Publisher's Note: This post has been updated with new links and content.
Original Publication Date: May 1, 2017
In this post, we’ll help you understand how to become a FedEx and UPS power user.
Let's start at the beginning with what FedEx and UPS power users are.
What Are FedEx and UPS Power Users?
A power user is someone who understands the strengths and weaknesses of FedEx and UPS and how to tap into those strengths and weaknesses.
At the end of the day, each carrier has its own strengths. Power users also understand the pitfalls of using UPS versus FedEx, for example, in certain circumstances.
Power users also understand differences in specific shipping elements like:
- Transit times
- Pickup and delivery times
- Pickup and delivery location
- Account representation
- Technology subsidies
Finally, power users understand that some package characteristics are either attractive or unattractive to FedEx and UPS and how to leverage that information.
One RULE For Power Users
At Lojistic, we use an acronym, RULE, to integrate power user principles into our shipping efforts. RULE stands for:
First, recognize things like contractual variations and pricing terms.
Carriers will often slide in variations like early termination fees or service guarantee waivers. UPS, for example, has late payment fees that FedEx does not. Knowing what to look and recognizing when fees may apply to one carrier or the other.
Second, power users understand the carriers’ strengths and weaknesses. Most shippers instinctively choose to FedEx for air packages and UPS for ground, but there are certain pockets within the United States where FedEx or UPS may perform better.
In today's environment, you can air-ship a package via UPS just as reliably as you can with FedEx, and vice versa. The geographical areas have more of an impact on performance than the method of shipping.
Third, power users leverage little-known operational and pricing programs.
For example, both carriers offer hybrid services. FedEx's is called SmartPost. And UPS's is called SurePost. The carriers don't typically advertise these services to their clients.
Typically the client has to ask for contracted rates for these services because UPS and FedEx can, for example, charge more for their ground services.
These hybrid services combine the carriers’ networks with USPS, primarily for residential deliveries. They're usually able to offer those services at a lower rate than a FedEx- or UPS-only ground service.
Zone skipping is another example. If you have 5,000 shipments going to a generalized area, you can either ship out all 5,000 of those shipments individually, or you can ship all 5,000 of those shipments at once, essentially skipping zones. From there, they can be distributed to all the locations to which they're going.
UPS and FedEx both offer zone skipping programs, but they don’t typically advertise them.
Finally, power users engage by taking a proactive approach. You're looking at your data, finding inefficiencies or mistakes in your shipping behavior, and work to correct them.
“But,” you say, “my invoice files have thousands and thousands of rows of data. How can anyone make sense of that?”
That's where intelligent shipping technology comes into play. The Lojistic platform, for example, brings in all of that data and helps shippers look at key performance indicators to identify potential pitfalls and problems that need to be addressed among thousands and thousands of rows of carrier invoice data from the carriers.
Dimensional Weight For Power Users
Dimensional weight is a good example of where technology can pick out a potential issue through invoice data.
On an invoice, you typically see your billed weight and your actual weight. But filtering all of your invoice data through specific criteria or applying filters to all of your shipments requires an intelligent shipping platform.
The Lojistic platform, as we mentioned, can show the average actual weight versus average billed weight. It can also filter by air or ground, actual versus billed, and more.
Technology can definitely take all that information and help make sense of it so you can identify issues in areas like dimensional weight.
So far, we’ve discussed improving your cost profile by using technology and data. But not all of the variables shippers deal with are controllable, and power users are also knowledgeable enough to understand the difference.
Controllable Vs. Uncontrollable Expenses
Controllable and uncontrollable shipping expenses are determined by three factors: service level, zone, and weight. All three of these variables are controllable to some degree.
1. Service Level
Shipping a package through the air or via ground is the first and most obvious factor.
Power users can optimize those service levels to avoid choosing an unnecessarily high level. If I'm shipping a package from Costa Mesa to San Diego, for example, I don't need to ship that next-day air to get it there next day. I can ship that ground and it'll still get there next-day.
At a certain point, shippers will be fully optimized and unable to downgrade any further. But that's where hybrid services like SurePost, SmartPost, and regional carriers can come into play.
