Retailers are offering the most aggressive return policies in history but at what cost. Returns can be a disease, aggressively attacking profit margins, gutting conversion rates, and ultimately threatening your business. In the U.S. alone, Statista estimates return deliveries will cost $550 billion by 2020, 75.2% more than four years prior. Worse, that number doesn’t include restocking expenses nor inventory losses. Nailing down exact numbers on return rates is notoriously difficult, but compiled data from separate sources paints a bleak portrait, especially for online retailers. The fierce competition among online retailers has forced the price margins so low that they cannot support the cost of these return policies.
In response, businesses are adding workers, increasing warehouse space, and establishing separate departments to handle reverse logistics. Returns are the new normal and central to customer experience but they don’t have to be a plague. In fact, how you deal with returns, before and after purchase, can differentiate your brand, create a competitive advantage and even make you more profitable.
Such generous return policies are an invitation for abuse. People are waiting months to return items rendering them useless to the retailer if the item is seasonal. Also, you have people using a particular product and carefully repackaging the item. The ends result is the same; the item is either not available to resell or it is not in sellable condition. Either way your looking at liquidation value for those items.
Some in the industry that created the monster are trying to put it back in its cage. They’re taking baby steps; not providing pre-paid mailing labels, requiring a receipt unless an unwanted item is carried to a store but also threatening to cut off serial returners, the most troublesome of the offenders.
These offenders are indeed a cause for concern among online retailers. Last year, $369 billion in merchandise, or 10% of total retail sales, was returned in the U.S., according to a study by research firm Appriss, up from $260 billion in previous years. The holiday season, of course, is the one to dread in the returns departments. United Parcel Service Inc. expected to handle more than 1 million such packages every day, reaching a peak of 1.9 million on Jan. 2, which would be a 26% increase from the 2019 high point.
How Retailers Are Dealing with Serial Returners
Habitual returners fall into two distinct types:
People who buy items to wear once and have no intention of keeping them afterward. The Wardrober may not be able to afford the item or are taking advantage of overly lenient policies.
The Fitting Roomer
People who replicate the brick-and-mortar experience at home by purchasing different sizes and colors of the same item, pick their favorite, and return the rest.
In late 2018, The Wall Street Journal reported Amazon had begun banning shoppers — i.e., closing their accounts — who “made too many returns.” While extreme, such actions are often necessitated by the first type of habitual returner. Last year, Amazon also unveiled Prime Wardrobe which is free to members but limited to 3-8 items per order with a seven-day window to return before getting charged.
Retailers are now tracking serial returners and threatening harsh action. The bigger problem is the big retailers have made returns far too easy for shoppers. Trying now to pull back on that ease of shopping experience may backfire. It will be interesting to see the changes for the next holiday season.
Eighty-five percent of supply chain managers expect their outsourcing budget to increase by more than 5% in 2020, according to Gartner, Inc. A sizeable portion of that will be aimed at choosing multiple third-party-logistics (3PL) partners.
The question no longer is whether to outsource; it's what to outsource and how much. Evaluating different outsourcing strategies has become a priority for global managers. To be effective, the supply chain outsourcing strategy needs to be aligned with the overall logistics priorities. Supply chain leaders are realizing that updating their technology systems, increasing speed to customer and improving visibility are their most important goals for next year. We are in the thick of the digital era and new routes to market and technology-enabled products and services are rapidly disrupting industries and business models. To respond to these accelerated and evocative changes, logistics leaders need not only understand the foundational elements of good overall strategy, but also rethink how their logistics outsourcing strategy is assessed and developed.
If your organization is considering a 3PL relationship here are several potential benefits to consider:
Improve global capabilities. 3PLs have on-ground knowledge of local markets, regulations and government agencies, and understanding of capacity constraints.
Reduce costs. 3PLs can help reduce excess carrying costs, return goods cost and lost sales. They can also help manufacturers move more material with fewer assets while still meeting customer requirements. In some cases, manufacturers can realize savings when consolidating warehouses and/or using shared facilities operated by 3PLs.
As another year draws to a close it may be useful to review some of your supply chain protocols. A good place to start is a year end freight bill review. Things are a little quieter this time of year and there is plenty of recent data to review. Typically, this is a no cost exercise provided by your 3PL so there is every reason to have the review done. If for no other reason than knowing your fright payment protocols are working.
What is a Freight Invoice Audit?
As a concept, freight invoice auditing is simple to understand. The idea is to make sure you only pay the shipping charges you should, and nothing more. In most cases, software does the hard work. However, some auditing must be done by hand. All this happens once the invoice is received. The carrier only gets paid after it’s determined that the invoice is accurate.
