Mike Johnson [00:00:02]:
The reality is if you have all your eggs in one basket, you're already going to be faced with peak surcharges and volume caps. So you're going to get hit on both sides of the equation.
Glenn Gooding [00:00:12]:
Those demand surcharges are get brutal too, aren't they?
Mike Johnson [00:00:16]:
And they're no longer a peak season surcharge. It's a year round demand and a peak season surcharge.
Glenn Gooding [00:00:27]:
Welcome to Parcel Perspectives, the podcast dedicated to small parcel show shippers. I'm Glenn Gooding and each episode we dive into insights, best practices and strategies to help you navigate this complex, costly market. Join me as we explore ways to strengthen your long term partnerships with your chosen carriers and stay competitively aligned.
Glenn Gooding [00:00:54]:
Hey. Hello everyone. Welcome to another episode of Parcel Perspectives. I'm Glenn Gooding, president of iDrive Logistics. I have a special treat for you today. I brought someone on that is number one, absolutely brilliant in the space. Number two, I've had the just the pleasure of knowing for a long darn time and depending on how this conversation goes, you may get to find out just how long that has been. He's uniquely qualified in this space.
Glenn Gooding [00:01:27]:
I have the pleasure of working with him as well. He's a member of our staff here and the topic we want to talk about today is Unleash the Power of Parcel Sourcing Strategies for competitive Advantages. My goodness, that is a big title. Lots of meat on the bone. Frankly, you get Mike and I going, this could be a three hour podcast. But I promise you it won't be. Our goal is at the end of this, we want to leave you with two or three things that you can take on your own and implement make you better, more effective at what you do in your space. So Mike, my friend, we've known each other a while, haven't we?
Mike Johnson [00:02:12]:
Long time, Glenn.
Glenn Gooding [00:02:13]:
Long time and welcome by the way. It's good to have you on. I've been looking forward to this.
Mike Johnson [00:02:17]:
Me too. Thank you for having me.
Glenn Gooding [00:02:19]:
So I know all about you. The audience knows not a darn thing about you outside of your stunning good looks in that white hair.
Mike Johnson [00:02:26]:
Yes.
Glenn Gooding [00:02:27]:
So tell me about yourself.
Mike Johnson [00:02:30]:
So for those of you that are familiar with Glenn, I do have a background similar to him. I grew up with the background in UPS. I started there in the early 90s while I was going to school at the University of Washington, was a part time employee, part time supervisor, worked through the hub rotations. When I graduated from University of Washington, I went on as a full time industrial engineer, went through a number of rotations in the IE department and operations, and then eventually relocated out to the corporate office in Atlanta in 2000, where I went through the strategic accounts group and pricing. And then my career took a real interesting turn about 2005, and I got a chance to work in an interesting part of UPS in kind of a department that works and looks at emerging technologies and strategies. And I did that for close to five years, and it gave me a real unique perspective to kind of balance some of the things I had learned up until that point along the road of pricing and revenue management. Then I came back and did some more work in revenue management and finished in special pricing until I came to iDrive in 2018. So kind of a diverse background mixed with operator, industrial engineer, some strategy, some marketing, and some product development.
Mike Johnson [00:03:59]:
Yeah.
Glenn Gooding [00:04:00]:
So parcel sourcing, Mike, this is something that you and I do day in, day out. Meaty topic is your expertise to kick things off, you know, I think to lay the foundation for our listeners.
Mike Johnson [00:04:15]:
Yeah.
Glenn Gooding [00:04:16]:
Can you, in your own words, kind of explain what parcel sourcing is? And I think, more importantly, why is it so crucial for businesses in today's shipping environment?
Mike Johnson [00:04:27]:
Yeah. So when I think of parcel sourcing, right, at the simplest level, it's got to be just a real fundamental dissection of what is it you're moving. And you got to make sure you're aligned with the right mode and the right carrier. So, simply stated, right? If you're moving stuff that's going to end up in a mailbox, it needs to be in a postal mode. Right. If you're moving packages going to people's houses, it needs to be going in a package card. If you're moving stuff on a pallet, it needs to be in an LTL mode, so on and so forth. But that oftentimes gets overlooked.
Mike Johnson [00:05:06]:
And that fundamental truth really has to be the guiding principle to start. And then second behind that is the product value. And then that kind of guides the next layer of complexity above and beyond that. And that product value is really important because if you have something that's a T shirt, your shipping mode and carrier is going to be a whole lot different than if it's an iPhone. Right. Same size, different value, different carrier, different speed. So those distinctions make a huge difference.
Glenn Gooding [00:05:38]:
So for the listener, Mike, if I could stop you for a minute, you talked about a lot of different modalities in there. Define small parcel first. What is a small parcel?
