Net landed cost of goods, the total cost associated with getting goods into customers’ hands, consists of cost of distribution (CoD) and cost of manufacturing (CoM). For years, manufacturers and brands have worked to reduce CoM as the means to reducing their net landed cost of goods to compete and succeed in increasingly competitive marketplaces. However, this strategy is reaching its limits, and therefore companies are increasingly turning to the often more rewarding, yet complex, opportunity to reduce CoD.
The Complexities of Cost of Distribution
Parcel shipping is experiencing strong – and accelerating – growth worldwide. Global package shipping grew by 48% between 2015 and 2017, and according to FedEx Corp. chairman and founder Fred Smith, B2C e-commerce sales are expected to reach $3.2 trillion by 2020. Global e-commerce sales are predicted to be even higher. This will translate into never-before-seen shipping volumes over the next couple of years.
Adding another layer of complexity: same-day delivery. As of 2017, 51% of retailers offered same-day delivery service to their customers, and the same-day delivery market is expected to grow significantly. While same-day delivery is a big opportunity for all retailers to improve their service level, it requires a high degree of order fulfillment and logistics sophistication. Major challenges, such as very short fulfillment lead-times and flexible last-mile delivery have to be overcome while bringing cost down to a level that consumers are willing to digest.
Put it all together, and the result is carriers are facing unprecedented demand for their services, which in turn forces them to invest in labor, technology and facilities to control volumes and maintain service agreements. Not surprisingly, the carriers have passed these costs on to manufacturers and brands. UPS and FedEx have both increased published rate tariffs by a minimum of 4.9% per year since 2010, in addition to introducing oversize and handling surcharges as well as dimensional pricing for lightweight and bulky packaging. DHL Express also employed a similar strategy, raising rates by 3.9% in Germany in 2017 to boost services and prepare for future demand.
Achieve Efficiencies in your Distribution Model with Transportation Management Systems for Parcel Shipping
For manufacturers and brands that haven’t already, it’s time to examine the impact these trends will continue to make. Any efficiencies achieved in the distribution model can help to offset these rising costs. The mounting delivery capacity shortage and increasing e-commerce volumes further raise the stakes; shippers who can invest in a Transportation Management System (TMS) for parcel that quickly determines the most efficient shipping option for each parcel they ship – considering delivery deadlines, carrier rates, performance and other factors – stand a better chance of keeping costs in check. In fact, a TMS for parcel shipping will enable companies to reduce landed costs in four critical areas:
- Dynamic carrier portfolio management for optimal rate and service selection
- Carrier-compliant shipment processing that prevents fines due to shipping errors
- Labor savings by eliminating manual, labor-intensive processes
- Visibility to audit shipping history and recoup incorrect delivery charges
For businesses with large parcel shipment volumes, the importance of these outcomes cannot be understated. In a recent study by F. Curtis Barry & Company, the cost of shipping for these companies is by far the number-one fulfillment expense, often exceeding the sum of wages, benefits, facilities, utilities and supplies. Profit is directly linked to how much – or how little – they are able to successfully reduce landed costs, making TMS for parcel systems with low barriers to entry and easy scalability an attractive ROI for many.
Transportation Management Systems for Parcel Shipping: A Lifeline for those who Want to Compete
As ecommerce continues its breakneck growth and the likes of Amazon keep pushing the boundaries of fulfillment, Transportation Management Systems for parcel shipping provide a lifeline for those who want to compete. To learn more about how you can achieve efficiencies in distribution and reduce your net landed cost of goods by leveraging Transportation Management Systems for parcel shipping, download our new white paper: The Other Half of your Net Landed Cost of Goods.
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