Billing Errors Happen More Than You Think
Shipping charges can make up to 10 percent of a company’s total expenses. It’s not unusual for companies to spend millions or tens of millions of dollars annually to ship their products with trucking companies or parcel carriers like UPS and FedEx. But it’s common for major shipping carriers to overcharge by missing discounts or mis-classification of freight. Pricing in the shipping industry is complex, and in many cases, carriers make mistakes or do not meet service requirements. Billing in today’s logistics environment contains a myriad of charges and discounts, base rates, fuel surcharges and hundreds of accessorial charges. There’s a lot of opportunity for mistakes, and you need to protect yourself. That’s where freight invoice auditing comes in.
At Freight Payment, Inc., a subsidiary of Land Link, freight bill auditing is a big part of our business. Most successful companies know the value associated with utilizing the services of a fully integrated freight bill audit and payment service. More than 80% of well managed companies, with operations in the US currently use and leverage the power of audit and pay solutions. Our solution takes the benefits of standard freight bill audit and payment to an entirely different level.
Celadon Transport, a division of the Celadon group filed for bankruptcy protection this week just days after two former officials were charged in an accounting fraud scheme. The Chapter 11 bankruptcy filing by the Indianapolis based Celadon Group left more than 3,000 drivers jobless and, in many cases, stranded drivers across the U.S. after their company gas cards were cancelled. Another 500 administrative jobs are expected to be eliminated through the bankruptcy.
Celadon's former president and chief operating officer, William Meek, 39, and its former chief financial officer, Bobby Lee Peavler, 40, were indicted on conspiracy and other charges. They knew the value of a substantial portion of Celadon's trucks had declined and that many trucks had serious mechanical issues that made them unattractive to drivers, according to the indictment.
Earlier this year, Celadon agreed to pay $42.2 million to settle securities fraud allegations stemming from falsely reporting profits and assets. The company's stock was trading at less than 3 cents a share on Monday, down from a 52-week high of $2.83 last April 11. Celadon said it was the largest provider of international truckload services in North America, and its bankruptcy filing means 3,300 trucks and 10,000 trailers will stop rolling.
Among the big companies that failed in 2019 are New England Motor Freight, which employed more than 1,400 drivers. HVH Transportation, Falcon Transport and LME have all shuttered operations this year, too. Part of the problem, according to Donald Broughton, principal and managing partner of data firm Broughton Capital, is that spot pricing has dropped, which is hurtful to smaller companies that operate in the spot market instead of the contract market. Spot prices refer to shipping prices as they currently exist.
Trade tariffs, as well as slowdowns in a variety of markets, including housing and auto, contributed to the drop, Broughton had told FOX Business. He predicted companies would continue to fail into 2020 because of the weak pricing environment.
Additional pain for the industry could be coming next year in the form of labor laws designed to protect contracted workers from being misclassified. In California, for example, starting in January a law will go into effect that will make it harder for companies to classify workers as contractors, which the California Trucking Association has said could put 70,000 owner-operators in the state out of work. The group has sued to prevent the law from taking effect.
New Jersey is considering similar presumption-of-employment status legislation, which has caused alarm among the state’s trucking industry, as well.
What Shipper Can Do To Protect Shipments
The thousands of trucks stranded Celadon trucks likely have customers shipments onboard which will not be delivered anytime soon. Getting that freight delivered will likely cost significantly more than the original rate. The most damaging aspect of getting caught in a bankruptcy like this one is that thousands of customers supply chain has been significantly disrupted.
The best way to protect yourself against insolvent and even under achieving carriers is to vette them annually. Review financial statements, credit ratings, customer experiences on social media and verifiable on time percentages. Another option is to employ a 3rd party Logistics Firm to help with routing decisions. At Land Link Traffic Systems carrier vetting is a standard procedure. We take every precaution to route our customers freight with a financially healthy carrier with above average performance.
We have been writing extensively on the topic of the digital supply chain revolution in recent blog posts. Digital transformation is now the overriding priority for most manufacturers and retailers, with the adoption of digital technologies aimed at improving efficiency and effectiveness in the shorter term while providing the opportunity to grow a leaner operational protocol in the future. The focus is definitely on the efficiency of operations relating to technological applications as we enter 2020. The big question is; are you ready? If not, perhaps we can help. Here are some interesting predictions from a reputable international research firm, IDC, which highlights key areas of technological applications regarding the impending digital revolution of the international supply chain.
The change is coming after more than two years of relative quiet from the FMCSA which had been criticized as too aggressive under the Obama administration. The changes are part of a long-awaited modernization of the HOS rules that govern nearly every truck driver on the road.
