How Packing and Packaging Combined Impact Parcel Spend
Paccurate and Reveel recently formed a partnership to help shippers gain an edge in managing parcel spending to help improve shipping efficiency.
Marc Aliotta (VP of Partnerships at Reveel) hosts James Malley (CEO of Paccurate) and Josh Dunham (CEO of Reveel) to discuss how the new Paccurate-Reveel partnership specifically benefits shippers covering:
- How shippers can eliminate wasted spend
- What packaging has to do with parcel spend management
- The impacts of the 2024 GRI on transportation costs
How Paccurate and Reveel create a feedback loop to combat overspending on parcel shipping?
The partnership acts as a feedback loop to empower shippers to measure, execute, and monitor various factors to combat overspending on parcel shipping and packaging materials. Reveel focuses on providing transparency to shippers with shipping intelligence to manage spend, while Paccurate helps shippers dynamically optimize their box mix and materials, as well as packing to save costs and reduce emissions.
Marc:
Historically, as you can see in this chart, GRI has gone up with FedEx and UPS over the years.
Right now we're at historical highs. It's lower than last year, but that doesn't say too much. As you can see in this chart it's still high by historical standards.
How has Reveel addressed how to deal with the general rate increase?
Josh:
This is a timely question as we're about to sustain these increases here in 2024. The rate increases are something the carriers do every single year. There are a couple of things to note about the increase this year:
The carriers announced 5.9%, and last year it was 6.9%, so it’s down a per cent which is a good thing. But that 5.9% is an average. So that average is the total of all of the services and it's just an average the transportation charge increases. The other thing you need to understand is that this increased amount does not include surcharge increases. So the announcement you get from the carriers, surcharges are excluded from this 5.9% increase. Once you match up surcharges, the increase at least from what we've seen has historically been significantly more than announced.
James:
Somebody asked me earlier this week if Paccurate would be as important if carrier rates go down. I said that doesn't happen, we're talking about something certain to go up, it's just a question of how much. The marquee number that they announce of 5.9% is not what it seems at all.
How can you apply measures to achieve cost reduction in the future?
Mark:
Reveel’s approach to active parcel spend management uses a simple framework:
- Plan
- Measure
- Optimize
- Monitor
It’s a full circle in how you actively manage your parcel shipping and this is where we get to the rinse-and-repeat model mentioned. You're initiating particular activities that you would presume are going to lower your parcel shipping costs in the long run.
Josh:
Monitoring changes or making optimizations in your processes is extremely important to ensure you get the desired result. One unintended consequence-customer story comes to mind; whose marketing team was responsible for finding new boxes, they went out and got new boxes, they didn't talk to the operations team about the boxes they had gotten, they just went out and got the catalogue of the Cadillac of boxes. They were beautiful, they looked good, and they came to find out after the operations team was monitoring those new boxes significantly increased their dimensional weight, and in some instances caused them to incur an additional handling fee they weren't incurring before. So without the ability to monitor that you were getting the intended results, you're just kind of in the dark.
James:
As an industry, we didn't used to have to think about this stuff. There's always kind of been an awareness that everything's connected, but with the way costs have been rising even post-pandemic, we see people slowly starting to realize that there's a throughline between all this stuff. Just a couple of weeks ago, the packaging folks at one customer had swapped out a mailer for a poly bag, and then it wasn't until months later they realized they were getting an additional handling charge because they didn't talk to the ops people. So this workflow and this methodology is based on trying to fix this thing we’ve been seeing going on for so long that really can't continue.
Why did Paccurate and Reveel develop this partnership?
Marc:
Reveel analyzes the invoices as they're flowing in from the carriers to identify certain cost areas we could attack, one of those being dimensional weight. If we're going to attack dimensional weight, there are going to be two ways to approach this. Reveel has a historical approach where you could attack the dimensional weight factor with what you have negotiated with the carriers etc, and then there's the operational efficiency approach with Paccurate. This is why we're excited about this partnership with Paccurate and Reveel because there's a path here with a parcel shipper where we could concede on dimensional weight and start focusing on some other levers within the contract to optimize.
