Xzisu Case Study:

 E-tailer entry into EU market –

creating a distribution network through a RFP

 

 

 

 

 

The project brief

 A US based E-tailer for luxury brands, was ready to make its entrance into the European market. With its logistics distribution network largely set up in the US, setting up the European infrastructure for the company was the next big step in the expansion strategy.

With the support of US-based consultants, studies on the European logistics market in relation to the products and distribution requirements had already been conducted. But even with this preparation on hand and the in-house knowledge of experienced people, the possibilities and limitations of the European logistics playing field remained unclear in many areas.

Being in a relative hurry to enter the European market, the client defined a project ledger containing one main item to investigate: pre-selection of a parcel distribution partner through a Request for Proposal (RFP) process.

With no operational presence on the European continent, the E-tailer was initially advised by its US based consultants to open a third-party operated warehouse in The Netherlands and supply its European customers from there. Since the company was only operational for a short period and operated solely through selling via the Internet without any trading history, detailed sales forecasts were difficult to generate. This resulted in an uneasy feeling within the client about the advice to build up stock in Europe. Before taking the step over the ocean, the client decided to have a feasibility study executed by a European based transport experts. This project would be used as a benchmark on the initial advice and would form the basis for a go or no-go decision of the firm.

 

Challenges of the EU logistics market

The European logistics market consists of a very large numbers of service suppliers ranging from very small (family) companies to huge players. But even within the large pan-European companies the cultural differences between the separate country organisations are more than apparent in the daily operations and commercial approach. So far, no company has yet succeeded in presenting itself convincingly to the customers as a true European company, which crosses the borders of language and culture seamlessly. Although more and more logistics providers operate on a pan-European scale, in reality they maintain their country structures and are generally no more than a cluster of local operations under one central flag. This diversity of cultures offers a big challenge for companies from outside the EU, which aim to set up logistics networks in Europe.

 

Logistics requirements

The client’s main requirements were that the chosen European logistics service provider should have the capability to build a complete transportation partnership with them, focusing on the outbound distribution to European customers (B2C). Furthermore multi-user warehousing facilities should be available, preferable in The Netherlands for customs and tax reasons. The logistics partner should be able to operate as a fiscal representative for the client.

 

 

 The RFP

A wide range of potential candidates were invited for the RFP, amongst which parcel carriers and 3PL’s. 

The fiscal representation in all of Europe presented the major challenge. Representation in the “base” country (The Netherlands in this case, because of the potential location for the European warehouse / cross-dock) was not really a problem, but in other countries it was. This meant that representation would have to be outsourced to a specialist parties or taken up by the client, through opening up local subsidiaries.

All invited candidates were requested to submit the following items in their RFP response:

• Prices for outbound parcel distribution
• Prices for return pick up
• Prices for inbound and outbound airfreight
• Costs for warehousing/x-dock activities
• Costs for fiscal representation
• A completed service capabilities survey
• Free format solution presentations.

 

The result

With RFP concluded it was time for the client to come to decisions. Two day sessions with the short-listed logistics service suppliers were arranged. During these sessions the client presented its plans and discussed requirements and capabilities in detail.

In the ever changing economic environment and all relevant information at hand, the client decided it to be wise not to start distribution to all European countries at once. A step-by-step approach would be beneficial for the company and its customers. It would allow for both the client and its new logistics supplier to get used to the delivery schedules and market circumstances. Furthermore it would allow them to delay setting up an overly expensive logistics infrastructure in a still untested market.

By deciding to start with supplying their main markets in Europe first, being Germany and the United Kingdom, the client allowed itself to benefit from a learning curve. Getting used to their new logistics partner in Europe and building up trading history allowed them to gradually merge into the European business arena. By working closely together with expert business partners, which are familiar and experienced in their fields of business and regions, the client successfully entered the European market and was able to face the challenges of this complex market.

