Ground carriers redefine expedited services to meet new delivery and security demands in a down economy.
Getting the right product to the right customer at the right time is every shipper's cornerstone goal, and it is never easy to do.
When that "right time" component means a time frame of 24 hours or less, it is even harder to pull off. Welcome to the world of expedited ground shipping, where business always operates at breakneck speed and every shipment is high priority.
Expedited ground shippers are a varied lot—from clothing companies trying to get merchandise on store shelves before the next trend hits, to auto parts suppliers sending components for a just-in-time production line, to medical equipment manufacturers shipping high-value machines—and they all depend on expedited ground carriers to deliver effectively under extreme time constraints.
To meet these needs, expedited ground carriers must be prepared to deliver a mix of cargo types and load sizes for an array of customers in myriad locations—all in a flash. "Expedited is a premium service focused on fast, efficient delivery of either time-sensitive, service-critical, or high-value freight," explains Max Pietsch, general manager for Schneider Expedited, Green Bay, Wisc.
"Expedited shipping is an intense business," adds Mike Gannon, president of CRST Van Expedited, the Cedar Rapids, Iowa-based expedited division of CRST International. "On-time performance is measured at a much higher rate in expedited than in standard ground shipping."
And if expedited is intense business in flush economic times, it has become even more so since the so-called Great Recession began. The drop in consumer spending has caused a ripple effect of falling shipment volumes throughout the transportation market, and expedited has not been spared. With lowered demand for products overall, shippers are producing fewer goods and sending fewer loads, leaving carriers to search for ways to fill their trucks.
"The expedited market has been hit like all other trucking markets, and carriers had to work extremely hard to keep trucks loaded this year," says Pietsch.
This can be good news for shippers, however. A competitive environment means the shipper is king. In many cases, they can negotiate fiercely with carriers on rates and services.
"Shippers are pushing carriers to reduce costs and be more competitive because they know there are more trucks than available freight," Pietsch says. "Because of this imbalance, carriers must be competitive on service."
By expanding the definition of expedited to include time-definite services with slightly longer delivery times, carriers are helping shippers strike a balance between cost and service.
"Shippers are looking for a broader range of expedited solutions and services," notes Andrew Clarke, CEO of Panther Expedited Services, an expedited carrier based in Seville, Ohio. "With a two-day time-definite service, for example, a shipment may arrive 12 hours later, but at significant savings."
By adjusting their supply chains to allow for those extra transport hours while still meeting their own customers' demands, shippers can reduce transportation costs without sacrificing service. Examining alternatives to an overnight move is always a good cost-reduction strategy.
"If we look carefully at a shipment's destination, weight, and dimensions, we can often find alternatives: Can the shipment arrive tomorrow by 5 p.m. instead of by noon? How about second day by noon?" Clarke says. "Shippers can save up to 20 percent by switching from one-day to two-day delivery."
CUTTING INVENTORY COSTS
In addition, shippers can use expedited freight as a strategy for reducing overall inventory costs. By moving goods quickly and dependably, manufacturers, retailers, and distributors can keep fewer goods on hand, thereby reducing the cost of holding inventory.
An aerospace manufacturer that embraces the lean inventory philosophy can, for instance, have parts suppliers ship commodities directly to its plant or production line via expedited rather than keeping those parts on the balance sheet as inventory.
"Shippers using expedited are weighing the benefits of paying more to move product quickly against pulling some costs out of the complete supply chain and reducing inventory," Pietsch says.
Ironically, some shippers have come to view expedited ground delivery itself as a cost-saving measure, selecting it over air freight as a way to cope with pared-down transportation budgets. The previously soaring airfreight industry has plummeted since the recession began, and the International Air Transport Association predicts 2009 volume declines of 17 percent. For many shippers, the costs associated with air freight are just not sustainable, especially when they can select more affordable options.
"If shippers can build some time into their supply chain, they can gain better value choosing expedited truck over air freight," says Schneider's Pietsch.
In addition, the cost of not using expedited shipping is sometimes one that companies cannot bear.
"While expedited can be a premium cost, there is also a large cost attached to products not being delivered where they need to be on time," Clarke says. "Think about a manufacturer who needs to ship a load of batteries to a production line to prevent the plant from going down." In this case, the expedited cost is not a luxury, but a necessity.
SEEK TO COMPETE
Shippers going the expedited ground route also gain go-to-market flexibility that offers a competitive advantage.
In the automotive industry, for example, the success of the government's Cash for Clunkers program had many car companies juggling inventory to get the right cars to the right dealerships to meet sudden high demand. Expedited shipping helped fill that need, allowing automakers to take advantage of a time-sensitive sales opportunity. Now, in the wake of the federal program, car companies will again be turning to expedited to help replenish inventories.
"Cash for Clunkers depleted inventories, so automakers are ramping up production to replenish distribution centers and will return to expedited moves," Clarke explains.
For retailers attempting to salvage one of the worst sales years in recent history, getting products to store shelves in time for this year's holiday season is crucial. Many turn to expedited ground shipping to gain the market flexibility they depend on at this time of year.
"Retail shippers are looking for commitments and capacity," says Gannon. "They want expedited carriers to step up because they are hoping for a surge in the fourth quarter, and these lanes have to move 100 percent on-time."
Regardless of how customer friendly and rate sensitive expedited ground carriers are being right now, expedited is still a premium service that carries a premium price tag. As a result, some shippers are examining their overall supply chain and transportation strategies to determine ways to reduce their use of expedited shipping.
