Which Industries Benefit from Expedited Shipping Services?
A growing number of industries are realizing that expedited services are a good fit for their “normal” supply chains. In many instances, businesses find that the benefits of expedited shipping—lower inventories, special handling, security, personalized attention, and dedicated customer service—can justify the higher costs. Among the industries making regular use of expedited logistics:
The Toyota Motor Corp. pioneered the use of expedited logistics within the auto industry during the 1970s with the introduction of “just-in-time” inventory management. And with an estimated 80,000 unique OEM part numbers introduced each year and an aftermarket inventory of more than four million parts, it’s no wonder the industry continues to rely on guaranteed, premium service. Another factor to consider is the growing number of technology-based parts used in today’s cars. According to MarketWatch, “microprocessors, sensors, cameras, radar and other technologies are being added at exponential levels.” At a time when manufacturers—and repair centers—keep bare bones inventories, often with no more than a few hours of inventory on hand at any given time, expedited, precision service is an integral part of the supply chain. Parts suppliers are increasingly budgeting for higher cost expedited services, operating under the assumption that costs will be borne out by (1) minimizing the risk of a part shortage and (2) lower inventory carrying costs.
The rise of omnichannel has also affected the sale of auto parts, with a growing number of consumers purchasing parts online. This has caused parts manufacturers and suppliers to adjust their supply chains to ensure seamless integration of online and physical store processes. According to reporting by Inbound Logistics, the rise of online sales has forced parts makers to adjust current practices to meet online customers’ service and delivery expectations. “Aftermarket manufacturers must be willing to ship their products the same day or within a few hours, as the omnichannel experience has resulted in ‘always on, always available’ expectations,” the report noted.
A 2017 report by Deloitte predicts strong revenue and earnings growth for the global aerospace sector, driven in large part by the “strong demand for next-generation aircraft and growing passenger traffic, especially in the Asia-Pacific and Middle East regions.” The report notes the industry’s global supply chain faces challenges to meet increasing requirements for capacity, throughput, quality, on-time delivery and pricing. These challenges may result in a transformation within the aerospace supply chain—marked by consolidation of parts suppliers and increased pressure on OEMs to increase productivity and control costs. Specifically, Deloitte predicts the trend to “consolidate by part family” (i.e., components, aerostructures, electronics, interiors, etc.) will likely continue in order to gain economies of scale. OEMs will likely react to manufacturers’ requests for more competitive pricing by asking their suppliers for price concessions, which in turn will lead to leaner inventories and the need for precision-like part replenishment.
As aerospace manufacturers adjust to this “new normal,” a trusted and experienced logistics provider will be essential to ensure critically needed parts arrive on schedule. Failure for a single part to arrive could shut down an entire assembly line. And the part in question could be coming from anywhere in the world, due to the highly exacting and precise nature of the industry. A reliable provider can put the gears in motion, pretty much at the snap of a finger, to move the necessary part and ensure its on-time arrival.
Few shipments require the care and attention—or regulatory compliance—inherent to pharmaceuticals. So it’s no surprise that expedited service is the preferred logistics option for the pharmaceutical industry. But unlike many industries that rely on expedited service, speed is not the overriding goal for pharmaceutical companies—security, product integrity, and regulatory compliance are top priorities. According to the Journal of Commerce (JOC), recent years have seen a significant increase in regulatory oversight of the pharmaceutical industry by the U.S. Food and Drug Administration (FDA). In fact, the FDA considers “transportation” to be part of the manufacturing process, with manufacturers liable for compliance steps taken by their transportation providers.
Pharmaceutical businesses also gravitate toward expedited service because of its high degree of customer service and ability to secure the supply chain. One experienced expeditor told JOC that security is his pharmaceutical customers’ top concern. “A lot of customers will require team drivers on a load that will only go 250 to 300 miles,” he said. “That’s not about hours of service or expediting a shipment, it’s about redundancy and mitigating risk by layering on security.”
Temperature control is another vital concern. So much so that the temperature-controlled sector of the expedited market has increased markedly in recent years. The annual Biopharma Cold Chain Sourcebook, as reported by Pharmaceutical Commerce, notes products that require refrigerated storage and transport are worth roughly $260 billion and that managing the transportation of these products cost $12.6 billion during 2016. Cold-chain costs include shipping and storage, along with customized packaging, including insulated and refrigerated containers. Logistics costs are expected to jump to $16.7 billion by 2020, as the industry continues its trend of biologically based new product introductions while meeting increased regulatory requirements for transporting those shipments.
Another challenge for pharmaceutical businesses is the extremely restrictive environment in which they operate due to regulatory compliance mandates. Cost-saving options available to other industries are often off limits. Of particular concern, for example, is finding better last-mile delivery solutions for temperature-controlled products and ensuring that a logistics provider has adequate monitoring and tracking devices to detect any mid-shipment changes in temperature, light, vibration, or humidity.
