Weekly Logistics Report
This week's update contains two choice article summaries:
- How can companies address their strained relationship with carriers?
- How to remain profitable when operational expenses continue to rise?
Tight Logistics Capacity Erodes Shipper-Carrier Trust
Companies spend on average 30% of their time per week looking for backup carriers
87% agree that searching for backups is their biggest waste of time
- Companies should treat this as an opportunity to explore additional carrier relationships
Companies and carrier relationships are strained due to carrier overcapacity. UPS volume is experiencing a 14% increase in volume year over year. They’re even encouraging shippers to schedule earlier shipments or avoid shipping when possible during the holiday season. According to recent survey results from Transfix, on average 30% of company time per week is spent looking for backup carriers due to rejections and missed pickups from their primary carriers. 87% of respondents agreed that looking for backup carriers is the biggest waste of time across the supply chain. Therefore, a simple solution for companies to consider is diversifying their carrier mixes.
The carrier overcapacity is not only affecting company-carrier relationships. If the problem is left unaddressed, company-customer relationships will be affected as well with the potential to hurt profit margins in the long run. Delayed shipments lead to frustration for both the company and the customer -- there is a risk that customers will choose a faster shipping competitor. This is the perfect opportunity for companies to explore relationships with alternative carriers who are not at or over capacity such as Ontrac, Golden State Overnight, or Spee-Dee. Companies should strive to be less dependent on their primary carriers to more effectively ship orders and manage customer expectations.
This is a great time for companies to leverage intelligent routing algorithms that optimize their carrier relationships. Diversifying carriers doesn’t mean burning bridges with the ones you currently have but supplementing them with additional carriers to adapt to the recent changes. Using modern algorithms that select the lowest cost carriers based on your desired transit time can yield especially effective results.
Amazon Shipping Costs Outpace Sales Growth as Pandemic Operating Expenses Soar
Source: Supply Chain Dive - read the article here
Amazon's shipping costs increased by 57% compared to online sales that only increased by 37%
Companies need to look for ways to manage operational expenses
Operational expense (OPEX) is increasing at a faster rate than sales revenue. Amazon’s shipping costs increased by 57%, compared to online sales revenue only increased 38% year over year in Q3. In a recent survey conducted by PwC, 61% of respondents say they’ll do their holiday shopping online. Companies need to strategize to reduce operational expenses as they scale up eCommerce operations.
In response to the sudden changes in the retail industry, many companies including Amazon are considering scaling their eCommerce operations to capture a slice of the pie. Despite Amazon’s size and its ability to benefit from economies of scale, they still experienced a higher rate of increase in OPEX compared to sales revenue, narrowing their profit margins. For smaller companies experiencing this issue, consequences can be dire if the trend continues.
Due to the complicated nature of fulfillment, there isn’t a one size fits all solution to keep OPEX low. However, using intelligent shipping software is a way for companies to reduce fulfillment costs. These softwares can both automate warehouse processes and optimize shipping procedures. Many companies often insist that their negotiated rates are extremely competitive with no space for further savings, but they fail to consider the possibility of alternate carriers who can do the same jobs more cheaply.