Road Freight RFP - difference between US domestic & pan-European

Part 2

Road freight in the United States and Europe share a lot of similarities, however there are also a number of distinct differences. Companies that operate on both continents need to be aware of these differences when they issue a road-freight RFP. Simply using a copy of the RFP used for the United States to bid out the European freight will not work. This 2-part article will highlight the main differences that you will encounter when bidding out road freight domestically in the US and on a pan-European scale. In part 2, the remaining six differences.

5)      Class driven LTL tariffs versus free format groupage tariffs

Most US LTL carriers still have the National Motor Freight Classification (NMFC) system embedded in their systems. This system is complex and rigid. There are 17 freight classes, ranging from class 50 to class 500. The system bases freight rates on standard classifications rather than on a pricing mechanism that pays for space used on a given piece of equipment. Currently shippers make their decisions based on the (CzarLite) net rate and the related discount.

In Europe Groupage (LTL) prices are based on a space use pricing mechanism. In order to set a price carriers need from their clients (shippers) the width, length, and height of each handling unit. The benefit is that this system creates a much easier and cleaner pricing system for all parties involved. The downside is that there is a wide range of pricing structures floating around as each carrier company is free to add its own nuances to a structure.

In the US a discussion around the NMFC price structure is heating up. Over the years, discounts have evolved and become irrationally high. There is increasing discussion that base rates should be restructured and re-indexed to a level that creates a rational discounting process. Also talk about abandoning the NMFC structure is going on. For the moment not many changes are seen however.

The different price structures, that are used in the US and Europe for LTL/Groupage transport, form a big challenge for most companies when bidding out freight. Setting the right class, discount and/or price structure make a huge difference in having a competitive or un-competitive tariff.

 

6)      Trailer weights – US tare versus  EU country tare

In the United States the cross country tare weight for heavy vehicles is set at 80.000 lbs max. In Europe tare weight is not set on a pan-European level but rather on a country by country level (see table below).

 

 

 

 

 

 

7)      Fuel surcharge based on single source versus many sources

Europe does not have a single European source on which carriers base their fuel surcharges. In most cases fuel surcharges are based on individual country fuel indexes depending on the country where the carrier is located.

In the US the most commonly used index for road fuel surcharges is the Energy Information Administration's National U.S. Average On Highway Diesel Fuel Prices.

As a result it is easier to compare fuel surcharges in the US than it is in Europe. In Europe different factors influence the fuel surcharge.

 

 

8)      Single point of contact versus many points of contact

 

In a country wide national US road RFP you will mostly deal with a single point of contact at the carrier company you invited to participate. This person will be responsible for all contact and all actions related to the RFP for the whole United States.

In Europe this is most of the time a different story. Finding out which person you have to deal with often depends on where the tender is issued, location(s) of the shipper and the shipper’s industry. The larger carriers have implemented tender management groups that cover pan-European or global tenders centrally. But in many cases you will have to find the right person at the right location on country level to deal with your RFP.

 

 

9)      Single language & culture versus many languages & cultures

 

Dealing with pan-European freight tenders is always more challenging than dealing with a domestic US freight tender. In the US the primary business language is English and you deal with a single US culture (with some local State flavours mixed in here and there). Although English is the preferred business language in Europe it is not a given that this applies everywhere. Some countries do better in this respect than others.

When issuing a pan-European tender which involves shipper locations and carrier locations in many different countries, languages and cultural differences become a certain issue to deal with. Being able to communicate in multiple languages is a benefit when you deal with these situations. Also having a good understanding of cultural sensitivities will help you in your project.

 

 

10)      State/Country networks versus Country/pan-European networks

 

In the United States shippers have a choice between carriers offering a national network or carriers offering a regional network (covering a number of States). In Europe this is more or less the same. There are a number of pan-European carriers, covering most of the European countries. Next to that there are many regional carriers covering a single country or a group of countries.

On both sides of the ocean the selection of the right carrier mix (local players versus country/European network players) is important to the success of the RFP. While for instance a pan-European carrier will be able to offer you a single point of handling all your freight, they might not offer the best service, coverage and/or price levels. Local or regional carriers can often offer a better service, coverage and price but have limitations in the geographical range they span.