Mike Johnson [00:05:49]:
Yeah, so I think a small parcel as what doesn't go in the mailbox and what isn't Going to be on a pallet. I know that sounds silly, but think about what one person can comfortably carry in their hands. So when you go Christmas shopping and you get out of your car and you unload your Christmas presents and walk back into your house, that's small parcel. That's what, that's how I think of it. Now, there's. There's things on the fringe, right. There's some furniture delivery, there's some smaller things. But generally speaking, your trip to the grocery store, your trip to the outlet mall, those sorts of trips are what small parcel at its core is.
Mike Johnson [00:06:26]:
It's packages that one person can handle on their own.
Glenn Gooding [00:06:29]:
Can I challenge you for a minute on one thing? Yeah. So is it possible that something that could be destined for a mailbox, let's say a T shirt in a poly bag?
Mike Johnson [00:06:39]:
Yep.
Glenn Gooding [00:06:40]:
Could that also be defined as a small parcel? Could it move in a small parcel network?
Mike Johnson [00:06:45]:
Yeah, that's a fair point, Glenn. There is a lot of crossover there and there's these workshare programs that you'll see where it moves as part small package and part usps. And some of that is the complexities and the nuances of this emerging or evolving small package market where there's a niche or a fit between something that UPS or FedEx handles and that ultimately maybe the post office has a hand in as well.
Glenn Gooding [00:07:13]:
Okay, so I'm going to bring you back to one of the, I think, initial fundamental pieces of this question. Why is it so crucial for businesses in today's shipping environment to really have a best in class sourcing strategy for small parcel? Why?
Mike Johnson [00:07:32]:
So maybe you've heard the story of the wealthy person that sends their spouse to the exotic car dealership to buy a car and they return home and they've got a great vehicle, but that vehicle went out the door at a quarter of a million dollars and it really should have gone out the door at about 125k. And so the next day they go back as a couple and they not only return the car, but they return the other cars that are leased for that same household. That's what happens in the small parcel market. If you don't keep an eye on things, the carriers will have their way with you if you turn a blind eye.
Glenn Gooding [00:08:13]:
So you say, having their way with you. Is it fair to assume that the small parcel market is the most complex mode in a supply chain?
Mike Johnson [00:08:23]:
Yes, without a doubt, because it is not regulated yet. It is regulated. It's not a monopoly yet. It's a duopoly. And you can get caught up in the slipstream real quick and find yourself miles away from where you want to be.
Glenn Gooding [00:08:40]:
And so when you say carriers having their way with you, is it a fair assumption draw the line that they exploit that complexity to push increases into your supply chain?
Mike Johnson [00:08:53]:
Yeah, 100%. Right. And so the. There's even a simpler example I can give you. If you take a package and walk down to a UPS store and you ship it across the country at list rates, look at what you're going to pay for that package. Now go online and open up an account and then see what you're going to pay for that package. Or ship it under a contract at your work that ships five letters a week and see what that package and then you tell me which one of those is a fair market rate.
Glenn Gooding [00:09:27]:
Hmm, that's an interesting kind of a segue remark you'd mentioned early on you kind of talked about kind of knowing the product you're shipping. Right. For example, the value. Right. An iPhone versus a T shirt as an example. Right. So one could conclude that there's a desired customer experience that should align with the brand or the value of the product. Is that a fair assumption?
Mike Johnson [00:09:56]:
Yes. And certainly it plays in more cases to a higher degree than others, but in some cases it carries a lot of weight. Yes.
Glenn Gooding [00:10:08]:
And so you also mentioned a duopoly and for the listeners, I think what we're talking about there is it's kind of a two carrier game, at least from a historic perspective. It's certainly been a two carrier game. You have the USPS that sits out there, that handles obviously the legacy first class mail now ground advantage kind of the envelopes, the flats, things like that. And also through the workshare programs, the postal aggregators, which is a topic for another day, a lot of the real lightweight per ounce type of shipments. So they play effectively in that role. But other than that, from a door to door, every address in the US perspective, it's always been a UPS FedEx game. Right. That duopoly, what one does the other kind of follow suit.
Glenn Gooding [00:10:57]:
So it's challenging from a sourcing strategy on that front in today's world, there are more options out there, or at least there appear to be. Amazon Logistics, OnTrack, LSO. Right. Crowdsourcing solutions. There's a variety of other options out there. I'm wondering how do businesses determine which carriers best align with their specific needs and their goals? I think it's fair to assume that the paramount goal in this equation is cost. But below cost, how do they determine which carriers to even bring to the table?
Mike Johnson [00:11:42]:
Yeah, sure. So the way I try to describe it to clients is there is a lot to be said for where a business falls and kind of the natural business life cycle of maturity and the gig economy that you mentioned, there's some promise and hope to that, but a lot of that is still just promise and hope. Now I was putting together parts for a JDAM bomb that needs to go to Afghanistan. I'm not going to trust that part to get to Raytheon with a gig economy. But if I was stenciling lacrosse socks in my garage and wanted to ship it to a high school in the same town, that might be a good fit for a gig economy because the value of those lacrosse socks probably is a good fit for that gig economy driver. That's an oversimplification of it. But you have to find where you are generally speaking on that path. And if you are a large or a medium sized business that has established products, you have a website, right.
