This Week in Logistics News (May 5-9, 2014)

By Adrian Gonzalez

I’m on borrowed time this morning, so let’s go straight to the news that caught my attention this week:

The cost of shipping air (small items in large boxes) is getting more expensive, at least for customers of FedEx Ground. The company announced this week that is implementing dimensional weight pricing to all shipments starting January 1, 2015. As the press release states, “Dimensional weight pricing is a common industry practice that sets the transportation price based on package volume — the amount of space a package occupies in relation to its actual weight.”

This change will drive up shipping costs for e-commerce retailers, as this example from a Wall Street Journal article illustrates:

Under FedEx Ground’s current pricing, a one-pound square package with 12-inch sides—which might hold several shirts—would be priced by weight and cost $6.24 to ship the shortest distance.

After the changes, FedEx will use the same calculation it uses for air shipments: the volume of the package divided by 166, a calculation based on the amount of space in the cargo area of a plane.

This way, the same 12-inch box would be priced at $8.83, a 41% increase. If an item is heavier than its “dimensional weight,” the customer will be charged the higher amount.

Analysts predict that UPS and others will likely adopt a similar pricing model.

The change will certainly prompt retailers and other shippers to innovate and optimize their packaging — that is, better match the size of their boxes with the size of the items inside (while still preventing damages during transit). And it will certainly make the next round of contract negotiations even more interesting.

But the bottom line is that regardless of what most consumers believe, shipping is not free. It costs money to transport a package from Point A to Point B, and when it comes to maximizing the utilization of a parcel truck, space is a greater limiting factor than weight, which is why dimensional weight pricing makes sense. Who will bear the added costs? We all will, one way or another.

(An important sidenote, FedEx also announced that FedEx Freight will increase its published fuel surcharge indices by 3 percentage points, effective June 2, 2014.)

On the technology front, Manhattan Associates demonstrated the 2014 release of its Transportation Management Solution (TMS) at its user conference this week. Here are some details from the press release:

A key feature of TMS 2014 is the addition of probabilistic modeling, where shippers can perform a variety of “what-if” scenarios, such as determining optimal freight term assignment. Unlike traditional modeling tools, probabilistic modeling accounts for variability, which can provide more accurate results than simply using averages.

Improved parcel management is also included to address the growing need for direct/drop-shipments among retailers, distributors and manufacturers.

A new, integrated mobile proof of delivery application provides a seamless way to capture consignee signatures and other delivery details within the TMS.

Manhattan TMS 2014 now features the ability to share transportation forecasts with carriers to be more efficient in the placement of transportation assets and improve carrier collaboration.

I wasn’t able to attend the conference this year, but I did speak with Mike Mulqueen, senior director of product management at Manhattan Associates, in a recent episode of Talking Logistics. I encourage you to watch the episode to get Mike’s perspective on the state of transportation management systems, as well as read my key takeaways from the conversation.

I attended Elemica’s reveal 2014 user conference this week, where I gave a keynote presentation on Supply Chain Operating Networks (I’ll share my takeaways from the conference in a future post). At the event, the company announced its new Business Control Tower application. Here are some details from the press release:

Elemica’s new Business Process Control Tower consolidates transactional data across supply chain business partners, from suppliers to carriers to customers. This includes order, invoice, payment, and delivery information, into a single, unified view of enterprise-wide information. Typically supply chain information from trading partners comes in a variety of formats and forms, from Excel spreadsheets, EDI messaging, emails, XML messages, and more, that are difficult to quickly interpret. With Elemica’s new Control Tower, users gain cross-company visibility of descriptive data in a clean, simple, easy-to-understand view.

As I wrote earlier this week, Companies of Tomorrow will have more accurate, timely, and complete supply chain visibility than their competitors. This has been the elusive goal of many companies in the 15+ years that I’ve been researching the market, but I firmly believe that the Supply Chain Operating Network model, even though it’s not a silver bullet, is the way forward in achieving improved supply chain visibility.

Third-party logistics (3PL) providers continue to invest in natural gas trucks and technology. Ryder announced this week that it has entered into a long-term agreement with Quantum Fuel Systems Technologies Worldwide, Inc. “for the purchase and supply of complete compressed natural gas (CNG) fuel systems that will help reduce costs and increase vehicle uptime for businesses that lease CNG trucks from Ryder.” Meanwhile, Penske announced that it has “85 compressed natural gas (CNG) Freightliner Cascadia tractors available for commercial rental use in select markets [including: Southern California, Northern California, Phoenix, Denver, Salt Lake City, Dallas-Fort Worth, Atlanta and Baltimore].”

What’s driving this demand in natural gas vehicles? “An increasing number of customers have expressed a desire to evaluate natural gas vehicles to see if they make sense as part of their overall fleet strategy,” stated Don Mikes, Senior Vice President – Rental, Penske Truck Leasing.

And with that, have a happy weekend — and a Happy Mother’s Day to all you moms!

Song of the Week: “Who We Are” by Switchfoot