While many of the changes seem daunting, Hernandez (pictured speaking at right) said it’s still possible to compete by looking at e-commerce from the perspective of the biggest disruptor of all: Amazon.
“Everything we do is getting freer and faster,” he said, noting that Amazon Prime service has conditioned customers to expect items to be shipped within one to two days, domestically, for no extra cost, and even a five-day turnaround for goods shipped between the U.S. and China. “The challenge we have in this age of acceleration is how do you keep up?”
Pitney Bowes, a name long associated with the postage-processing of “snail mail,” has entered the digital age and now processes US$1.7 billion worth of e-commerce, Hernandez said. The company also handles 115 million parcels and 165 million flats each year, and works with major brands, such as eBay’s global shipping program.
One way a traditional company like Pitney Bowes can handle this volume is because it does what Amazon does – use the U.S. Postal Service to its full advantage.
Amazon’s shipping costs per package is just $2.50, on average, Hernandez said, because the majority of the items they ship are handled by the U.S. Postal Service because it’s still, by far, the most efficient way to send packages, with its vast fleet of last-mile deliver trucks. “In fact, 98 percent of all shipments in U.S. are handled by just three carriers: the USPS, FedEx and UPS,” he said.
Citing a survey conducted by Pitney Bowes, Hernandez said customers were asked, in effect, “Do you want your shipments freer or faster?” Three-quarters of the respondents – not surprisingly – chose free. “Consumers in the U.S. and U.K. wanted it free – Amazon has conditioned us,” Hernandez said. “But in some countries, like Mexico, where logistics is not super-reliable, they said they were more focused on getting it there faster.”
In other words, some customers will be content to get “free shipping” with a longer delivery time, while others will accept shipping at a specific cost with a shorter delivery time.
For those with limited budgets, Hernandez suggested that smaller 3PLs embrace what he calls the “toothpick” approach to their business. Find a small piece of the business that would take up no more space than a toothpick on a pie chart of expenses and focus on ways to tackle them in more manageable increments. For instance, packaging. “Most companies spend less than 1 percent of their budget on packaging – maybe $600,000 a year. This is one area where you can have an outsized impact on reducing your transportation costs.”
At Pitney Bowes, Hernandez said the company took the USPS’ idea of flat-rate shipping in a standardized box (“If it fits, it ships,” said the slogan), and “broke that apart.” Instead, they let customers bring in their own boxes that had similar dimensions and charged a flat rate for that. Pitney Bowes also worked with the Dollar Shave Club, which sends high-quality shaving kits by mail. To reduce costs of returns, Dollar Shave Club designed the box it is shipped in to be reused as a return box, saving a bundle on extra packaging costs.
He cautioned, however, that you can’t rely too much on a single carrier to deliver to customers. “Some consumers want it freer, some consumers want it faster. You have to have the right mix of carriers to drive that consumer experience,” he said.
Hernandez quoted another study, this time by Shipware, which looked at various fulfillment operations and found that, for those using just one carrier for shipping, the five-year compound annual growth rate for shipping costs was 15 percent. But for those fulfillment centers that used just two to three different carriers to two locations, the operations saved about $9 million per year. “Amazon has 20 carriers and 34 distribution centers to spread out their shipment costs,” he added.
Other major services that are crucial to stay competitive include an efficient last-mile service, a reliable tracking system and a good returns network. “These are the things you have to do to,” he added
“Amazon is the gold standard,” Hernandez said. “You will always be compared to them.” But if you can provide a reliable service that may be a little slower, he added, “customers will stick with you.”