How can a parcel audit save my business costs?
Shipping and fulfillment costs represent between 15 to 20 percent of a business’ operational costs, though different industries vary. Hence, due to the sheer volume of parcels sent, small changes can have a big impact on costs. However, it is not just a matter of price but also delivery quality. This is where a parcel audit can assist you as a shipper to both unlock savings and protect your business from rate hikes.
What is a parcel audit?
A parcel audit looks at your shipping statistics, such as total shipping volume data, to gain insights, identify trends and evaluate the performance of your current carriers. You would also be looking at which service levels (Ground, Surepost, Express or Air Services) your business utilized most, how often you had to pay specific charges (additional handing, oversize, large package, address corrections, Saturday and residential delivery surcharges, etc.), as well as the average weight and dimensions of a package. This will enable your business to start forming an action plan to renegotiate rates and discounts with your carriers.
Generally, the parcel audit has several key components:
- Carrier ‘rare and incentive’ compliance
- Carrier agreement audit - correct discount billing
- Accessorial discounts are correctly applied
- Correct dimensional (DIM) divisor applied
- Auditing for billing adjustments
- Invalid address corrections
- Invalid residential delivery surcharges
- Non applicable delivery and remote area surcharges
So, where to begin? How can manager-level executives utilize data they receive from parcel carriers to begin to negotiate contract rates and discounts? The simplest path forward is to investigate and create baselines for discounts through an audit of parcel shipments.
In the following paragraphs, we will address rate compliance, billing adjustment and service efficiency audits as part of the parcel audit.
What is a rate compliance audit?
A rate compliance audit reviews a batch of parcel shipments through a given timeframe and ensures the discounts outlined in the carrier agreements or amendments are properly applied in their shipments. These can range from package details to transportation charges, fuel or accessorial discounts. This ensures you are receiving the deserved discounts across your shipper accounts and the services provided. When you create new accounts within parcel carriers’ networks, these accounts are sometimes not linked to the customer-carrier agreement of an organization. For instance, during the pandemic, a customer of ours with multiple business divisions began shipping directly to their customers from their retail stores. To make this possible, an account # needed to be created for each store that offered eCommerce shipping. However, during the creation of the accounts, the discounts were linked to the incorrect division of the business, causing the customer to be overbilled based on the audit that was performed. The ongoing audit resulted in the customer being credited back approximately $900k over a 2-year period. This results in discounts not being applied across your shipments within this account, accruing lost savings. A parcel rate audit can assist in finding these unlinked accounts and provide an estimate of the missed savings.
When you decide to renew an expiring agreement with a parcel carrier, there are often existing contract terms from the previous agreement that are excluded from the new agreement. For instance, the terms could be a discount on address corrections to custom dimensional divisors used to calculate the billed weight of a package. One example our firm encountered with this includes a specialty service that’s exclusive to the carrier FedEx; a service one of our clients ships heavily with. The client signed an agreement with FedEx and sent over the new agreement to our team and while reviewing the client’s shipments based on this new agreement, we identified shipments under this service not being billed discounts. Before the agreement went into effect, the customer was receiving transportation discounts through this service as the prior agreement had discounts outlined applicable discounts. The ongoing discrepancy caused the client to miss out on approximately $1.95 million in potential savings within a one year span after the agreement went into effect. Our audit assisted the customer in negotiating with the carrier to receive discounts shipped through this service as they began shipping more heavily through this service. After the signing of a new agreement, a parcel rate audit can compare the terms between the original and new agreements and identify any discrepancies.
What is a billing adjustment audit?
The billing adjustment audit reviews any of the carrier’s billing charges and acknowledges if the adjusted charge is applicable. The different types of adjustments range from invalid address corrections to invalid charges related to residential shipping (e.g., residential delivery surcharges). Without the assistance of a rate audit company, the typical user would confirm the changes and pay time in full under the assumption that the carrier’s billing is accurate. Although, there are still instances when a mistake may occur. A billing audit assists in finding these errors.
In addition, the billing audit ensures packages were delivered and not lost within the carrier’s network. You can dispute lost or damaged packages and receive a refund for an undelivered status. Packages are sometimes delivered to the destination but were damaged in transit. These claims are reviewed, and reimbursement is issued when applicable. Without a parcel audit, you could end up paying twice for previously paid invoices. An audit for duplicate invoices or tracking numbers can ensure your business won’t be held to a double billing event.
What is a service efficiency audit?
A service efficiency audit compares a carrier’s explicitly stated delivery timeframes to the actual time it took to deliver a parcel package. If this package is not delivered in the agreed timeframe, you will be able to dispute the charges and receive a refund. Most carriers have service guarantees, but these could be waived in the carrier agreement in lieu of receiving better discounts. During the 2021 peak season, on-time performance shipping ranged between 88% to 97% for top parcel carriers (FedEx, UPS, and the postal service). In 2022, this range improved to 94 to 97%. Although it appears parcel carriers tend to be heavily reliable in time-based shipping, for parcel customers that ship millions in a given year through these carriers for applicable service levels, the savings for a customer that ships $5 million through applicable services could see savings between $250k to $500k.
During the COVID-19 pandemic, the service guarantee was suspended by many carriers due to the increase in package volume. Today, service guarantees are slowly being reinstated, but only for select services from select carriers. Outside of peak shipping periods, shippers only have 15 days from the invoiced date to file for a late package refund (unless extended through a contract negotiation). Peak season is typically between October through mid-January. During this time, late package refunds may not be available to shippers.
Conclusion
Conducting varied parcel audits can assist you in uncovering unrealized savings. The volume of parcel shipments has been growing for many years, a trend that is likely to continue. As the complexity of parcel shipping continues to evolve, changes may need to be implemented to in the process of analyzing your transportation network efficiencies. Working with the right parcel audit people, processes and technology will help your business determine areas of unrealized savings in your carrier agreements.