Mike Johnson [00:12:46]:
You have some skin in the game, you have some sort of an investors that you are held accountable to from a financial returns, you should be doing business with somebody else that has assets. You should not be doing business with somebody that does not have any assets in play. Right. You don't want to an asset based.
Glenn Gooding [00:13:07]:
Carrier versus a non asset based carrier. Correct?
Mike Johnson [00:13:10]:
100%. Now you might go with an asset light provider, right? Somebody like what used to be Pitney Bowes when they existed or a DHL E Commerce. Right. There are hybrid versions of that. But I would never endorse doing business with a gig economy provider who has not an ounce of actual equipment under contract. If you are an established business, that's just a high risk scenario. You're going to want to do business with somebody that's been doing business for 50 years, 100 years.
Glenn Gooding [00:13:40]:
Okay, so let's lay down a fundamental takeaway for the listener here. I think one is, I think anybody listening to this has to come to the realization if you're shipping product to a consumer, you may have the best product, you may have the sexiest brand out there. It may be cutting edge. At the end of the day when you hand it over to the carrier of your choice, the customer perceives your brand based on the delivery experience. That's a fact. And so when we talk about a takeaway here, aligning your desired customer experience, your brand experience with a carrier, that is going to augment that, it's not going to drag it down. That's critical, right? Good Good. So not an easy task.
Glenn Gooding [00:14:43]:
A lot of challenges. Heck, we've helped a lot of clients that have gone through a lot of mistakes. Right, yeah. So what are some common mistakes that companies often make when selecting a personal carrier? And I think better yet, how can they avoid them?
Mike Johnson [00:15:00]:
Yes. So one of the things I like to think of is don't fight city hall. Right. A lot of times you'll hear from clients that the carrier reps unresponsive or you know, well, we've always used them but the service is terrible or the driver doesn't like to pick us up past five or you know, well, if that's the case and nothing's stopping you, then don't use that carrier, send that message. Don't stick with what you've always done just because you've always done it. And if you've ever wanted to get better service, stop using that carrier.
Glenn Gooding [00:15:33]:
So wait, that's an interesting point. So are you telling me that most companies are afraid to make a change?
Mike Johnson [00:15:40]:
Yes, I'm saying that most companies, and some of this we'll talk about, I'm sure later, but technology in a lot of cases prevents companies from making a change. In other cases it's because the three ring binder sitting on the shipping desk out in the warehouse has always said UPS or FedEx and they only have a way to make a label for that carrier because it happens to be a world chip terminal sitting on that platform.
Glenn Gooding [00:16:09]:
Interesting, interesting. So that is a big mistake, isn't it?
Mike Johnson [00:16:12]:
Right, yeah, it says a lot. Unfortunately for with all the advances in technology that there's oftentimes not a lot of attention given to that back end part of the house of a business and it can still be a significant portion of the total expense for the product going out the door. And so for that reason there needs to be a lot of focus on that because in the total life cycle of that product, it can carry a lot of weight.
Glenn Gooding [00:16:38]:
You bet. So curious, Mike, how many times when you help a client and you go out to their website and you experience the shopping cart that they have, or you look at the shipping policy on their website, how many companies do you see that actively market a specific carrier solution?
Mike Johnson [00:16:59]:
Not as often as I would have expected, to be frank. When it is in place, it's crystal clear, right. There's no doubt left in your mind. And a lot of times you can tell that's because then you find out that there's a very strong relationship with that carrier and you'll even find out later on that contractually it's in place and they're integrated from a technology perspective. But in many cases, it's very generic. And even the terms are generic, right? Sometimes there's breadcrumbs, like it might say next day versus overnight or priority, and you can infer that it's FedEx versus UPS. Other times it's very generic, and it simply says one to two days, and you have no idea who the carrier is.
Glenn Gooding [00:17:48]:
But what would you advocate for? What would you advocate for? What's the best practice on that?
Mike Johnson [00:17:52]:
I would advocate that if, in fact, you are in a true partnership with the carrier, you should be proud of it in advertising it, and you should take advantage of it and capitalize on that when you're having negotiations with the carrier. But you should not be giving free advertising to a carrier that you're fighting tooth and nail. If you're dissatisfied with the relationship as.
Glenn Gooding [00:18:14]:
It stands, couldn't that be seen as a potential switching barrier?
Mike Johnson [00:18:19]:
That's exactly the point, Glenn. You should have the flexibility and the adaptability at any point to walk out to your warehouse and say, ship with this carrier instead. Today, you do not want to be bound by restriction on what type of label you can print in your warehouse.