Josh:
The big point is this partnership allows shippers out there to have a closed feedback loop to be able to plan, measure, optimize, and then monitor.
Now if I think about this from a tactical perspective on the procurement or negotiation side. I think about it in terms of negotiation capital. When you go to the carrier, there's only so much that you can go to the carrier for, in a negotiation for better rates. When you look at going to the carrier asking for an increase in your dimensional divisor, the carriers will only give you that to a certain point. After that, it becomes extremely difficult to get the carriers to move anymore.
When Reveel look at the data when advising customers if we look at the carrier data in a silo we have no idea what's in the box and if it’s packaged efficiently or not. Yet, our analytics will essentially optimize a dimensional divisor for what we're seeing in the data.
Now why that's important because for us to get an increased dimensional advisor, we might have to give up a discount in another area because the boxes may not be packed efficiently. So you can use Paccurate to optimize the boxes, and in so doing you can optimize your dim divisor, and then further optimize your contract because you can go get the other discounts in certain areas and not have to give up discounts in the other areas.
James:
To add, I don't want to claim that we can tell the future but I do think that dim factors are going to play a much bigger role going forward. There's a little creativity with this general rate increase in terms of where they are applying pressure. However, how densely the carriers’ trucks are packed affects their profitability. So get your packaging right, you're going to pay less, you might think that the carriers would hate that but they're getting a net positive of being more profitable. Today, that might not make a huge difference at a high level because typically who you're negotiating with is looking to maximize revenue for the carriers, and it's their bosses that care about profitability. But I think that might change as these models get a little bit more sophisticated even just to help them keep up with some of their net zero goals i.e. using fewer trucks over time, things like that.
Can you share examples of cost savings or efficiency improvements from using Paccurate in Reveel?
James:
It used to be the boxes you bought for shipping were just the cost of doing business. You would try to negotiate with your vendor and if you were a bigger business, you're dealing with Uline or somebody that's got stock boxes. The cost of corrugate spiked frighteningly high during the pandemic. It's come back down now, but it's still higher than it would have been pre-pandemic by any estimate. This is something shippers have to suddenly think about.
3PLs ask how they can stop putting so much packaging out the door and put automation around how they deploy materials like making sure they are not sending boxes that are too big, with too much filler material. Making sure you have the right dimensions of your shipping containers has become important.
With our platform, we've seen around 13% saved corrugate which comes out to an average of approximately one square foot of cardboard per carton, and then there’s film material, which if you're getting pressure to be greener comes at a premium price tag, so up to a 20% reduction in use of crinkle paper or whatever your film material is.
Josh:
The way that our customers have interacted with the app is just to measure, understand the KPI, and understand the impact of things like dimensional weight - if we're talking about that in particular, but then be able to monitor changes, that have been made unintended consequences kind of like the story of the marketing team bringing in new boxes. I mean that was something that was uncovered and or discovered directly through the Reveel app, so it’s really important to be able to do that and then close that feedback loop.
What environmental benefits come from using Paccurate?
James:
Maybe half of our new customers have the environment as their primary concern. Especially Scope-3 emissions, which are the class of emissions that happen outside your four walls like materials used, and carriers you hire to move your stuff around the country or the world - those are Scope-3 emissions. Last year, the SEC put forth some suggestions for how we're going to start reporting requirements for these emissions. This has driven a lot of interest in packaging and being efficient with it. Opening a box and it exploding with styrofoam packing peanuts luckily doesn't happen as much anymore, but paper-based shipping materials still have a footprint.
For every one ton of cardboard produced it puts off three tons of CO2 equivalent, so this is the economies of scale we're dealing with, in the supply chain. This is one of the easiest ways to reduce your carbon footprint. Whether you use something like Paccurate or are just a little bit more thoughtful about what kind of packaging you procure. There are not too many levers really to reduce your footprint because you still have to ship this stuff. We bubble up those KPIs even down to how many trees you might save by changing your packaging or packing in a different kind of SOP.
