Parcel shipping solutions with Paccurate.

The $46 Billion Problem Under Our Noses: Why Parcel Shipping is Ridiculously Unoptimized

When pressed, most eCommerce fulfillment operators will admit that their parcel shipments could likely be packed a little better. The trouble is, they might say, this is only one fire out of a thousand they’re putting out during any given week, and just getting orders out the door is the priority. Suboptimal packing is often seen as just “the cost of doing business.” Besides, how bad can the packing problem really be if people are still buying our stuff online?

It turns out, bad. Really bad. 

A little air or extra fill material in any given carton seems fixable, but most shippers are leaving thousands and in many cases millions of dollars on the warehouse floor by not optimizing their boxes for their unique fulfillment costs. The problem, which is largely underappreciated by most eCom shippers, is two-fold:

  1. Humans are quite bad at judging three-dimensional space at a glance. 
  2. Cubic utilization is not the only metric that matters.

Let’s start with the first issue, which is that spatial reasoning is not an innate talent humans excel at. This is especially true in a fast-paced fulfillment environment. A survey by DS Smith asked eCom execs how much void space they think is in their outgoing cartons, and on average they guessed 25%. A large-scale study of those shipments showed that the truth was closer to 50%, and up to 64% in some product categories. Oops. That’s a lot of spare cardboard and cubic volume, and because most eCommerce shipments are put into floor-loaded trailers, a lot of unnecessary truck trips over time.

Let’s “unpack” the second problem: When a supply chain manager or senior analyst commits to fixing the issue of inefficient packing, they almost never consider the fact that reducing air is only half the battle. 

As may seem perfectly reasonable, our efficiency-seeking hero might turn to a box-making machine or a generic 3D cubing algorithm to “right size” their cartons, hopefully dispatching the air problem with great prejudice. So what’s the issue? The issue is that these strategies myopically focus on shrinking the carton(s) in front of them, and ignore the actual journey that any given shipment might take. The fact is, the speed and distance a shipment takes affect how many boxes it should be split up into. And the major parcel carriers make everyone pay for this mistake.

In practice, this means a multi-item shipment going a few zip codes over from the origin is more forgiving of wasted space but penalizes additional boxes relatively more. Conversely, any air in a longer-distance shipment will generally be more expensive, but splitting it up into multiple boxes will be penalized relatively less. And it gets more convoluted—in addition to distance traveled, FedEx and UPS carrier service types enforce their own special packing incentives.

The result is that whatever savings a shipper might achieve by leveraging legacy cartonization software, they could be saving 20% more by incorporating their unique rates in the equation. With this in mind, it becomes clear that most eCom shippers are well aware that there’s a problem, they mostly just don’t realize the complex nature of it nor how much money could be saved.

So how can the average operation built on standardization possibly be agile enough to navigate the incentives in their rate tables when packing parcel shipments? With a multi-item shipment, a packer (or a box machine for that matter) can’t possibly determine how their complex cost structures inform how a shipment should actually be packed.

This is why we built Paccurate. It’s a real-time cartonization API that not only reduces the average cube of all outgoing parcel shipments but ensures every relevant cost is accounted for in each packing decision. Labor costs, material costs, and even entire negotiated rate tables are analyzed in milliseconds and used to generate packing instructions for those harried humans and/or machines in the warehouse. Now, with the PacSimulate platform, the same cost-optimizing technology can be used to determine which size cartons should be used for shipping in every DC and store.

Hear from James as he chats with Sarah Barnes-Humphrey all about making smarter packing decisions on the Let’s Talk Supply Chain Podcast.

 

About the Author

packing-on-lets-talk-supply-chainWorking in the logistics tech space since 2009, James has helped design a variety of enterprise shipping technology including an award-winning multi-carrier TMS. Since 2015, he’s been evangelizing the use of AI to achieve cost-efficient and environmentally sustainable shipping. Today he’s the CEO and co-founder of Paccurate, a VC-backed AI company that makes parcel shipping more sustainable.

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