external third party to help you or you’re doing it via good internal management processes, you’re going to be in much better shape. And we think that that model works. We try to deploy that model and make sure that those four key components are covered and all with all of our clients.
[00:43:21] So, Greg, are you keeping track at home here? We have visibility. Number one, transparency number two. And there’s clearly a lot of folks I think might would merge those two. But you laid out a case for why they’re important each on their own.
[00:43:34] They’re absolutely. Because with visibility, a lot of times the biggest problem is we don’t have the data. We don’t know how to get the data. We don’t know where it is. And so the visibility is just getting the data. So you have you can see it.
[00:43:48] So visibility, number one, transparency number two, strategy number three. And of course, strategy is worthless unless you execute on it. That’s right. But but also, as part of that fourth pillar you’ve mentioned, John, which I think is valuable for our listeners, not just measuring the implementation, but also measuring compliance, measuring compliance, measuring importation.
[00:44:08] We’re different than we compete a lot with the big four consulting companies. Our business was a little different in that in most cases we get paid on execution. We have to deliver savings in order to be competent, you know, compensate. We’re not coming in and making recommendations and charging a lot of fees. Recommendations in most cases were paid on execution. So we’re measuring compliance and, you know, whether it’s us measuring it or whether somebody else internally is measuring it. You’ve got to you’ve got to make sure that the savings are being realized that you forecast. Otherwise you’re letting the organization down.
[00:44:43] Mm hmm. Greg, before we weren’t dove into at least briefly here at the end about an upcoming event, you are going to be I think, John, I think you’re speaking at Parcell Forum. But Greg, I mean, this is what I like about these types of interviews is I believe whether you bring in an SMB and John and his team talented. Seemed to kind of dove in and uncover costs or hopefully listeners can also benefit from this interview where John’s offered some tips. Even if you don’t, you’re not able to bring in those outside sources, right?
[00:45:15] Yeah, I think this is. Look, this is a critical issue because so many companies are getting into retail. There’s there’s a new drive and and a lot of momentum in direct to consumer. And those companies are not going to become Logistics companies. They are brand companies. So hooking gash gaffe. Right. Gash Clayton and his company. They’re really good at building great fishing watches. They are not great at determining how to define what their shipping rates are. And there are hundreds and thousands of companies like that around the country, of course. But around the world and look, I come out of retail. I know what retailers gifts are. Retailers gifts are finding those products that get people excited, getting people excited about those products and selling those products. Aside from that, everything else we wish would go away as retailers, Logistics things, infrastructure, things. We wish that somebody else could handle that. And this is such a huge cost and it is so complex that it really does require an intervention of sorts, whether it’s internal, whether you use a company like spend management or or it’s internal for someone to grab hold of this. Right. And and try to corral all this complexity and and get a fair deal. You know, it’s I mean, it seems like the cards are stacked against you as a retailer or brand to be able to get a fair deal. And it’s it. It has a lot to do with the complexity and it has a lot to do with the relative cost to what your retail pricing is inclusive of shipping. Let’s not say free shipping. What your retail prices include inclusive of shipping. So, yeah, I mean, it takes it’s gonna take either a big initiative internally or it’s going to take, you know, the ability to engage someone who can help you to to sort through all of this. You’ve got to figure out how to keep shipping from breaking the bank.
[00:47:21] And so you got have the tools, the resources you pay for what you get is still the cardinal rule in twenty nineteen as it was nineteen fifty nine in 1919. And you’ve got to have the access to experts in the tools and resources. So you dove in if you want change, you know, dove in and take some action. So Passel, form 19 in Dallas, the only conference dedicated to professionals responsible for shipping, warehousing, packaging, distribution and delivery of parcels.
[00:47:52] You’re gonna be that governor when you go there, John, where you have a big presence at the Parcel Forum, which is the the largest small parcel dedicated trade show in the US. And we’ve got a number of people. We’ve got no speaking engagements. Melissa Rongji, who’s one of my V.P., she’s going to be doing a session on how to ship large, bulky items. One of the topics we covered here today, I’m going to be speaking in a couple sessions. My my my core session is how to manage surcharge costs, which was a big focus. We’re taking a look at the 2020 surcharge costs, how to forecast, how to manage your surcharge costs. And then I’m on a panel to close out the show. But it’s a great show. The biggest partial shippers in the world will all be there. The all the partial carriers will be there. There’s a lot of great information, though, will come out of that show that’s got me in Dallas, October 28 through the 30th.