How does smart packaging benefit parcel delivery overall?
James:
This is both an environmental and a cost issue for all of us. With fewer delivery vehicles in cities, if I was able to snap my fingers and get everybody in the country using Paccurate, we would be using, 14% fewer trucks on the road, and the cities are where those are most concentrated. So in terms of affecting the whole supply chain - that's kind of a moonshot goal of ours. In many ways, this is a non-zero-sum game between shippers and the carriers where there's not a loser when there's more efficiency in the packaging realm.
Josh:
Smart packaging from the parcel spend management side is our direct focus which allows us to optimize better. It allows us to create an optimized agreement to make sure that there is no excess waste in spend. When you think about excess waste, I think about it in kind of two-fold:
The boxes not being packed efficiently creates some sort of waste from an operational perspective.
The boxes not being packed efficiently, creates a waste on the contract side - negotiating a dimensional divisor.
So it is kind of a combination of those two things. Once you get the packaging figured out and optimized, then you can optimize contractually with the carriers.
James:
Just to add, when somebody is interested in PacSimulate - in particular looking to optimize packaging, or at least start doing experiments to understand how mutable their costs are when they use it for that, most of them haven't changed their packaging for parcel shipping in seven to ten years. This is traditionally not something that packaging is looked at reactively to actual costs and shipping activity. This is kind of a new concept that 3PLs in particular seem to be kind of leading the charge here with, but some brands in particular where sustainability is part of their brand in the public space - they're starting to look at it like that.
Josh:
Also, a lot of our customers design the packaging around some of the carrier rules now, and James, I'm sure you're familiar with this because those fees for things like oversized packaging or additional handling can become extremely punitive. The difficulty is that through the years we've seen changes to the carriers’ rule structure around when they assess oversize or when they assess additional handling. So it is something to keep in mind, but a lot of our customers are optimizing around those structures.
As we kick off 2024, what major changes are you guys forecasting to happen that would have the biggest effect on parcel shippers?
Josh:
When you look at where we've come from in parcel spend, we’ve come directly out of COVID. Carriers know during that time when they had capacity almost at an all-time high that it was really difficult to get anything done from a carrier contract side. So what we're seeing now is carriers have loosened up a ton regarding the pricing that they're giving. So now is an excellent, if not probably the best time in years to negotiate. We would expect that trend to continue going into this year.
James:
I can identify a trend that's a little outside the scope of this specific conversation, but box-shaming videos seem to be on the rise. It used to be influencers on social media having unboxing videos, but a lot of people love opening boxes. It's kind of a hilarious genre of social media. The fastest anybody has gotten onto our platform is if they've gotten customer complaints, particularly and maybe from famous people online saying “why did you send me this spatula in a box the size of a microwave? This is ridiculous”. Gen Z in particular are a pretty core part of e-commerce now, and they are naming and shaming left and right.
The general rate increase is more painful than we all thought coming into this, and pressure from people who care about sustainability makes it a confluence of factors coming together to this intersection.
For shippers that utilize both parcel and LTL services, what impact does the parcel negotiation focus have on LTL rates?
Josh:
We see the carriers taking into consideration both parcel and LTL in their carrier contracts. If you're using the same carrier, for example, you can bundle your LTL spend so that it counts for your parcel spend. Then you can get larger parcel discounts as a result of that.
That being said, I think we see fewer companies using FedEx and UPS for freight, and mostly for parcels they’re using exterior LTL carriers. So you know we're not seeing as big of an impact as we used to, by utilizing both parcel and LTL with the same company.
Monitor, Analyze, and Optimize
Parcel spend management isn’t just something you review once. The most efficient shippers are the ones who monitor parcel spend regularly. The best shippers analyze their parcel spending to uncover action items that can optimize packaging and packing to reduce their supply chain costs and waste.
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