Certain retail categories—fashion, consumer products, electronics—are critically dependent on speed to market to ensure on-time introduction of new products, guard against stock outs, and minimize risk of damage or theft. “Keeping shelf incumbency is very competitive for consumer product goods (CPG) companies,” one Ohio-based expeditor said in an Inbound Logistics article. “There’s a lot of competition for space on store shelves, so CPG companies are seeing a need to expedite.” In addition, as Inbound Logistics points out, with retailers generally operating within tight delivery windows, “the additional cost of an expedited service with a guaranteed delivery time can easily offset the cost of chargebacks for missing a delivery promise.”
Fast fashion retailers such as Zara, Forever 21, and H&M also rely on the fast deliveries and high levels of service commensurate with expedited service. Supply chains for these companies usually involve an expedited air cargo solution to move new fashion pieces from Asian manufacturing centers to U.S. retailers. This approach allows brands to renew their collections almost weekly, reports Just-Style industry newsletter. Plus, retailers rely on service providers for extras, including placing items on hangars, labelling, and bagging.
Shelf life is an important consideration for consumer electronics retailers, many of which face a “perfect storm” of sorts—a combination of products that become quickly obsolete and a long Asia-based supply chain. Inbound Logistics discussed the dilemma faced by mobile phone manufacturers, an industry in which a model is generally kept on the shelf for six months before being replaced by a newer model. “If a company transports handsets from the manufacturing site via ocean carrier, those products could spend 10 to 20 percent of their product lifecycle in transit,” the article noted. In an industry in which innovation is king, moving products onto store shelves and into customers’ hands as quickly as possible is critical.
Also critical is the need to go the extra mile to protect against damage and theft. Cargo security firm CargoNet reports electronics shipments valued at more than $42 million were stolen during 2014, at a median per-shipment value of $549,000. In addition to technology-based security investments, shippers are drawn to the faster transit times, reduced touches, and extra personnel generally associated with expedited service which, as Inbound Logistics notes, “inherently enhance security.”
According to the U.S. Census Bureau, eCommerce sales accounted for 8.1 percent of total retail sales during 2016, which was up from 7.3 percent during 2015. According to Internet Retailer, Amazon.com accounted for 65.9 percent of that growth.
There are many reasons for Amazon’s supremacy in the online market: broad product selection, price competitiveness, easy-to-use website, customer service, and favorable returns policy all usually make the list of most preferred attributes. But what generally tops the list are Amazon’s highly flexible delivery options, marked by the two-day “free” shipping service available to Amazon Prime members.
With as many as 65 million Americans reportedly signed up as Amazon Prime members, it’s not surprising that consumer attitudes have changed with regard to what is meant by “fast shipping.” According to Deloitte’s 2016 Holiday Survey, “consumers have redefined fast shipping to be two-day delivery.” During 2015, 63 percent of consumers considered “within 3-4 days” as “fast shipping,” but by 2016, that figured had dropped to just 42 percent. Deloitte’s researchers cited Amazon Prime as a key factor in this change in attitude, as customers have grown to expect options and service inherent to Amazon’s model.
But meeting these expectations has been a challenge for many online retailers who suddenly find themselves tasked with reconfiguring warehouse and inventory strategies and developing logistics solutions to ensure fast, on-time delivery. Many have opted to open more warehouse facilities located near urban areas that are close to end consumers. This generally means an investment in inventory, which can dramatically drive up costs.
Others rely on expedited levels of service that prioritize fast delivery and exceptional last-mile service. In fact, certain logistics providers have developed solutions specifically for eCommerce shipments that offer guaranteed 2- to 3-day delivery but at a lower price point than what is normally associated with expedited service. These logistics providers are able to leverage their courier and parcel services to ensure seamless small package delivery to consumers’ residences and business addresses.
Expedited Services Are A Key to Customer Satisfaction
And as “customer experience” evolves into the key battleground for attracting and retaining customers, expedited service allows a business to distinguish itself from competitors. According to analysis from Forrester Research, as competition continues to heat up for online customers, businesses will have no choice but to invest in better service options as a way to secure customer loyalty.
This tends to be a wise investment since, as Gartner Group research points out, it costs up to 10 times more to lure and win over a new customer than it does to retain an existing one. And a 5 percent increase in customer retention rates can increase profits by 25 percent to 125 percent.
Contact Purolator International: A Leader in Expedited Shipping Solutions
At Purolator International, we specialize in delivering custom, innovative solutions to our customers. Our extensive network across Canada and the United States enables us to deliver time-sensitive shipments, including emergency next-day deliveries.
For more information on the benefits of partnering with our team at Purolator International, contact us online today. We look forward to partnering with you and delivering the top-quality customer service we’re known for.