 

 

 

 

 

 

 

 

Road Freight RFP - difference between US domestic & pan-European

Part 1
 

Road freight in the United States and Europe share a lot of similarities, however there are also a number of distinct differences. Companies that operate on both continents need to be aware of these differences when they issue a road-freight RFP. Simply using a copy of the RFP used for the United States to bid out the European freight will not work. This 2-part article will highlight the main differences that you will encounter when bidding out road freight domestically in the US and on a pan-European scale. In part 1, the first four differences.

Terminology

When creating a list of differences between US domestic and pan-European road freight, it starts with the variations in terminology. The variations are small, but still enough confusion can arise from wrong use. While bidding out road freight through a RFP it is good to know what "language" you must use. So let's start with the terminology:

First what do we consider to be road freight? For us this is LTL or groupage, (Full) Truck Load and Parcel (Ground) transport.

 

 

 

Main differences

 

Besides terminology it is not hard to find many other differences between road freight in the US and in Europe. For example only look as the difference between the appearances of US “long nose” trucks versus European “short nose” trucks. For the purpose of this article we focus on items that are directly relevant to a Request for Proposal process.

1)      State/Federal policies & legislation versus EU/Country policies & legislation

 In the US, local State policies & legislation are mixed with Federal policies & legislation. In Europe a similar situation is seen on a country level, whereby local country policies & legislation are mixed with European Community policies & regulations. US Federal rules are set by the Department of Transportation and EU rules are set by the European Commission for Transport. State rules are set by the State Transportation Department, while European countries have their local rules set by their individual parliaments.

In many cases Federal and EU rules prevail above State or individual country rules. But there are plenty of exceptions, for instance: US Federal truck weight regulations apply only to the Interstate Highway System and to the roads that provide reasonable access to and from that system. Truck weight limits on all other highways and roads are regulated by the States.

 Regulation on driver‘s hours, licences, weight and vehicle length restrictions or non-driving days and times have direct impact on the services that can be offered by carriers. It is good to have a basic understanding of the applicable policies & legislation in relationship to the services you are looking for and the destinations you are shipping to.

 

2)      Toll roads and distance based taxation

Toll roads are mostly handled on a local US State or EU country level. Depending on the trade lane, toll can be part of the cost price for a shipment. In most cases carriers include the toll charges in their base freight. In some cases toll is charges as a separate surcharge.

 

In a number of European countries (Switzerland, Germany, Austria, Czech Republic, Slovakia and Poland) a distance based road tax for heavy vehicles is in place. These taxations fall under country specific regulation and not European regulation. More and more countries in Europe are considering the implementation of a form of distance based tax. In Germany it is called LKW Maut. France is about to implement a so-called EcoTax. In the US this system is not widely rolled out. Only four States impose a distance based tax for heavy vehicles, being: Oregon, New York, Kentucky and New Mexico. Distance based taxes are recouped by carriers through a surcharge or are included into the base freight costs for a shipment.

Another phenomenon we see arise in Europe is that highly congested cities impose a separate congestion tax. London and Stockholm are two prime examples. Tolls and taxations form a fixed cost factor that needs to be taken into account when tendering.

 

3)      Parcel market – limited competition vs. lot of competition

Issuing a parcel tender in the US is a different thing than doing this in Europe. The competitive landscape is completely different on both sides of the ocean. In the United States shippers have a limited choice when it comes to selecting a national parcel carrier. It is UPS, FedEx or USPS. In Europe more choice is available.

On a regional level however we see that more choices are available. In the US we see regional players such as Eastern Connection, Lone Star Overnight, Canpar, OnTrac, Spee-Dee Delivery, US Cargo and others offer reliable parcel delivery services against competitive prices. In Europe regional players such as Hermes (Germany), Seur (Spain) or Decoexsa (Spain) may offer similar reliable and competitive services and prices. Most of the European regional players also hook into pan-European networks as a local partner.

Regional carriers can offer benefits over US national or pan-European carriers. In terms of pick up slots and delivery they can beat the services of the large players. Also on the cost side, regional carriers often offer better prices as they move all their shipments by ground transport rather than using expensive air transport.