While some shippers rely on expedited shipping because their product is time- or security-sensitive and always needs to be delivered as quickly as possible, many companies fall back on expedited transportation as a stop-gap measure when something has failed elsewhere in the supply chain.
Emergency expedited service is certainly dependable, but this type of unplanned transportation expense adds up—and in today's economy, is often not sustainable. Shippers searching for ways to reduce freight costs should heed the "crystal ball theory," says Thomas Phelps, who runs Alloquor Consulting, a Los Angeles-based supply chain process and technology consulting firm.
The theory goes as follows: If a proverbial crystal ball could tell a shipper exactly what customers will order and when they will need those goods delivered, the shipper wouldn't have to use expedited at all. The company could keep the necessary inventory in its warehouse and use a low-cost carrier to move shipments in plenty of time.
Obviously, that crystal ball is not available. "So companies need to ask, How do we get as close as possible to having that crystal ball? What can we do to enhance inventory management? How can we improve purchasing planning so we buy the right products and receive them on time?" Phelps says.
"Companies seeking ways to reduce expedited freight costs shouldn't necessarily start by focusing on transportation itself, but rather look at why they actually need expedited freight," he adds. "The answer is usually poor inventory management.
"Improving inventory management and purchasing management can have a big impact on reducing the need to expedite shipments," Phelps notes.
He cites the example of a sporting goods company that recently reduced expedited freight spending by implementing a material requirements planning (MRP) system, which helps ensure that materials and products are available for production, and plans manufacturing and purchasing activities as well as delivery schedules.
The sporting goods company, which uses contract manufacturers in China and sells its products to major retail stores including Walmart and Sports Authority, used the MRP system to revise inventory management practices and purchasing strategies. By doing so, it was able to minimize dependence on expedited shipping to meet its retailers' delivery requirements. Using a materials purchasing strategy to plan sourcing and cut down on expedited shipping is especially important for companies that source products globally and deal with long lead times.
Global sourcers may also reduce expedited shipping using an enterprise resource planning system that offers an available to promise (ATP) module. Using ATP, shippers can determine if they have the ability to promise customers a specific delivery date.
"A manufacturer, for instance, can tell a customer who is placing an order for 1,000 pieces, 'We can send you 750 pieces by Tuesday and the other 250 by Friday—will that work?' Many times it will prevent the shipper from having to expedite all 1,000 pieces at a later date," Phelps explains. "System improvements can go a long way toward creating that type of customer satisfaction."
Other companies get more creative in finding ways to make expedited shipping work within their budget, notes Phelps. He points to a manufacturer that recently added a team-driver component to its private fleet to enable faster deliveries for time-sensitive clients.
Having two drivers means the truck can often travel from origin to destination without making the time-consuming stops a solo driver would need to make. By using team drivers, this manufacturer was able to ship orders quickly enough from its West Coast distribution center that it no longer needed its East Coast facility.
"The expedited freight and team drivers were more expensive than regular freight, but the expense was far outweighed by the property, labor, and inventory carrying cost savings achieved from shuttering the East Coast warehouse," Phelps explains.
While a team-driver approach may be somewhat unique for shippers, it is at the core of many trucking companies' expedited offerings. Having two drivers in a truck means the trip is less impacted by the Hours of Service requirements, which limit the number of daily hours spent driving and regulate the minimum amount of time drivers must spend resting between shifts. Utilizing a team-driver strategy is one way to achieve the on-time delivery rates—and security expectations—expedited shippers demand.
"From a security standpoint, shippers of high-value goods don't want their product sitting with a solo driver who has to take a 10-hour break; they want to keep freight moving from pickup straight through to delivery," explains Gannon of CRST, which uses team drivers for all its expedited shipments.
Goods do not necessarily have to be high in dollar value to create security concerns for their producers; companies may opt for expedited shipping to preserve valuable intellectual property. "Many companies worry about product falling into the hands of their competitors, and they don't want their goods to be contaminated," Pietsch says.
While shippers may feel more at ease with team-driver solutions in place, they also expect expedited carriers to offer technology solutions that boost security. Most expedited fleets are equipped with satellites and other high-tech tools that enable carriers to track loads and communicate with drivers, ensuring that goods will be delivered safely and have not been tampered with.
Many carriers offer shippers themselves the ability to track and trace loads for additional peace of mind. And, trucks used for expedited routes often contain door sensors and panic buttons in case of a security threat.
"Security requirements are completely shipper-driven," notes Gannon. "Some shippers require their expedited carriers to go above and beyond the norm."
One way to go above and beyond is with geofencing, a technique for monitoring and restricting vehicle movement to a particular area. Many expediters rely on geofencing for sensitive shipments because it allows them to set a specific route that a truck must adhere to.
"We can tell if a truck veers off the set route, which could mean that something has gone wrong," says Panther's Clarke. "Because of the sensitive nature of many expedited loads, shippers sometimes require geofencing for the ultimate in protection."
After all, being the ultimate in protection—both against security threats and for ensuring on-time delivery—is what expedited ground is all about. Even with the collapse of the consumer market that drives the economy and shapes the supply chain, shippers still opt to use expedited ground for their time- and/or security-sensitive cargo.
And, with a little extra work, as well as cooperation from carriers, shippers are finding ways to use expedited transportation without boosting shipping costs or sinking the bottom line.