[00:48:58] And the listeners can find more information there. Passel forum dot com and go check out John. Listen, the whole team sounds like you’ve got the whole SWAT team in Dallas for that week. We do. We do. Fantastic. Well, great conversation. John Haber here. Greg really have enjoyed it. I’ve learned a time that the nascent math. My favorite thing about what this journey we’ve been owned it’s May 2017 is what I walk away. I’m I’m a smarter supply chain professional after sitting down last hour with John and and your team. You know, we have had several prep calls with your team to to do our homework for this interview and not that I’m going in and can offer any transportation advice any time soon for these companies. But, man, we have just really picked pilled layer of the onion layers and then you back in and understand so much more now after you sit down and just just the awareness is is really important because I think you’ve talked about today a lot of companies get caught off guard by this.
[00:50:00] Right. They don’t recognize it that there’s a problem until. Too late till they’ve spent $815 to ship something that’s a hundred bucks. Men aren’t in position to send that right back that it’s in that building. They’re not sending that bill to me.
[00:50:12] I guarantee I’ve got a saying that six shipping is not sexy, but it’s important.
[00:50:20] And it, you know, more girls delivered sexually. If you’re not paying attention and it’s one of your biggest costs, then you need to think that it’s sexy.
[00:50:30] Well, and look, retailers have very tight margins as it is. You start eroding that margin with careless whatever you want to say, you know, with with out an awareness of what shipping how shipping is impacting your margins. That could be catastrophic.
[00:50:46] It’s the difference between profitability in some cases and not being profitable.
[00:50:51] Yeah. Well put. Because those are that’s the that’s that’s what’s at risk. That’s right. That’s what’s at risk. Well, big thanks to John Haber founder, CEO, spin management experts. You can learn more at Spinned in GMT dot com. Check them out at parcel form. Looking forward to the second installment of this mini series as we dove in deeper on the U.P.S. side. Yep. And then they kinda wrap up episode where we’ll dove in and do some comparing contrasting and offer more mitigation best practices here in a few weeks on the third installment. So thanks so much, John, for your time and stick stick around for a second as we kind of wrap up through a couple of final announcements here. Yep. Great to be here. You bet. Okay, sir, to our audience, we’re going to wrap up in just a couple of final announcements were some of the shows we’re gonna be at and covering love in person. But if you can’t find what you looking for, if you if you hurt heard something here today on this conversation with John Haber with SMB, she just she just note to connect at Supply Chain Now Radio dot com and we’ll do our best to serve as a resource for you. But, Greg, we’ve got a busy schedule coming up starting next week. Yeah, we get to go back to Charleston, October 23rd. That’s right. The South Carolina Logistics Tech Talk, which were there in partnership with the Southwire Council on Competitiveness. You can learn more at SC Competes dot org. We’re gonna be in Austin. It’s not Dallas, but we’ll be in Austin in November with our friends. John Yeah, I’ve got friends that offer transport as well. If he’s got there Logistics SEO form coming up November 7th and 8th.
[00:52:23] Yeah. Now part of reuters’ events, by the way, congratulations. The folks at t_f_t_, they got acquired and still put on good shows, bringing I think around 300 CEOs to this event to talk about, you know, the issues that chippers and and Logistics service providers face today.
[00:52:43] Logistics tech, freight tech, supply chain tech, whatever you call it. There is gonna be a lot of brainpower there above my pay grade in Austin, Texas. November, you can and again, you can learn all about all these shows, own the upcoming events tab at Supply Chain Now Radio dot com and we’re gonna be doing some interviews from there.
[00:53:00] Right. So we’ve got a few we’ve got a few people on the roster. That’s right. Over the over the course of that couple of days. So we’ll have some interesting topics to share there.
[00:53:09] Absolutely. We’ve already booked a couple CEOs and we’ll be releasing that schedule here soon. And so then we’re getting out of Austin, kind of flip the county, get through the holidays, gather these packages shipped here, John and February twenty twenty. We’re gonna be at the Reverse Logistics Association conference next boat out in Vegas. Speaking of epiphanies, this reverse Logistics series, we’ve learned a lot. Maybe you could take that Supply chain s.A.T After. Now, John, it’s been entirely Tony Sheer.