Glenn Gooding [00:18:42]:
You know, an interesting quick story working with a very large shipper who had a heavy supply chain component, small parcel supply chain component, an outbound kit that would have to be populated by a consumer and then sent back. And there was a lot of discussion because they had a heavy reliance on one carrier to a point that it was becoming a liability for them. It was a mistake. And we were talking about how to diversify the sourcing strategy. And what shocked me as I finally drilled into why they were so resistant on even considering a change is they turned and said, glenn, you don't understand. We have millions of copies of marketing print out there in the consumer's hands that says carrier X. We have no control over that. I thought, wow, what a mistake, right? Yeah, what a mistake.
Mike Johnson [00:19:45]:
So I would say from a takeaway perspective here, it sounds to me like what you're saying is, number one, you have to have your house in order to facilitate a carrier change. And what that means is from a technology perspective, you have to have a technology solution that allows you to seamlessly transition and generate a different carrier label 100%. Number two, you need to have a shopping cart experience that doesn't present a reliance on a specific carrier. There may be rare exceptions to that, but in my opinion, you align a desired time in transit to whatever the customer in the shopping cart chooses so that you have the ability quickly to pivot from UPS Next Air to a FedEx priority overnight, as an example. And third, you have to have an operation, you have to have room in your operation to accommodate more than one carrier, right?
Mike Johnson [00:20:50]:
Yes.
Glenn Gooding [00:20:51]:
And then if you have your house in order, as a general procurement strategy, if you've used the last, you know, a single carrier for the last 20 years, the last 15 years, it could be perceived by that carrier that you're a very low risk client. We go back to you saying a carrier having their way with you, imposing increases. The best way to get credibility in the marketplace is to make that change, don't you agree?
Mike Johnson [00:21:20]:
100%. There's no doubt. It has to be done.
Glenn Gooding [00:21:23]:
Good, good. So let's imagine for a minute we're talking about a shipper, an E Commerce shipper, and they do 70% of their business in Q4 peak season, right? The holiday buying and shipping season. What kind of sourcing challenges does a customer like that present when going to market, talking with carriers?
Mike Johnson [00:21:49]:
Well, I think the first general rule of thumb I would make with that type of shipper is that they need to have already an established year round relationship with a primary provider, but they also need to have an ongoing relationship with at least a secondary carrier and hopefully a third provider. In the mix and peak season is the time to leverage those multiple relationships to encourage one or more of the alternate carriers to demonstrate their ability at that point in time to show their performance during that peak period when your primary carrier may be giving you caps on what they can take and allow those other carriers to augment that, and you're leveraging those relationships to your advantage operationally as well as from a pricing perspective. The reality is if you have all your eggs in one basket, you're already going to be faced with peak surcharges and volume caps. So you're going to get hit on both sides of the equation.
Glenn Gooding [00:23:01]:
Those demand surcharges are getting brutal too, aren't they?
Mike Johnson [00:23:04]:
And they're no longer a peak season surcharge, it's a year round demand and a peak season surcharge.
Glenn Gooding [00:23:11]:
Yeah, yeah, it is something else. So if I hear the takeaway from you on managing a client or a supply chain like that that is heavily Q4 oriented, you really have to have a dual sourcing strategy at minimum in play there, Right. To ensure that you have continuity for rate delivery reliability in that time period, right?
Mike Johnson [00:23:35]:
Absolutely. And then each peak season really becomes an opportunity for you to shop your business for the upcoming year. And it's where you're really putting your business at least virtually out to bid. You're telling your primary carrier that how much of your business they can facilitate and help you with is going to dictate whether or not they're going to be awarded the remaining business the other nine months out of the year.
Glenn Gooding [00:24:02]:
So Mike, isn't that easier said than done? I mean anyone, and I'd imagine the listeners on this meeting, what we're doing right now, have lived this. You read a carrier agreement, there's these tricky things called performance language, right? Minimum spend commitments. And when I mean performance language, if it's in the UPS contract, it's a portfolio tier incentive. So you're held accountable to a rolling 52 week average based off of the discounts you get. If you're in the FedEx world, it's an earned discount. Roughly the same methodology, the same application. If you're dual sourcing, aren't you placing your buying power at risk or your performance with those given pricing agreements at risk?
Mike Johnson [00:24:49]:
You're really not, Glenn, only because you've got the benefit or the full value. And in the cases that you use as examples, both UPS and FedEx with UPS to 52 week average. With FedEx, it's an annual number which is the same as a 52 week average. And you're really talking about at most 13 weeks. But if you really carve that down, you're talking about maybe four weeks and now you're talking about a spike of probably two weeks.
Glenn Gooding [00:25:20]:
I see what you're saying. You're saying it's such a small time period that it's not going to move the needle. You have to do it over a protracted amount of time.
Mike Johnson [00:25:29]:
Correct. And along that same vein, Glenn, you have to think operationally as far as the impact of the carriers, you are not really the target client they're worried about. The example you gave me at the beginning, I think you said it was how much of a spike in the fourth quarter?