The adjustments would happen in five areas:
Limited 5G network deployments have begun in some markets in 2019, with widespread rollout expected to take place through the 2020s. The 5G wireless technology promises to accelerate data speeds, improve quality, and reduce latency in the world’s mobile networks all of which means higher performance than today’s broadband wired networks. “5G will be a game changer because it’s 100 times faster and will support 100 times more devices than current 4G networks,” according to the Cellular Telecommunications Industry Association.
What Impact Will 5G Have On Supply Chain Management
The speed of 5G and its ability to handle volumes of data will have a profound affect on supply chain management as well as virtually any industry. The technology is expected to fuel the growth of innovations such as the Internet of Things, ,robotics, and drones in the supply chain. More generally, it promises to trigger a wave of new applications and services that cuts across all industries. Payment gateways will be able to process more transactions at a much faster pace. Document transactions, particularly for international shipments, will be streamlines and sped up and online purchasing will experience a genesis as it all connects wirelessly wit countless devices to clouds of data via more intelligent and dynamic networks. 5G is sure to transform online transactional commerce.
IoT technologies can enhance supply chain management using identity chips, sensors, communication devices, cloud computing networks, and data analytics engines all working together to fuel automation, continuous feedback, and better decision-making. With 5G, billions more IoT devices can be connected to the global network, according to Ericsson, a telecommunications equipment manufacturer.
In warehouses and distribution centers, 5G will allow faster updates and access to more computational power for myriad industrial and warehouse-centric use cases. On the factory floor, 5G networks can help managers better monitor quality, increase speed, respond to supply fluctuations, and simplify workflows.
On the financial side of things 5G networks will provide the needed support for systems like blockchain technology. You may recall from some of our previous articles we see blockchain as a significant technology in international commerce. It will enhance the security of transactions and legitimize all parties involved. A blockchain is, in the simplest of terms, is a time-stamped series of immutable records of data that is managed by a cluster of computers not owned by any single entity. Each of these blocks of data is secured and bound to each other using cryptographic principles. The blockchain network has no central authority. It is the very definition of a democratized system. Since it is a shared and immutable ledger, the information in it is open for anyone and everyone to see. Hence, anything that is built on the blockchain is by its very nature transparent and everyone involved is accountable for their actions.
Lastly, in the retail industry, initially, it’s expected to greatly improve all the things retailers do now with 4G to make money, save money, be more competitive, and offer shoppers superior in-store and online experiences. Then, after a period of maturity, it will open the doors to a whole new age of capabilities. Savvy retailers will utilize high-resolution video, augmented reality, and even virtual reality to differentiate themselves from the competition. A new age of commerce is indeed upon us.
When 5G is widely available, its speed, quality, and lower latency will help realize the promise of many applications already under development, from the Internet of Things and robotics to virtual reality. Many of these innovations simply wouldn’t work well enough at slower data speeds, with lower quality and higher latency. New applications are also expected to emerge, and as with any technology, many will be hard to imagine until 5G is actually in the field. The supply chain is seen as a particularly strong candidate for 5G innovation, including IoT devices for better monitoring, control, and even financing.
The trucking sector is going through a major paradigm shift due to the ongoing digitization of the industry and the increased transparency resulting from the digitization and the launching of a trucking forward and freight futures market. It’s now three-dimensional market comprised of the spot, forward and trucking freight futures markets. As the trucking forward and futures markets gain traction, the three markets will become increasingly more interrelated.
The forward market is being established where shippers place “buy” orders to procure future trucking capacity anywhere from two weeks to six months plus out and carriers place “sell” orders to provide trucking capacity to shippers in the same time frame. As opposed to the existing non-standardized RFP based contract market, forward contracts are binding and based on a standardized contract. They provide guaranteed load volume/trucking capacity and rates to shippers and carriers, and the contract rates can be hedged via trucking freight futures.
Trucking Freight Futures Market
The trucking rate futures market was launched at the end of March 2019 on the Nodal Exchange. The underlying rate, which the futures markets track, are indices produced by DAT and updated daily. There are seven directional lanes and four calculated indices, each with a 16-month series. Trucking freight futures provide a trucking rate volatility hedging tool for trucking carriers, shippers and third-party logistics (3PL) providers, allowing them to lock in a trucking rate today for up to 16-months in the future. What does this mean for trucking carriers, shippers and 3PLs? Due to this increased transparency, trucking rates will become more volatile, will change more frequently and will be increasingly influenced by changes in the trucking forward and freight futures markets. Carriers and shippers will be able to see changes in trucking rates around the country in all three markets on a more “real time” basis, causing rates in their lanes to adjust much faster.
