Perishable Parcel Shipping: A True Story

By Bob LeGere & Jason Park

The following is a true story. These are real numbers, from a company you’ve likely heard of.

This company ships 1.1 million packages every year.

Their average shipping and handling cost is $18.27 per package.

• $6.95 in 3PL charges (incl. pick-and-pack, storage, and receiving)

• $0.07 for refrigerated inventory transportation to three 3PL locations

• $11.25 for last mile delivery, across two delivery carriers

Their operations director decides to make the following changes:

• They add a fourth 3PL location in a high-cost metro, which increases cost by $0.50 on 34% of their packages. Across all shipments, average cost increases by $0.17.

• Consequently, because they’re now transporting inventory to four locations every month, cost per package increases by $0.02.

• On top of that, they expand to 10 delivery carriers. They lose all their volume discounts, increasing cost per package by $0.59.

Together, these changes increase the cost of every package by $0.78.

Which is an annual cost increase of $858,000.

In most companies, this gets you fired.

However, because these are perishable packages, this gets you promoted.

How could this be possible?

• Adding a fourth 3PL location increases 1-day ground deliveries from 41% to 75% of all packages.

• 1-day ground deliveries require 5 pounds less dry ice than 2+ day deliveries. Across all shipments, coolant costs per package decrease by $0.34 on average.

• Last mile delivery cost further decreases by $1.44 per package. Reducing dry ice reduces the weight of these packages, in addition to shorter delivery distances.

Together, this adds up to $1.78 savings per package.

Which is an annual savings of $1,958,000.

But, it doesn’t stop there. When a perishable package delivers late, it spoils, and the customer receives a refund.

• Because there are now 5X more delivery carriers, for each individual package, there are now up to 5X the chances that one carrier has at least 1% better on-time delivery than the original two carriers. At least.

• This company’s revenue per package is $70. If 1% of packages deliver late, the resulting refund cost is $0.70 per package.

• If 5% of packages deliver late, the cost of refunds is $3.50 per package.

• Not to mention the fact that customers don’t like receiving spoiled product.

Every 1% of packages saved from late delivery reduces $0.70 per order in refund costs.

Which is an annual refund cost reduction of $770,000. For every 1% of packages.

And late delivery rates of 5-10%+ are not uncommon in last mile delivery.

In traditional supply chain, your job is to cut every cost you can.

Understandably, traditional supply chain software is built to cut costs everywhere.

In perishable parcel shipping, lowering the wrong cost increases total cost.

Efficient perishable shipping requires knowing where and when to increase cost.

Both across your entire fulfillment network, and on every individual shipment – because variables like temperatures, weather, and carrier reliability are constantly changing.

This requires making “bad” decisions, from a traditional supply chain perspective.

Which requires an entirely new and unique approach to technology and operations.

This is why we created Coldcart.