Glenn Gooding [00:25:46]:
70%.
Mike Johnson [00:25:47]:
70% was a spike in the fourth quarter.
Glenn Gooding [00:25:49]:
That's 70% of the total annual business fourth quarter.
Mike Johnson [00:25:52]:
Right. But if I know that ahead of time, right, that's the key, I can go to the carriers, I can develop a pickup plan. I have that number in advance. The real damage to the carriers are these unknown, unseen, the shippers that are not on their radar that pop up during peak seasons. Those are the ones that cause the chaos. If you are a known shipper with an established relationship, there's operating plans put in place, that is not the concern for the carriers.
Glenn Gooding [00:26:25]:
So that's interesting and it's kind of a segue to, I think another important question, Mike, what you're inferring is you've really got to know your business, right? You've got to know exactly what your trends are, your spend trends. And that's easier said than done as well. So I'm wondering, in your experience, how can data analytics help businesses make smarter and more informed decisions when sourcing parcel carriers?
Mike Johnson [00:26:54]:
So fortunately, despite all the complexities around the pricing, there's always this final bottom line number that like you and most other executives will look to on the sheet, right? It's the total cost per piece or the total cost per pound or whatever that element is that they want to view. And so for the people listening to the podcast, that's the number you have to get to. And if for you it's the cost per package for that given service level, say it's crown commercial, you want to look at that number this year and then you want to compare it to what it was last year and you want to look at that number for your average package if it was £20 and £20 and what has it done year over year.
Glenn Gooding [00:27:39]:
Are there analytics in the marketplace that can help a shipper?
Mike Johnson [00:27:42]:
There's analytics that will help a shipper, but self directed and help are two different things.
Glenn Gooding [00:27:48]:
What do you mean? Tell me more.
Mike Johnson [00:27:50]:
I mean you can lead a horse to water, but you can't make it drink, right? And so we've got great analytics that I drive and we've got some clients that are very adept at using those analytics and highly successful when they take the time and apply themselves. And we've got other clients that we're able to make fantastic decisions when we help guide them through that. But there is not any one solution that you don't have to think or you don't have to do anything that you can simply log in. In other words, what I'm saying is there is no AI solution that does everything for everyone all the time.
Glenn Gooding [00:28:29]:
I couldn't agree more. So there are tools out there, but you have to be a skilled user of said tool to be effective.
Mike Johnson [00:28:39]:
Yes, that's a fair statement.
Glenn Gooding [00:28:41]:
Okay, so you were talking about cost per pound, cost per package. You know, a lot of folks listening on this are probably really skilled and really knowledgeable in some of the other modes that are out there. Truckload less and truckload. I'm wondering put you on the spot here because I know every business is a little different. But in general terms, what are some key KPIs or metrics that a company shipping small parcels should be tracking to evaluate performance and effectiveness of the current carriers?
Mike Johnson [00:29:13]:
I think the two for me that I always boil it down to is whatever your product is in whatever your mode is that your primary method is. So whether it's a 20 foot ocean container or it is an airfreight movement, where it's a full position or it's a price per kilo for that international air freight move, or it is a pallet, it's a lesson truckload move, whatever that is. Right. That position, cost, whatever that is, that cost per unit is an important element. That's number one. And then the other one that's really critical is the on time performance of that. Right. If there's a committed on time performance of that product, those two elements alone really constitute at least two thirds in my mind of what you need to know.
Glenn Gooding [00:30:04]:
Cost per unit and on time performance.
Mike Johnson [00:30:07]:
Yeah, I think those two will get you at least 2/3 of the way there. And you need to know as a business, as a responsible business owner, you need to know those two items.
Glenn Gooding [00:30:17]:
So cost per unit. I'm going to challenge you on that for a minute. That's a tricky wicket in itself. So when you say cost per unit, what I hear is cost per sku. Sku. Oh, so how do you do that? When you have some packages that have one skew in them, others have two, others have three, others have four. So on, how do you measure that?
Mike Johnson [00:30:42]:
Sorry, I may not have been clear, Glenn. I was trying to make it more general for folks in the audience. That may not be small package centric, but what I was trying to do is boil it down. Meaning if you're in the small package world, right, you're going to have a measurement just like your FedEx sales rep or UPS sales rep is going to have what they call a revenue per piece for you. It's going to be a cost per piece. Right.
Glenn Gooding [00:31:11]:
Okay. So per parcel.
Mike Johnson [00:31:13]:
Per parcel. Now, you may internally at your business have a cost per order or a cost per sku, but don't get hung up on that because now you're talking a different language than the sales rep that you're negotiating with. You want to talk in the same language as your sales rep, whether it's the UPS small package sales rep or your LTL freight broker, whatever that language is that they're talking, that's the KPI that you want to focus on.