Having a clear strategy your carrier pre-selection is always important when issuing a parcel tender. Sometimes you might be forced to use the big players, but when the opportunities are there consider mixing in regional players, you might be pleasantly surprised.

 Also see our informative map on European Parcel and Courier companies:

 http://xzisu.blogspot.nl/2013/05/map-of-european-parcel-networks.html

 

4)      Long distance moves versus short distance moves

According to European Union statistics organisation EuroStat, in Europe, 83% of shipments move a distance less than 1000 KM. Rail transport therefor is less preferred to road transport in Europe. In the United States however, a higher quantity of longer distance moves, warrant rail transport as an alternative to road transport.

Both in the US and Europe road freight is still the most prevalent mode of transport. European governments and the European Commission try to reduce the number of road kilometres by promoting alternatives via rail. The success of this campaign has been limited to date however. In the US on a long distance traffic lane a choice between rail and road can be made easier. However rail road rates are high as limited competition exists and especially the captive shippers are stuck to expensive rail traffic as they have no alternative in road transport.

 

In the second part of this article we will look at the remaining 6 main differences that you may encounter when tendering out road freight in the US or EU.

Map of Asia-Pacific (APAC) Courier & Parcel Express Networks

As in the European market, the APAC market consists of a mix of global Parcel players and local/regional players. The APAC market still is a growth market especially with an increase in e-commerce activities in the region. Competition is fierce, which results to companies offering better services. Continuous service improvements are seen in area's such as: On-time pickup and delivery, reliability, customs clearance, Tracking & Tracing, IT systems and security.

 

 

 

By publishing this map we aim to make the APAC courier & parcel express market a bit more transparent. The names on the map clearly show that there is more out there than the usual suspects (DHL, UPS and FedEx). Where possible the markers on the map indicate the HQ address in the country for the carrier, in other case the market only indicates that a carrier has an operation in the country and it doesnot represent the exact location of the carrier. Our map is a work in progress project (last update 1JUN13) and will be refined further over time. We hope that you find this map usefull and we welcome your feedback on any omissions or corrections that are needed.

Notes to the map:

 

1. Each marker shows per country where a network is operational. A marker only shows a single location which might not necessarily be the exact street address or city of the company but a generic placeholder to show a country location.
2. Some markers may be hidden on first glance. By zooming into the specific country more details will become visible.
3. By clicking a marker a popup will appear showing further information about the network.
4. The information shown in the map is indicative and no rights can be claimed from it.

 

Map of European Courier & Parcel Express Networks

Compared to the United States, the parcel carrier landscape in Europe is still very diverse. A wide range of large and smaller networks operate on the continent. Some networks are fully owned by a single company, others consists of a series of strategic partnerships. After a long period of silence on the merger front we recently saw the attempt of UPS to take over the activities of TNT. Despite the fact that the take over was blocked by the EU Commission for Competition, market insiders have a strong believe that further consolidation in the European parcel market will be seen in the near future.  

The diversity of the European market has always been a blessing and a challenge at the same time. On the one hand the diversity gives the option of choice. On the other hand it is a struggle to find complete information on all players in the market. To date we have found it impossible to locate a single source showing all the European parcel networks. Therefore we have generated our own (first pass) map, showing for each European country which networks operate in the country. The markers on the map only indicate that a carrier has an operation in the country, it doesnot represent the exact location of the carrier. Our map is a work in progress project (last update 6JUN13) and will be refined further over time. We hope that you find this map usefull and we welcome your feedback on any omissions or corrections that are needed.

Notes to the map:

 

1. Each marker shows per country where a network is operational. A marker only shows a single location which is not the exact street address or city of the company but a generic placeholder to show a country location.
2. Some markers may be hidden on first glance. By zooming into the specific country more details will become visible.
3. By clicking a marker a popup will appear showing further information about the network.
4. The information shown in the map is indicative and no rights can be claimed from it.

 

Global Freight Audit & Payment Companies Map

Over the past decade we have seen the Freight Audit & Payment (FAP) industry expand its services on a global basis. The expansion has mainly taken place towards the European market however. But we also see initial expansion to the APAC region. The industry is still dominated by US based companies, but European based companies have also entered the market. In this blog we provide a map of the (physical) global locations of FAP companies.