Trucking freight futures provide a very effective way to hedge trucking rate risk, and the forward market provides a hedge to lock in guaranteed rates and load volume and trucking capacity on a multi-month basis. There are also viable cross-market hedging and profiting strategies that can be executed on in conjunction with the trucking forward and futures markets.
The new three-dimensional market provides new ways for market participants to mitigate trucking rate risk, determine trucking rates and pricing and to procure trucking capacity or access load volume. The successful companies in this new market will be those that learn to engineer execution strategies via combined solutions from each of the three markets. Regardless of whether a market participant ever uses binding forward and or trucking freight futures, it will need to stay current on the pricing trends in both the trucking forward and freight futures markets as spot market rates in their lanes will be affected by both.
Technology is spawning hybrid markets in many sectors. The successful logistics planner will be the one who understands these emerging markets. To stay informed on this and many other Logistics topics, subscribe to our blog.
The boom in online stores is increasing the demand for parcel delivery services, particularly in the big cities. New York, Chicago and Los Angeles are experiencing serious traffic issues due to the amount of parcel delivery vans clogging the city streets. Add to this the number of ride share drivers in any metropolitan area daily and it is easy to see how things are getting congested.
Consumers today are spending less time in local stores and more time online, buying not only retail items but also groceries from Peapod, office supplies from Postmates and whatever they need from Amazon. According to the National Capital Region Transportation Planning Board, it’s estimated that, on average, every person in the U.S. generates demand for roughly 60 tons of freight each year. In 2010, the United States Post Service overtook both FedEx and UPS as the largest parcel-delivery service in the country and delivered 3.1 billion packages nationwide. Last year, the USPS delivered more than 5.1 billion packages. The growth in e-commerce is fueling a rise in the number of delivery vehicles box trucks, smaller vans and cars alike on city streets.
While truck traffic currently represents about 7% of urban traffic in American cities, it bears a disproportionate congestion cost of $28 billion, or about 17 percent of the total U.S. congestion costs in wasted hours and gas. Cities, struggling to keep up with the deluge of delivery drivers, are seeing their curb space and streets overtaken by delivery vehicles, to say nothing of the bonus pollution and road wear produced thanks to a deluge of Amazon Prime orders.
The problem, really, is that we now live in a world where the brick-and-mortar stores are only one part of the retail equation and, as many a “retail apocalypse” story is warning, they are a shrinking part. Demand is being driven by people in their individual homes and apartments ordering smaller amounts of goods with higher frequency: groceries one day, several items from Amazon the next. As more goods are ordered, more delivery trucks are dispatched on narrow city streets. Often, the box trucks will double-park in a two-lane street if there’s no loading zone to pull into, snarling traffic behind them.
Many American cities are also playing catch-up as they try to understand these new urban delivery challenges and systems. That’s due in part to the failures of urban planning and the nature of the trucking business. While matters of public policy like public transit, bike lanes and walkability fall within the purview of planning boards and municipal departments of transportation, freight has always been a purely private-sector enterprise. Cities don’t have reliable data on the number of delivery trucks coursing through their streets; let alone planning for them.
Looking For Solutions
Cities can’t just ticket their way out of the delivery-truck problem. For big commercial delivery companies, parking fines are just part of the cost of doing business. UPS paid New York City $18.7 million in parking fines in 2006. In 2011 in Washington, D.C., UPS alone received just shy of 32,000 tickets.
If enhanced enforcement isn’t the answer, diverting delivery traffic might be. Seattle is taking an inventory of all the remaining alley space in the city. Instead of letting developers extend housing lots into the alleys, they might be used to accommodate some of the incoming delivery traffic.
Delivery companies are also experimenting with ways to reduce their impact. Late last year, UPS introduced its first “eBike” deliveries in Portland, Oregon. The goal is twofold: Reduce carbon emissions while putting a delivery vehicle on the road small enough to take advantage of curb space. UPS is also integrating across its U.S. routes its new big-data tool, On-Road Integrated Optimization Navigation (ORION). As a UPS driver travels their route, ORION works in the background considering up to 200,000 possible routes before picking the most optimal route for a driver to take to reduce the overall time spent driving around from delivery to delivery. The next generation is going to be a real-time tool taking traffic into account.
UPS currently uses drones to help drivers in rural delivery locations. It’s unclear how practical drone delivery can be in a metropolitan area considering the risk of personal injury, theft and inaccurate consignee deliveries. The solution to the congestion problem will likely come from many angles over the coming years. We simply were not prepared for the online purchasing boom and have never caught up.
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