Glenn Gooding [00:31:43]:
Okay, so cost per Parcel on time performance.
Mike Johnson [00:31:46]:
I think those two Glenn get you 2/3 of the way there.
Glenn Gooding [00:31:50]:
Okay, if you don't mind, I'm going to kind of talk about trends and technologies for a minute. Sure. You already kind of offered some opinion on the buzzword out there, AI, and I agree with you. I don't think this is an algorithmic solution in the small parcel world. Are you aware or what do you think of emerging technologies or tools that might have the biggest impact on parcel sourcing right now? Are there any?
Mike Johnson [00:32:20]:
Yeah, so I think there's been some good advances, generally speaking, where CIOs and CTOs have started to understand that the idea of like a conventional SAP integration where they come in and build something from an ERP perspective that is 100% for your business, is not necessarily utopia. That doesn't work. What you need something is more adaptive that can be scaled and that can talk to other entities and other businesses and can be used between different departments. And it may not be perfect within your business, but it should be able to have interaction between other businesses. And so the example, I'll bring it back to what we started with when we were talking about labels. If you have a transportation management system and a warehouse management system, it may or may not integrate perfectly with your order entry system, and you may wish that it did. But the functionality that's critical for you from a technology perspective is that that person printing that label can at any point in time decide to ship it with FedEx or Lone Star overnight or Ontrack or Amazon. And if that ability is not dependent on your tms, your wms, and they need that ability.
Mike Johnson [00:33:59]:
And likewise, they should have a rate schedule already negotiated and available behind the scenes. And so from a technology perspective, my point being is in the past you would have a shipping module set up in these highly integrated ERP systems that were unique for that business. And it might only contain a shipping module for one carrier. You want to have the flexibility. And I think as the technologies now become more expansive and they're cloud based and you've got the ability to have more selection open to the users, you can simply plug in and say, okay, I want to be able to print something for on track, even though I may only have a handful of shipments formed this year.
Glenn Gooding [00:34:47]:
So I keep hearing you say, want, decide, choose. It sounds to me like you're talking about giving autonomy to the individual that is printing a shipping label. I'm wondering from a technology perspective, is there a way to build out business rules or things that take the decision out of the hands of the person printing the label.
Mike Johnson [00:35:17]:
Yeah, sure. I mean, that's always the fear, right? They don't want to have the ability that somebody can accidentally generate a label that bills an air freight shipment to Tokyo that's going to cost the company $50,000. And I get that you can restrict all that through business rules, but somebody upstairs next to the break room should be able to turn on through their windows with a mouse the ability that afternoon to ship something FedEx home delivery, even though that morning it was grayed out and they couldn't ship home delivery that morning. That's all my point. It's like having the reserve parachute in the back of the plane or the. It's a fire extinguisher behind the piece of glass. Right.
Glenn Gooding [00:36:03]:
So have the contingencies in place. Have the technology.
Mike Johnson [00:36:05]:
Yeah, you gotta have it. Because what happens, Glenn, and we saw this last summer leading up to when UPS finally got the Teamsters negotiation settled a little bit early. Everybody was in panic mode. Hey, we gotta get rates from FedEx. And then they said, well wait a second, can we even ship FedEx? And then they started to say, oh no, we can't. What? And so that's the sort of self discovery that's way too little, way too late.
Glenn Gooding [00:36:31]:
Okay, interesting. So industry trends, man, there's no rest for the weary in here. Let me throw out a few sound bites and then I want to get your thoughts on how those things might affect parcel sourcing strategies going forward. We have the USPS and the Postmaster General talking about effectively eliminating the parcel aggregator market, eliminating pronounced rates, trying to drive business back to ground advantage. We have ups who concluded a massive labor agreement last summer, so they have a tremendous labor cost burden now. And going into 2025, we have an economic slowdown in the US right now. So average daily volumes are down right now. You balance that with the fact that the typical consumer is making more online purchases than they have in the past.
Glenn Gooding [00:37:36]:
So shopping trends are trending away from brick and mortar into online omnichannel type of delivery solutions. And then even to add more to this, we have a longshoreman labor strike right now, shutting down all the ports on the eastern seaboard as well as the Gulf coast, as well as staring down the barrel at 2025 general rate increases. Is that enough noise?
Mike Johnson [00:38:01]:
Yeah, I think there's a lot of meat there.
Glenn Gooding [00:38:03]:
So how do you factor all those types of things in and how do they affect effect? You don't have to get into great specifics, but I'm Trying to build out kind of the malaise of the challenges that are out there. How do you weave those into an effective sourcing strategy today?
Mike Johnson [00:38:23]:
Yes. So what I would say to that, Glenn, is the USPS has been sunsetting itself for at least two decades and will continue to do so. So I wouldn't spend any measure of time looking at them long term as a solution or an investment or fertile ground to plant grass in.