Power users always look at the service level and ask if the service can be downgraded without affecting the in-transit guarantee.
In other words, you can't control where your customer is, but you can control the cost to ship to them.
The closer the zone you're shipping to, the less expensive the package. We're in Costa Mesa, and if we ship a ten-pound package to San Diego, it will cost less than shipping a ten-pound package to New York.
One is zone two, local shipping, the other would be a zone eight, cross-country, and that variable has a significant impact on pricing.
You may say you can't control the zone. But that's not entirely true, because of zone density.
Zone density is it's basically the average zone that you receive. For example, if you’re on the West Coast and all of your clients are on the East Coast, you would be shipping mostly zone eights, and your zone density would be high.
But if you relocated your shipping from Costa Mesa to the East Coast, your zone density would come down to probably three or four. Reducing the zone density reduces your shipping costs.
You’d need a comprehensive analysis to find an optimal shipping location to maximize zone density. But there's almost always an opportunity to bring zone density down based on where the business is shipping to their customers from.
Some shippers believe weight is an uncontrolled variable, and actual weight can be uncontrollable. But the carriers don't always bill at actual weight.
Dimensional weight, in the shipping industry, means that the carriers take how much a package weighs and the size and dimensions of the package into account.
Here’s an example. Carriers don’t like it when you ship a pen in a big box, right? That box may only weigh one or two pounds, but you’re taking up a lot of space. They account for that additional space that you have taken up with dimensional weight.
The carriers multiply the length, the width, and the height of a package. Divide that by a standard dimensional factor of 139, and if that number comes out to more than the actual weight, they will bill you with the dimensional weight. So your pen in a big box that weighs two pounds is billed at 30 pounds of dimensional weight.
That said, billable weight is controllable to some degree. Shippers can make sure they're optimizing their package characteristics so that when they do get hit with dimensional weight, it's as low as possible.
Discounts can have an important effect on costs, but most people have misconceptions.
Some think you can just ask for any discount. And lots of shippers don’t do much analysis, or believe what the carriers say regarding the discounts available. But there are some non-standard discounts that most people don't know about.
First, there's a misconception that the carriers only like to discount certain areas.
Within a contract, you have the transportation charges, like the cost of an air shipment that weighs a certain amount of pounds and is going to a certain zone. That makes up the transportation charge portion of shipment costs. But then come the add-ons.
Within the service guides, the carriers have over 60 add-on fees listed, which can include:
- Fuel surcharge
- Delivery area surcharge
- Residential fees
But what most shippers don't realize is that every single one of those is negotiable.
There are some service levels and fees that the carriers will be more aggressive on discounting. But as a power user, if you understand your package characteristics and understand what the carriers have the ability to offer, you’ll know what to ask for and how to ask for it.
Think of it as a switchboard. If you don’t know what you're looking for, it can be overwhelming and confusing. Moving one lever over here can bring down a lever over there.
Carrier Agreements For Power Users
Carrier agreements can be convoluted. Power users max out the switchboard levers and know that asking for something doesn’t mean taking something away elsewhere.
When elements like minimum charges are in the mix, and costs and fees get complex, shippers often turn to a company like Lojistic to help them optimize their carrier agreements. That way they get the best discounts at the service level and fee level for a best-in-class carrier agreement.
It all comes back to understanding the marketplace, knowing the carriers, and understanding what to ask for.
For example, can the carriers discount fuel charges? Absolutely. Do they like doing it? No. And if you're asking for a 100% discount on fuel, chances are you're not going to get it.
Power users also understand what is reasonable based on the environment, because what the carriers offer in today's marketplace is a very important thing. Ask for the wrong thing can sour negotiations in other areas.
We know what a power user is, what a power user does, and what a power user knows. But there are other, lesser-known areas that shippers can look at, in addition to the SurePosts and SmartPosts mentioned above.
Programs for Low-Volume Shippers
The carriers offer programs for low-volume shippers through resellers that they partner with. Resellers are often able to offer more aggressive discounts than UPS or FedEx directly.
