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the challenge revisited

June 23, 2011: Tim Kimber, CEO of Plasmart, rides a PlasmaCar in the hall of his office in Ottawa.Dave Chan/The Globe and Mail

How have companies fared since appearing as subjects of our weekly The Challenge series? From time to time, we will follow up to see what's happened since the experts weighed in with advice on the challenges they presented.

Like many small business owners, Tim Kimber always has his eye on shipping costs.

Mr. Kimber is the chief executive officer of Ottawa-based PlaSmart Inc., a decade-old toy distributor known for products such as the PlasmaCar and Fun Slides Carpet Skates. The company's products are manufactured in Asia and Europe, shipped to two locations in the United States (in California and Pennsylvania) and then distributed by ground transportation throughout Canada and the United States.

When PlaSmart was the subject of The Challenge in 2011, increases in shipping expenses had become so costly, they were beginning to eat into PlaSmart's profits.

"Every increase in shipping costs goes right to the bottom line," Mr. Kimber said at the time. "If we don't increase our cost to the customer, then we end up paying for it."

One of the Challenge panel's suggestions was for Mr. Kimber to regularly ask shippers for quotes and let them know that he was "going shopping" for better rates. In the months after the Challenge appeared, that's just what he did.

"We did a complete review of all our carriers, looked at the carriers we were using, trying to consolidate as much as possible," he says. "With our domestic carriers, FedEx, UPS, etc., based on our volumes, we were able to negotiate incremental rate decreases."

It was a process that produced some positive results, Mr. Kimber says, but not as lasting as he had hoped.

"I think we were able to find some significant savings in the process, but as time goes on, [shipping] expenses continue to increase," he says. "Unfortunately, we still see fuel surcharges from most of the major carriers, and they are not going away any time soon."

Overseas container shipping rates went up in 2012, Mr. Kimber says, and domestic shipping rates followed suit as of the start of January.

"Some of the savings [we negotiated] are going to be offset by those increases," he says. "It's an ongoing process."

Another suggestion from the Challenge panel was to deal directly with shipping lines, as opposed to using a freight forwarder – a company that handles every aspect of the shipping process. Mr. Kimber says the company took that advice when it comes to products that are manufactured in Spain; PlaSmart is now dealing directly with a shipping line there, having negotiated better terms.

The company decided to stay with its freight forwarder out of Asia, though, for PlaSmart products manufactured in China and Indonesia. Mr. Kimber says this is because "there is a lot more competition in that market right now, and they're able to negotiate better rates for us as it stands now."

However, he agrees it's a smart move to work with more than one company, and he remains open to changing shippers in future, if the price is right.

"Having more than one carrier to go to helps us keep some competition rather than [carriers] expecting the business," he says. "They know we may ask somebody else for a quote or multiple companies for a quote, and that helps keep them honest."

The Challenge panel also suggested partnering with another company to increase volume and get better shipping rates. However, Mr. Kimber says PlaSmart had tried that tactic in years past with a third party logistics provider (3PL) on the west coast, but the concept didn't work for him.

"The issue with that is the potential liability; who's paying for what?" he asks. "Who's going to fund it? If I'm going to foot a $50,000 transportation bill for somebody every month and they don't pay me, I still have to pay the transportation bill. And that $50,000 that I have tied up in somebody else's transportation – that [money] is better spent on my business, churning out product."

Another move PlaSmart made on its own to shave off shipping costs was to hire an inventory planning specialist to help it evaluate its entire supply chain.

"That's helped us plan our inventory better, so that we can take advantage of some of the slower boats," he says. "You'll get slower service, but on a shipment you can save… $300 to $500 per container if you're willing to wait another seven to 10 days [for the product]."

Mr. Kimber says the past year has taught him that it's essential for the company to evaluate its transportation and logistics costs on a regular basis. PlaSmart is in the process of putting together a request for proposal (RFP) for its two 3PLs in the United States to negotiate for better rates, and he says it will soon need to start the negotiation process with the company's domestic and international carriers.

"Our logistics costs are our biggest costs," he says. "So going through the process, we've saved some money, but what we've learned through the year is we're going to have to do this again, probably [in] January or February."

Though he suspects shipping costs will continue to rise with the price of fuel, Mr. Kimber says he hopes to garner some savings by continuing to shop around.

"We know the areas to focus on now. We know ocean freight is one of our biggest costs. A 1-per-cent savings there could be a $10,000 savings, so we'll go to market again with that. Same with ground – 1 per cent on ground transportation, that's another $10,000."

He adds: "You give me 1 per cent on each of those, I'll have another $20,000 on the bottom line."

PlaSmart has not yet won the shipping battle, but as the company grows, so will the savings, says Mr. Kimber.

"As our volumes continue to grow, and we become a more significant customer to our suppliers, [we'll be] able to leverage that to get better rates."

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