Glenn Gooding [00:38:45]:
But you have to find a home for your 10 ounce t shirt and.
Mike Johnson [00:38:49]:
A poly bag and that's okay. And maybe that's a short term solution, but I guess the industry will sprout an alternative. But in terms of that producing or changing or influencing what FedEx or UPS does, I just don't see it. There will unfortunately be some fallout to, you know, a stamps.com and will. We've seen the fallout with busy bows. Right. We've seen what happens when the post office makes those types of decisions. And maybe UPS has to follow and do what FedEx does.
Mike Johnson [00:39:23]:
Right. What happens to mail innovations? I don't know the short answer to that. There will always be some sort of fit to your point for an 8 ounce flat. And it may not always be from the pickup point with the USPS to delivery by the usps.
Glenn Gooding [00:39:39]:
So given what we know, all of what I laid out there is out of control of the shipper. Right? It's the market increases, complexity, challenges things. So how do those influence the sourcing strategy for a shipper?
Mike Johnson [00:39:58]:
So the first piece to that puzzle, it kind of goes back to one of the things you asked me about earlier. But you got to get a handle on your data and your contracts to start.
Glenn Gooding [00:40:10]:
So back to analytics and expertise.
Mike Johnson [00:40:14]:
Yeah, you got to know where you are in the woods.
Glenn Gooding [00:40:16]:
Right.
Mike Johnson [00:40:16]:
You got to get your compass, you got to know where you are. And if you don't know where you are, you have no idea where you have to go. And so you'd be shocked to find out that a lot of companies don't even know what contract they're operating under today.
Glenn Gooding [00:40:32]:
Okay.
Mike Johnson [00:40:33]:
Right.
Glenn Gooding [00:40:33]:
Yep. So, Mike, what you're saying there partly would lead, I think, a listener to think, well, I've got to get benchmark data, I got to know what a good rate is. And I'm curious, when you went through your background, you talked about a long and diverse background at ups. And so I think in short, we could say, you know, from start to finish, from pickup to delivery, how a parcel moves through a carrier network, because you were there, you measured it, you managed it, you executed on it. And then later you controlled the margin in a revenue management seat, right?
Mike Johnson [00:41:17]:
Yep.
Glenn Gooding [00:41:17]:
So what are your thoughts on benchmarking and are they relevant in a good sourcing strategy going forward?
Mike Johnson [00:41:28]:
I mean, benchmarking is, is bush league, but it's the easy way to get something done in the absence of any knowledge or ability to do anything else. And it's better than not doing something.
Glenn Gooding [00:41:44]:
So to really be good at this, to get best in class, as we're trying to talk about here, it sounds like you need more than that, Is that right?
Mike Johnson [00:41:53]:
Yeah, sure. If you know how the carriers look at a client. And right now a shipper only knows what they hear, which is the driver doesn't like coming by past 5:00 or we can't get there to deliver until after 11 in the morning. They don't know that behind the scenes the revenue per stop is over $150 and it's the most profitable deliveries in the state of Bitcoin. Right. But those are the sorts of things that if you know and can identify, suddenly you can breathe life into a shipper. And they have renewed confidence that when they speak and have a higher level conversation with the person they're discussing their contract with, they can articulate a case as to why they have an expectation for a different set of incentives when a new proposal is put in front of them.
Glenn Gooding [00:42:48]:
So it's about having a good, comprehensive, practical knowledge base of what their parcel looks like in a carrier network. If I hear you saying that right.
Mike Johnson [00:42:58]:
100%, it's both ends of the spectrum. What does it cost and what does it generate from a revenue perspective?
Glenn Gooding [00:43:05]:
You know, the best example I can think of that really illustrates that smacks you right in the face is this category called additional handling. Right.
Mike Johnson [00:43:14]:
Oh, that's a great one.
Glenn Gooding [00:43:16]:
And additional handling for the listener applies to, it's supposed to apply to parcels that can't be safely or reasonably conveyed in a carrier network. They have to be handled uniquely. So that could be dimensionally based, could be weight based, it could be carton based. Right. And the carriers have really exploited that as a revenue opportunity and frankly, it appears they're trying to price it out of their network. And so I'll give you a great example. Historically, additional handling used to apply to parcels that weighed over 70 pounds, weight based. Right.
Glenn Gooding [00:43:54]:
And that seemed pretty reasonable. You don't want a 75 or 80 pounds package coming down a chute into some poor employee and, you know, play virtual bowling with humans. Right. That's a tough one. Yeah, but the carriers move the bar. They moved it to £50. That's interesting to me because you and I both know we've managed those operations. You're not getting done if you're pulling 501 pound packages off the conveyor and handling them manually.