 

Our FAP companies map is a work in progress project and we would welcome your feedback on any omissions or missing companies. So far, we have not been able to trace a single source for this type of information on the internet, that is why we decided to create this Freight Audit & Payment Company Overview. We hope that it is useful to our readers.

 

For the map we used companies that offer one or more of the following three main Freight Audit & Payment concept:

 

1) Pre-audit = Invoices are audited by the FAP vendor before they are paid to the carriers. This service is mostly offered on a per transaction basis.

 

2) Post-audit = Invoices are audited by the FAP vendor after they are paid to the carriers. This service is mostly offered on a percentage of savings basis.

 

3) Self Billing = Carriers receive a pre-advise from the FAP vendor on how much they can bill and are paid upon sending the correct invoice. This service is mostly offered on a per transaction basis.

 

 

Notes to the map:

 

1) By clicking a pointer further information about the related FAP company is displayed, this includes a link to the website of the company.

2) The location information is based on the published street address of the FAP company.

3) No rights can be claimed from this map.

 


 

 

Check your Freight Auditor’s shipment data – Part 2

Collecting and cleaning historical shipment data is one of the most time consuming tasks in a freight RFP process. It is also one of the most important tasks in the RFP process. Historical shipment data forms the basis or shipment profiles, analysis baselines and modelling. The data is often divided over multiple locations, available in various formats and has a wide range of quality standards. Companies that use a Freight Audit & Payment (FAP) vendor often have an easier job in collecting the data. A FAP vendor can be a single source for actual shipment data and shipment cost. This sounds like an ideal situation, but be careful, there are still many things to look out for.

In this 2 part article we will give you a checklist that you can use to check your auditor’s data (and that of other sources) before you use it for freight RFP’s. Here is part 2 of the checklist.

Check 5 – Data quality

In the data quality checking process you need to review your historical shipment data sets against standardised data tables. It is important to ensure that a number of key data fields are showing 100% harmonized data. For example, make sure that your origin & destination countries are all stored in a harmonized way (Full ISO country name or 2 digit ISO country code). Also ensure that place names are consistently spelled exactly the same way. There are few things  more annoying then running a query across a data set only to find that the result is incomplete due to spelling inconsistencies in the data.

Inconsistent data (e.g. misspelled place names) can lead to big errors in RFP’s. Carriers will be able to tell you how often they have been asked to quote for the same trade lane 8 times because a name was spelled in 8 different ways. If you use a FAP vendor you need to agree on rules and responsibilities when it comes to data quality. What do you accept to be imported in your data set and who is responsible for picking up on the errors? Is your own organisation at fault for providing wrong data in the booking process, is it the carrier who keys it wrong or should the FAP vendor be made responsible for cleaning and harmonizing the data? If you do not figure this out up front it is you (the client) who ends up cleaning a data set when you want to go out to tender.

Check 6 – Missing data

FAP data sets do not always need all details for the Freight Audit process. This means that shipment data might have data gaps. For example, your agreed rate with your carrier may be based on country to country. This means that the carrier invoice for the related shipments will most likely not contain details such as zip/postcode, state or place name. Information that is not relevant to audit the shipment, but it might be essential data for your next RFP project. When you create your shipment profiles, this level of detail could make the difference between getting a competitive quote and a bad quote from your invited carriers.

When you work with a FAP vendor make sure you perform regular checks on missing data. If essential data elements are not captured in the process you need to address this with both the carrier and the FAP vendor. Otherwise you might end up with an incomplete data set. Augmenting the data at the back end of the process is time consuming and at times impossible if you are no longer able to link data sources because of missing data elements.