[00:53:36] And it’s really interesting how they’re intertwined. I mean, the the small package and the river reverse Logistics Supply chain are tightly intertwined and one feeds the other. Ultimately. All right.
[00:53:48] Interesting point. And then finally, so far, we’ve got a couple of other events in the works here. But Murdoch’s 20/20 is back here in Atlanta. And a couple of really neat things. Not only are we broadcasting throughout the four days at Murdoch’s 2020 at the Georgia World Congress Center, but they are hosting our 2020 Atlanta Supply chain Awards, which, of course, John and SMG were one of our inaugural year sponsors, which helped make the twenty nineteen awards program happen. So really excited about this partnership with Moto X. We have confirmed Christian phisher President, CEO, Georgia-Pacific as our keynote and Sean Cooper. Shane Cooper, executive director with the Atlanta Committee for Progress. She is also the former chief transformation officer at West Rock. Very good as our emcee so excited the part remote X when the largest supply chain trade shows North America excited to have Sha Shan and Christian join us and be part of the programing into our audience. You can it’s medic’s is a free show we expect, and 35000 folks across the world. It’s an amazing sight to see that it is. P.T. Barnum would be would be jealous.
[00:55:02] Sonoda Well, they. Toddled. I mean, they basically remodeled the Georgia World Congress Center to accommodate this show, and they have.
[00:55:09] It’s an amazing show.
[00:55:10] It really is. Modoc show dot com innocent. It’s equally as amazing as free to attend. So you can go to Moad Extra dot com or all the details. And if you if you come out. Be sure to check us out on the show floor as we have to eat, take our vitamins that way for days or to stay broadcasting. All right. Big or streaming days? That’s right. And also the twenty point Lance Supply chain award. We’ll be launching that this week. The site will be up at Atlanta Supply chain Awards, dot com. Look for the press release. Look for executive committee announce as well. But check it out next couple days. Lance Supply chain awards dot com. Okay. We covered a lot in about an hour and two minutes. John and Greg, big, big thanks for your time today. As busy as you are. Your travel schedule, you know all the growth that ESTN E-Team is experiencing. Appreciate you carving out time for the first of a couple of three installments.
[00:56:06] Yeah. Thanks a lot for having me. And thanks for from the entire smae team we’re looking for. Forward to the next two upso.
[00:56:14] We are too. I can’t wait to help Sheer. You know what you what you all know to help some of these people solve these problems. Now I’m a little bit angry.
[00:56:22] I can’t lie and I won’t. I want to figure out how to solve this.
[00:56:28] So I owe that to our audience. Be sure to check out other upcoming events, replays or interviews, other resources at Supply Chain Now Radio dot com. Again, you can find us on Apple podcast, SoundCloud, all at leading sites where podcast can be found. Be sure to subscribe so you don’t make Greg angry or write on behalf of the entire Supply Chain Now Radio team.
[00:56:48] This is Scott Luton. Wish you a wonderful week ahead and we will see you next time on Supply Chain Now Radio. Thanks everyone.
Upcoming Events & Resources Mentioned in this Episode
Connect with John on LinkedIn: https://www.linkedin.com/in/john-haber/
Be sure to connect with SME at Parcel Forum 2019: https://www.parcelforum.com/
Connect with Greg on LinkedIn: https://www.linkedin.com/in/gswhite/
Connect with Scott on LinkedIn: https://www.linkedin.com/in/scottwindonluton/
SCNR to Broadcast Live at SC Logistics 2019 Fall Tech Talk: https://tinyurl.com/y2mttrg8
eft Logistics CIO Forum in Austin, TX: https://tinyurl.com/y5po7tvw
SCNR to Broadcast Live at CSCMP Atlanta Roundtable Event: https://tinyurl.com/y43lywrd
Reverse Logistics Association Conference & Expo: https://rla.org/calendar/1
SCNR to Broadcast Live at MODEX 2020: https://www.modexshow.com/
SCNR on YouTube: https://tinyurl.com/scnr-youtube
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