Spend Leakage Figures
Consider these annual spend leakage figures Sendflex uncovered during a review of a customer’s carrier invoices:
- Address corrections: $352,000
- Residential adjustments: $298,000
- Dimensional weight adjustments: $2,432,000
- Oversize adjustments: $321,000
- Incorrect use of service level: $3,477,000
In this blog, we'll examine these parcel shipping industry trends, analyze the financial implications of hidden surcharges, and reveal how CFOs can leverage parcel orchestration systems to combat spend leakage and protect their bottom line.
Parcel Spend Leakage - More Than a Logistics Problem
While parcel spend leakage may seem like an issue limited to logistics departments, CFOs should be aware that the impacts go far beyond that. In reality, parcel spend leakage is a financial control problem that can have significant consequences for a company's margins and profitability. Unexpected costs that stem from hidden surcharges and accessorial fees eat away at profit margins, making it crucial for financial controllers to recognize the problem and proactively work to resolve it.
To put it into perspective, imagine the cost of raw materials fluctuating wildly without any changes in cost accounting or forecasting. The consequences would be devastating to a company’s stability and would likely result in inaccurate budgeting and forecasting.. Similarly, parcel spend leakage creates a financial blind spot, leaving shippers vulnerable to unanticipated expenses that erode profits.
CFOs must acknowledge that optimizing parcel shipping spend is not merely a logistics issue—it's a crucial financial concern that demands attention from the highest levels of management.
Unexpected Costs That Increase Parcel Spend Leakage
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Historically, companies relied on a single primary parcel carrier to handle their parcel volumes, with minimal rate variance or capacity-related service disruptions. With the boom of e-commerce and an increased reliance on B2C home delivery, however, shippers must now manage a broad portfolio of carriers with different capabilities and rate structures. This makes parcel shipping management more complex than ever. Unexpected costs in the form of surcharges and accessorial fees can dramatically increase overall parcel spend and erode profit margins. The top contributors to parcel spend leakage include:
Address Corrections
Address correction surcharges apply when the address on a parcel package does not match what a carrier’s system determines it should be. They can cost as much as $21.00 per correction for standard package service – and over $100 per correction for express and expedited services. Making matters worse are shippers incurring recurring address corrections for the same delivery address. These surcharges are common and often go unnoticed on carrier invoices, but they are easily avoidable with an intelligent parcel shipping system that utilizes a carrier's unique address validation format to ensure the correct address is printed on shipping labels.
Residential Adjustments
Residential surcharges, which can be as high as $5.80 for ground deliveries, are extra fees levied for deliveries to residential locations. While these charges are largely unavoidable, they should be anticipated and accounted for in the true landed costs of delivery prior to shipping. Advanced parcel shipping systems use location intelligence to correctly determine the type of location, helping shippers plan and budget for residential costs and minimize surprise charges.
Oversize Adjustments
An oversize charge is applied when an individual package exceeds a carrier’s permitted weight or size limits. The specific dimension limits vary by the carrier with surcharges between $95 - $135 per package. Companies can avoid oversize surcharges by splitting larger shipments whenever possible or, when shipping a single large item, accounting for the charges in the final landed costs. Parcel orchestration systems can further minimize these occurrences with embedded business rules that disqualify a carrier service if shipments exceed dimension parameters.