Every week, we will seek out expert advice to help a small- or medium-sized company overcome a key issue it is facing in its business.
The PlasmaCar, a quirky ride-on toy car, has become one popular way for kids to get around.
But while Tim Kimber, chief executive officer of Ottawa-based PlaSmart Inc., distributor of the PlasmaCar, may offer easy transportation for toddlers, getting his products from one destination to another is proving much more difficult.
PlaSmart distributes several toys for toddlers, the PlasmaCar accounting for half of the company’s revenue. It brings its products to North America from Indonesia and China, where they’re manufactured, and then delivers them to stores across Canada and the United States.
But that’s become a costly proposition: Over the last year, domestic and international shipping costs have climbed significantly, and that’s starting to affect PlaSmart’s bottom line.
An exasperated Mr. Kimber likens his plight to the extra charges that send airplane ticket prices skyrocketing. Shippers have begun to pile on numerous additional surcharges. “There’s port handling fees, green taxes, custom charges and fuel increases,” he says.
Domestic shippers have also added extra fees, such as residential delivery charges and oversized carton charges, but it’s rising fuel charges that are really pinching. “Domestic fuel charges started as temporary, but they’ve become permanent and are ever-escalating,” Mr. Kimber says.
After all the additional charges are factored in, the cost of getting toys from their makers in Asia to their sellers in North America has almost doubled in a year, Mr. Kimber says.
Last year, shipping costs ate up 9 per cent of PlaSmart’s $11.2-million in revenues, up from 5 per cent in 2009, according to Mr. Kimber.
Higher fuel and overseas labour costs are part of the problem, but it’s those pesky extra fees – many of which change weekly – that are really hurting PlaSmart, he says. “The increases in 2010 and in 2011 have been dramatic.”
To get his products to Canada, he uses a freight forwarder – a company that handles every aspect of the shipping process. In North America, he ships through United Parcel Service and FedEx. Everyone is raising fees, he says.
Mr. Kimber is trying to reduce his international costs. He’s recently started going direct to shipping lines to bring toys to North America.
While it has cut costs 10 per cent to 30 per cent per container, he has to pre-pay, which reduces cash flow and requires more paperwork. While the savings are attractive, he’s not sure if this is a long-term solution.
Plus, he still has to figure out how to reduce costs with domestic shippers. And he needs to figure it out quickly.
“Every increase in shipping costs goes right to the bottom line,” he says. “If we don’t increase our cost to the customer, then we end up paying for it.”
The challenge: How can PlaSmart rein in its shipping costs?
THE EXPERTS WEIGH IN
Simon Newell, supply chain management partner at Accenture , Ottawa
Going direct to the shipping lines may be an opportunity to take out some additional costs. Some big freight forwarders have additional overhead to run all the different parts of the business. In Canada, it might be more efficient to go direct to a trucking company, for example.
Think about aggregating with other companies. In many cases, there may be less than a truckload of volume. If he can find someone else to fill up that volume, costs will be much more attractive.
Run a transportation tender, not once a year like people used to do, but four times a year. Ask the carrier community to give you the best price. Explain your volume, where you need to ship from and see what people offer. Not only is it strategic sourcing, but you’re also trying to drive the price lower.
Scot Speiser, Kelowna, B.C.-based vice-president of financing and consulting, Business Development Bank of Canada
Volume will always get you a better deal. If he was a $200-million company, his shippers would need and value his business. But since he’s not that big, he might want to consider working with a consolidator who puts like products to similar destinations together. Consolidators help share that shipment cost.
The nice thing about freight forwarders is that they deal with the whole thing. Without them, you may have to deal with duties, letters of credit and other things to make sure everything is covered off. There’s definitely an offset where you’ll need to invest more upfront to really understand how (shipping lines) work. Get the right support.
Keep shipping companies – domestic and international – honest. And the best way to do that is if they know you’re going for quotes elsewhere.
Kevin Smith, founder of Winnipeg-based custom parts manufacturer Smartrend
Pit FedEx, UPS, DHL and other domestic shipping companies against each other. Tell them how many dollars you’ll ship annually, your projected growth in two to three years, and that you’d like to lock in with whoever gives you the best proposal. He could also ship by Canada or U.S. post; it’s the cheapest method to ship in North America. He’d have to extend the lead-to time to his customers, but if he can get them to agree to that, it could cost 50 per cent less.
His pilot project sounds interesting, but consider using a freight forwarder that originates from one destination instead of one that deals with many locations. They’ll have an office in one city and that’s all they ship from. Sometimes those companies are smaller, so they need a smaller margin to survive. The company may be hungrier for business and may treat him as one of their most important customers even though he doesn’t do huge volumes every year.
THREE THINGS PLASMART SHOULD DO NOW:
The more you ship, the cheaper it will be. If you can't fill containers, find another company to partner with, or hire a consolidator to help fill any unused room.
Regularly ask a variety of domestic and international shippers for quotes and let them know you're going shopping. You'll get a better deal if companies know you're looking around.
Find smaller shippers
Consider using a freight forwarder that only deals with one location. The company will know all the ins and outs of operating in that place and it may not need as large a margin as the bigger freight forwarding companies to survive.
Special to The Globe and Mail
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