Glenn Gooding [00:44:22]:
Right, right. And then you balance that with what's happening in the marketplace. I think in 2025, the typical additional handling increase is roughly 26%. Yeah, 26%. Get your head around that. That's coupled with the fact that I think the carriers are saying, oh, it's a 5.9. Yeah, interesting from a procurement perspective. So it seems to me that if you have that or have someone, a resource that has that practical knowledge that can bring a fact based, logical argument request to a carrier, you stand a better chance of potentially kind of future proofing your company with the right type of carrier agreement.
Glenn Gooding [00:45:06]:
Fair enough.
Mike Johnson [00:45:07]:
Yeah.
Glenn Gooding [00:45:08]:
Carrier relationships, building them. How important is it to have a good relationship with the carriers you source with?
Mike Johnson [00:45:14]:
Mike, it's probably one of the most important elements that you do control. 100%.
Glenn Gooding [00:45:21]:
How do you foster good relationships with your carriers?
Mike Johnson [00:45:27]:
You maintain credibility with them by being upfront and honest in your intentions, keeping them informed. It doesn't mean you're not a skilled negotiator, it just means that you do what you say and you are fair with them. Now, there's a fine line in all of those actions, but the reality is delivering a message timely and professionally goes a long way. And both carriers are good businesses that try their best to do that even during negotiations. That can be very tense. And so businesses, good businesses, take the emotions out of those sorts of discussions and you can take those events that might otherwise burn bridges and turn them into positives and build up some political capital for a year later or two years later or three years later.
Glenn Gooding [00:46:31]:
Doesn't the door swing both ways when it comes to an optimal relationship with the carrier? Meaning that the. Doesn't the carrier have some burden of responsibility there? And as a shipper, I think there's things you can do to facilitate that. For example, if all you're dealing with are tactical day to day needs and a once every three year negotiation with a carrier, I would contend you're not getting the most out of that relationship. Yeah, right. You should be asking for regular business reviews. There should be an active collaboration of how the two companies, the shipper and the carrier, can work more effectively together, wouldn't you think?
Mike Johnson [00:47:16]:
Yeah. And I think always having the next level of management present is really key because there's naturally going to be a lot of turnover at the account executive level or even at the sales manager level. And so by having that director level position, you'll have a little bit more continuity by nature by having that person present. And in turn you should have somebody a little bit higher at your own organization present in those meetings. But that will go a long way as well.
Glenn Gooding [00:47:48]:
Great. So as we're kind of wrapping up here, I want to, for the listener, I want to make sure you get the crux to this. It sounded to me like as far as takeaways, key takeaways. One is you have to have your internal house in order. You have to have a website, a marketing strategy, a shopping cart strategy, an operation, a technology solution that allows you the flexibility to shift to dual source, to multi source to make changes. You have to have access to good technology that allows you to know your business from a parcel characteristic perspective. You have to have knowledge to understand what a carrier agreement means to you. Right.
Glenn Gooding [00:48:34]:
You have to have knowledge of the macro economic environment, what's happening in the space. And you need to use that to your advantage to position yourself or future proof your company most advantageously. And I think it's really helpful to have someone on staff or someone as a resource that has that Type of comprehensive 360 degree view of the small parcel world. Like someone like you, Mike. Operations, industrial engineering, revenue management. You've been helping shippers for years better procure and align with the right solution out there. And you need to be real cognizant of the fact that the carrier you choose is an extension of your brand. And you need to align the brand experience with the carrier that will best elevate that.
Glenn Gooding [00:49:27]:
Right? Yeah, best amplify that. So given all that in a wrap up, is there one key piece of advice you might give to businesses that are looking to strengthen their parcel sourcing strategies and stay competitive in this ever evolving, ever more complex, ever more expensive small parcel market.
Mike Johnson [00:49:51]:
Well, it's going to sound like an oversimplification, but you need to get somebody that's an expert and whether that's somebody on the outside helping you or somebody on the inside that's an expert. But you need somebody that's an expert and be careful who you think is an expert because there's a lot of people running around that say they are.
Glenn Gooding [00:50:10]:
Great advice, Mike. Mike. I really enjoyed the time. I want to thank all the listeners for sticking with us. I hope we gave you some good meat, some good takeaways. Don't forget you can always reach out to us. You can reach out to me via LinkedIn. You can access our website.
Glenn Gooding [00:50:29]:
We look forward to hearing from you with any questions you might have and if you get lucky, maybe even get Mike Johnson on the other end helping out. Take care.
Glenn Gooding [00:50:44]:
Thanks for listening to Parcel Perspectives hosted by me, Glenn Gooding I've been in the small parcel space for 37 years, starting with a deep and broad background working for one of the major carriers as an operator and industrial engineer, later managing pricing at the highest level for the largest, most complex shippers in the world. Since then I've been a national thought leader and worked to help drive strategy for clients from Fortune 50 companies to startup e commerce businesses, helping them more competitively align in this complex and expensive market. If you enjoyed the show, please subscribe and share with friends. Join us next time for more expert advice and strategies to stay ahead of the shipping game.
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