In its recent Pulse of the Online Shopper survey, UPS found U.S. e-commerce spending grew by 15 percent in 2012 to $186 billion, vastly surpassing the growth rate of traditional retail, and a chunk of this activity is fueled by air freight.
While shippers trading down for cheaper transport options may hit the integrator’s international package revenue, UPS’ freight business seems to be doing well. UPS Freight ended the first six months of the year up 11 percent on the same period in 2012 with revenues of $1.42 billion. Freight ended the second quarter with a gain of 10.8 percent over the previous year’s revenue.
For Kurt Goodwin, senior director of sales and operations at electronics retailer Crutchfield, a newfound dedication to UPS’ air freight services and the realization of what e-commerce are doing at his company, started with television.
In 2007, Crutchfield began seeing steady growth in its TV sales, and the continued ramp up in sales of bigger and better TVs has been propped up by online shoppers. Where before the company was shipping TVs with screen sizes in the smaller range, Goodwin said the company now routinely ships large systems with screens as wide as 84 inches, he said. While these represent a significant sale for Crutchfield — the most expensive televisions, Goodwin said, can retail for $8,000 — moving such a significant piece of equipment is logistically challenging.
Those TVs are a “huge issue from a shipping standpoint — not only because it’s so large, but also because it’s so fragile,” he said.
These goods themselves need to be airlifted to customers, and after working with a variety of carriers that had problems meeting the company’s demands, Crutchfield linked up with UPS in 2011 to try out its three-day service offering. What began as a trial-run of less than 10 shipments a day in the waning months of 2011 had become a system-wide switch by the fall of 2012, just in time for the retailer’s peak season. (Goodwin said one-third of Crutchfield’s business is conducted in the third quarter.)
While Goodwin said these deliveries average out to 2 percent of the shipper’s volume — around 1,400 shipments per month — these are high-value goods that need to be handled with care. It’s a tricky shipping proposition, and it took Crutchfield a bit of time before the company hit on the correct distribution scheme.
Crutchfield’s distribution, in general, follows domestic population centers, so 10 percent of its business is found in California because 10 percent of the nation lives there, Goodwin said.
Goods are sent domestically from the company’s two distribution centers in Charlottesville, Va. Before UPS’ involvement with the shipping process, Goodwin found that customers saw lengthy lead times for their shipments; using a variety of freight carriers, televisions were taking between six and seven days to reach customers. Crutchfield had also seen a rise in damaged goods.
“We literally had to back out of some segments of that business because of damage rates, because of the expense of shipping it; in many cases, there wouldn’t be any margin left to put in the bank after we paid for shipping,” he said.
“We’re a high-service, high-touch business,” he continued, “so we’re not just throwing TVs in a box and shipping them to a customer.”
Before Crutchfield’s TV business started booming, it had only concerned itself with small-parcel shipments through UPS, using the integrator for cargoes weighing less than 150 pounds. In order to get these large pieces of cargo to customers, though, the company had to make some changes to its supply chain. Moving air freight to UPS did represent an increase in costs, but Goodwin said these aren’t passed on to the consumer, as all items are still shipped for free.
“From a cost standpoint, it’s really not costing us that much more to use UPS’ air freight services versus the other carriers’ services we were using,” he said.
For the future, Goodwin said he sees a continued ramp-up of online retailing and continued growth in air freight use for the company that started as a mail-order catalog retailer in the mid-1970s. Crutchfield still generates sales from its catalogs, but the online retail component has become ever more important. E-commerce is also training customers to expect better delivery options than in the past, and Crutchfield has adapted with the times, responding to customers’ needs. Speed to market, he said, is more important than ever, and so air freight will continue to play a major role in the shipper’s plans.
“I just think the customers are going to get more and more demanding with respect to all of their deliveries,” he said. “It’s an e-commerce world we live in, and we’re competing with brick-and-mortar stores like Best Buy, and time to the customer’s doorstep is critical.”
But there is a shipping-speed barrier Crutchfield probably won’t cross. While the company will continue to grow and adapt its shipping policies as needed to get its goods to the consumer in a timely manner, Goodwin said he can’t foresee moving to a same-day or similar delivery model to compete with Amazon. He noted Crutchfield’s customers usually want their goods delivered in time for weekend setup, so a three-day option is perfect for televisions and the other electronics the company sells.
“We’re well aware of what Amazon is doing. In fact, they’re opening a couple of distribution centers right in our backyard in Richmond, Va.,” he said. “We know that that’s taking place. Do we ever see ourselves going to that type of a shipping model? It’s doubtful.”
Crutchfield’s growth linked to air transport