Check 7 – Oddball data

Oddball data is data that seems out of place in the historical shipment data. For example zero weight fields (weight displayed as “0” or null), or excessive weight (e.g. parcel shipment of 20000 KG). In a data set that comes from a FAP vendor these types of oddball data elements will be present. In the audit process the related shipment costs may have been corrected, but the wrong shipment data is not most of the time. When you download your data to use for a RFP you need build in a validation process or even manually perform a check on these types of oddball data items. If you don’t you may end up using this type of data to e.g. calculate your average parcel weights. Or you end up using the incorrect (weight)data to calculate the shipment costs based on the new carrier quotes leading to incorrect analysis - either overstating the new costs or even more dangerous - understating the new costs. Oddball data can impact your shipment profile and analysis baseline significantly. It may misrepresent your shipment profile to the carriers and/or it may impact your ability to analyse the RFP results.

Check 8 – Cost data split

The more detail the better is the mantra for Freight RFP’s. This is especially true when it comes to the cost data part. The more detail that is available the more analysis tricks can be applied. For a RFP it is preferred to have base freight, discounts, fuel surcharges, all accessorial charges and taxes and duties split as separate items per shipment. In most cases FAP vendors are perfectly capable of delivering data this way. There are a few things to watch out for however.

§  Understand what is included in “freight” – some carriers have a number of costs backed into the base freight cost item. You need to understand what is included and excluded to be able to make an apples for apples comparison.

§  In the rate agreement some carriers may have split the accessorial charges from the base freight, but on the invoice they may present the cost as a lump-sum amount. FAP vendors will be able to audit it this way in most cases, but it will present an issue in the data set. When this happens you need to work with the carrier to ensure that the costs are split as separate items on the invoice. It also happens that FAP vendors log the costs as a lump-sum in the system to lower processing costs. Here you need to accept lower processing costs and a bad data set or accept higher processing cost but better data which may result in better quotes from your carriers.

§   Make sure that you have captured all costs for a shipment. In some case the shipments costs may have been billed across more then one invoice. For example in the case of Ocean freight the actual ocean freight may have been billed separately from the accessorial charges. On the other hand there may also be costs for customs charges that have been billed separately. You need to make decisions on which costs you will include in your baseline. And also make sure you consolidate shipment costs from different invoices to one shipment in you baseline to allow for a correct analysis.

Check 9 – Calculations

Last but not least, check the calculations in your data set. If you have downloaded your data to MS-Excel format it is easy to perform a few quick checks. Especially data coming from a FAP vendor requires some attention. The data set will most likely contain billed and paid cost data and these can differ. You need to ensure you use right data (the paid costs data is mostly the most accurate). In the US paid data is often the source to use, because of the “short pay” process (deduct the over-billed amount from the charged amount when paying the carrier) that is in place. In Europe and APAC however short paying does not apply in most cases. Here billed and paid may be shown different but the paid data may be offset further by a credit note for which a separate invoice line is created. In your data set this can look very confusing and can lead to misrepresentation of data if it is not interpreted is a correct way.  

It is therefore always useful to perform a sense check on your data (did we really spend this amount for Parcel this year?). Besides that, quickly do the following checks to ensure the cost data columns and rows add up correctly:

§  Do base freight plus fuel surcharge plus accessorial charges add up to the total shipment cost?

§  Are you sure that the total shipment cost excludes taxes (VAT)?

§  Do the totals of the individual cost columns add up to the total of the total shipment cost column?

Some conclusions

Freight Audit & Payment companies are a great source of actual historical shipment & cost data. But don’t take things at face value. The quality of the data largely depends on the work you put into it up front. Work with your FAP vendor and your carriers during the FAP process implementation to get the most out of your data. Give clear instructions to your carriers on what data elements and what level of detail you expect to see on the invoice. Also make sure you understand the limitations of your FAP vendor’s database and reporting system. For example, your data requirements may exceed the available data fields in your vendor’s database. During the selection of your FAP vendor you need to get a good idea if your required fields can actually be captured. And even more importantly, if they can be reported on in the way you need.

For FAP vendors checking on data quality besides checking on financial items will become an every greater requirement from clients. The promise of data availability on a single platform is great, but this is only as valuable as the quality of the data in the database.

Most steps in the checklist we presented apply for shipment data coming from all sources by the way, not only data provided by your FAP vendor.