There are also trade associations and programs that carriers are able to offer for specific industries. If you're part of the automotive industry, for example, sometimes there are programs specifically for those groups that allow shippers to take advantage of more aggressive discounts that they would not be able to get on their own.
Next, power users can leverage group purchasing agreements or large organizations that partner with the major carriers. Their members’ purchasing power, collected in the organization, allows for negotiations for discounts directly with the carriers. The organizations offer those discounts directly to their members.
Finally, both carriers have some fairly aggressive programs for sellers who provide products and services to government entities.
Oftentimes, all you have to do is ask. Your carrier rep may not be aware of some of these programs, so doing some research and understanding what associations, group purchasing organizations, and government programs are out there is a good first step. Then you can ask your rep about specific programs that you are aware of.
Pitfalls of Carrier Agreements
As we mentioned, carrier agreements can be convoluted and complex. There are quite a few pitfalls that shippers will encounter.
Service Guarantee Waivers
The first is service guarantee waivers. A service guarantee waiver is a carrier restricting your ability as a shipper to file for late shipments if they deliver a shipment late. Carriers include service guarantee waivers across the board today.
UPS and FedEx guarantee their services, from air all the way down through ground. Shippers who ship If UPS and/or FedEx delivers a shippers’ package late, that shipper can file for a credit or refund for that late shipment.
But carriers are using service guarantee waivers in their agreements to restrict shippers’ ability to file for late shipments when they don't meet their service guarantee.
Early Termination Language
Another pitfall is early termination language.
Often, when the carriers provide a new or revised carrier agreement, buried language inside that agreement refers to a penalty for switching carriers at some point in the future.
For example, if you’re shipping with UPS, and they give you a new pricing agreement, there's typically no explicit commitment to keep giving UPS your business for any period of time. But for several years now carriers have included early termination language. It states that if you switched in the example above, from UPS to FedEx, or gave them less volume at some point in the future, you would be penalized for doing so.
Would you agree to that knowingly, when the carriers can raise their rates to whatever level they want every year? No. You should have the ability to take your business elsewhere. But the carriers are trying to tie you to them. And this is often buried in an agreement that's not explicitly called out by your carrier rep.
Discounts Not Applied to Returns
Discounts that aren’t applied to returns can be another pitfall for power users. The carriers might discount certain service levels, but they will also discount packages if they're going to or from a known seller.
Let’s say, for example, that you ship shoes with a 20% return rate. You can include carrier agreement language stating that if you’re paying for the returns, those returns will be discounted at the same rate as the package that was shipped to the customer.
There may also be exclusions in a carrier agreement that the return discount will be something other than the outgoing contracted rate.
Minimum charges, regardless of discounts, can be another pitfall.
If the carrier's offering a particular service, they have a minimum charge. If you ship overnight letters, for example, let’s say you negotiate a 99% discount on contracted or tariff rates. You might think you’re getting a great deal on those packages. But the carriers make sure they don’t lose money by instituting a minimum charge.
In that example, the carrier may give you a 99% discount, but if your minimum charge is $20, that 99% discount is worthless for lightweight packages. Also, look out for minimums in new or revised carrier agreements with rate increases that could negatively impact your shipping costs.
Grace Period Discounts
New carrier agreements regularly include a grace period. The carrier will agree to offer discounts for a period of time, whether that's four weeks, eight weeks, 12 weeks, or 52 weeks in some cases.
After the grace period, however, your discounts won’t be applied unilaterally moving forward. Power users understand how that works, and don't rely on discounts that no longer apply.
The last potential pitfall for power users is deferred rebates. In these cases, instead of more aggressive discounts for transportation charges and/or accessorial fees, the carriers may offer a rebate or a deferred incentive.
Some shippers think that sounds great, but wouldn't you rather have that money now? You're shipping out your packages now, and if a carrier is willing to offer some check in the future, they can offer you a rebate or a deferred incentive now.
They can also build them into the discounts that you get in real time when you ship out a package. As a power user, understanding how to ask for that and what to ask for is very important.
For more information on how you can join the thousands of businesses currently using Lojistic to send costs packing, please contact us through our website.