In this week's episode of the Digital Supply Chain podcast I had a fascinating conversation with Eduardo Lopez Soriano, the Chief Marketing Officer for UPS Capital.
We discussed the importance of shipping insurance for small and medium businesses, the changes in customer expectations and priorities, and the trends that are contributing to a rise in shipping issues.
Eduardo shared how UPS Capital provides a shipping insurance solution for all carriers, not just UPS, which is different from carrier liability. Insurance can provide SMBs with a safety net for their packages and protect their reputation with end consumers. In addition, claims are much faster, and it’s actually cheaper than carrier liability.
We also discussed the fact that customers want a guarantee of replacement for a damaged package and that 72% of SMBs have received negative reviews due to shipment issues.
Eduardo stressed the importance of insurance for SMBs to compete with larger retailers and to provide a great customer experience.
It was an enlightening and fascinating conversation, and I thank Eduardo for joining me on the podcast today.
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Another trend that we saw is the increase of porch pirates. And when we did more research, both on our own and looking at the other sources, we found that in 2021 there had been 210 million packages that were stolen for purchases in those 12 months. 210 million that, so that number is huge. If you think about it, that is more than one per household in those 12 months in the USTom Raftery:
Good morning, good afternoon, or good evening, wherever you are in the world. This is the Digital Supply Chain podcast, the number one podcast focusing on the digitization of supply chain, and I'm your host, Tom Raftery. Hi, everyone. Welcome to the Digital Supply Chain podcast. My name is Tom Raftery, and before we start, I have some great news. I want to welcome a new supporter of this podcast. Robert Conway, Robert signed up over the last couple of days to support the podcast. Thanks so much for that. Robert much appreciated. If you'd like to become a supporter of this podcast to help me continue creating informative and engaging episodes, simply click on the support link in the show notes, or go to tinyurl.com/dscPod. You can make a small donation starting at just three euros. That's less than the cost of a cup of coffee. But it would really help me with this podcast. Okay. With that out of the way. With me on the show today, I have my special guest Eduardo. Eduardo, welcome to the podcast. Would you like to introduce yourself?Eduardo Lopez Soriano:
Hi Tom. It's great to be here. Yes, so I am Eduardo Lopez Soriano. I am the VP of Marketing for UPS Capital and I have been working for over 25 years in a combination of transportation financial services and consulting. So when I to think about all those experiences, when there was this opportunity to work with UPS Capital, I thought it was a great chance to apply all these lessons learned and come up with insurance services for SMBs.Tom Raftery:
Okay, so let's dig into that a little, because most people know what UPS is, but might not know what UPS Capital is. So can you talk to us a little bit about that?Eduardo Lopez Soriano:
For sure. So UPS Capital is a business unit of UPS, but our focus is to improve customer experience by providing peace of mind during the shipping process. And streamlining the post-purchase experience by having a very efficient claims process. Now we understand how important it is for SMBs to have their reputation protected in the eyes of the end consumers, and we provide those insurance solutions to protect that reputation by again, providing a seamless post-purchase experience.Tom Raftery:
Okay, so how does it work? As in, if I am a shipper using UPS services, for example, is this like a, a tick box on the form, the same way that if I'm buying a plane ticket and I want to offset my carbon footprint, or I want to donate to the UN or something like that, I do a little tick box and it all happens magically in the background. Is it something similar?.Eduardo Lopez Soriano:
Okay, so that is a great question. So let's back up a little bit. So when you think of shipping, insurance and all the flexibility, that it can provide. If you are a merchant, you have the option to decide whether you are gonna pay for the premium or if you're gonna let the end consumer pay for that premium.Tom Raftery:
Mm-hmm.Eduardo Lopez Soriano:
And the way you do it is either you set rules in the backend and you said, Hey, everything that goes out it's going to be insured because you are risk averse. You believe all your packages are valuable. Or you may say, well, let's think about this and only ensure certain packages. And then you may say, Hey, if there is a package that is high value, If there is a package that is fragile, that is perishable, well then I'm gonna ensure those and the others chances are they're gonna be okay. Or based on your experience, you may say, Hey, I've been shipping all these packages with different carriers, and some carriers do great. They have great reliability, no issues with damage or lost packages. But these particular carriers, one or two, hey, their reliability is not as good. I'm having some damage issues, so then I'm gonna insure with those particular carriers. Or even when you look at destinations, there may be that some destinations are more prone to have, let's say, stolen packages than others. So you're gonna insure those that are higher risk. Right? But all that, everything we've said so far is about the merchant deciding based on the risk profile when they're going to ensure. But to your original question, they're also gonna decide whether they are paying, or they're gonna give the option for their consumer to pay. So what they do is they make it part of the path to purchase. They make it part of the checkout card, and then they give the option, the customer is seeing their checkout card and they see that they can insure a particular package, and a lot of them are interested and willing to pay for it. We're talking about 69% of end consumers are thinking about customization and I think it's valuable and a large part of them are willing to pay for it. Now, if the end consumer goes through the path to purchase, go through checkout card and decides, Hey, I'm gonna insure it, great if they decide, mm, okay, I'm not going to insure it but the merchant knows that this is a valuable high risk destination. Everything we described, they can have these backend rules that say, even if the end customers doesn't insure it, I'm gonna still going to insure it just to have a safety net, a backup plan.Tom Raftery:
Impressive. Okay. Nice and. Why? I mean, I know why, but why as in what is likely to happen and is the world not getting safer for, for shipments or how is the trend going?Eduardo Lopez Soriano:
Yeah, so sheez also a great question, right? So, from, from a why perspective, there are one a couple of trends and two we can talk a little bit later about, hey, the difference of what it's default, which is car liability, and then insurance. So let's start the dynamics that are happening in the market. If you think about what happened with volume, specifically e-commerce volume during the pandemic, we all know it went through the roof, right? We were all in our houses. We were all shopping online, and depending on the carrier, some of them had the strength in their network to flex, to be able to handle that additional volume and still provide great service. Some other carriers did not have that flexibility and what that resulted was, well, there's more shipping issues. And the way we saw that in UPS capital was an increase in claims. If we looked at the claims of damaged packages that increased by 78%. When we look at the claims of lost packages, that increased 200%, right? Actually, 100% it doubled. So understandable with all the volume and what we explain about the capacity. Something that you would expect. The very interesting piece though is even now, after we are all out, we're all shopping in the store instead of online. The acceleration of e-commerce has come down, has decelerated. The trend, the high amount of claims has continued. So we did a bunch of research to figure out, hey, what is happening? Why are we getting so much claims? And we found three, maybe four large trends, dynamics that are driving this. So one is the increase of drop ship. And when we asked SMBs, Hey, are you using more drop shipping? 86% of them says yes, yes we are. And then we asked 'em about their experience and 66% of those that are using more drop shipping said, well, I am having more damage issues with them in comparison of when I was doing my own my own shipping. There's tons of good reasons to use drop shipping. You get all that flexibility in terms of geography. You spread your inventory cost. You can get to those remote destinations and so forth, however, you need to choose the right drop shipper, right? You need to make sure that they have the same quality standards that you would have on your own. They're making sure that the package is in good condition before they put it in the box. They are using the right packaging materials, they're using the right mode of transportation and so forth. Now, that's one. Another trend that we saw is the increase of porch pirates and when we did more research, both on our own and looking at the other sources, we found that in 2021 there had been 210 million packages that were stolen for purchases in those 12 months, 210 million that, so that number is huge. If you think about it, that is more than one per household in those 12 months in the US.Tom Raftery:
Wow.Eduardo Lopez Soriano:
And then we asked consumers, Hey, is this a big deal? And they say, yeah, it is a big deal. 64% of them have paid out of pocket to make whole, an end customer that had an stolen package because of porch piracy, right? So that's the second one. The third one is an increase in the usage of same day delivery carriers. So again doing the research we ask SMBs, are you using more same day delivery carriers? They said yes. 50% of them are using more now than they did before the pandemic. But also 60% of those are seeing additional issues with same day delivery carriers than they did with traditional carriers. And again, it's not saying you shouldn't use them, it provides a lot of flexibility. There are some customers that expect that same day delivery service. You just need to make sure that you're partnering with someone that has good reliability, that has the same standards that you are used to. So those are the three, the fourth that I mentioned, we're also seeing an increase of damaged packages increase of shipping issues due to large weather events. And we all see how there's more hurricane, more severe winter storms and that delays packages if they're perishable and so forth. Right. So those are the three main trends. And then climate is increasing the number of claims.Tom Raftery:
So all the indicators are going in the right direction for you.Eduardo Lopez Soriano:
Well, so there you go. Right. So if, if you think about it These things are not going to stop. We already said you get a lot of flexibility with drop shipping, same day delivery carrier important porch piracy. Actually there was an article in USA Today, that talked about the different things that carriers can do to try to prevent porch piracy. And that's like hiding it in the porch. Or going to alternative delivery locations, but there's still gonna be some porch piracy and the numbers are going up in that same article, the 210 million that I mentioned in 2021. That article said, and this was a safe, wiser source 260 million in the 12 months ending November, 2022. So the number is going up from 210 to 200 and 60. So because of all that, because these issues are going to continue as an SMB, you need to have a safety net, and that safety net is insurance, right? So even if you try to choose the right partners when this happens, if you have insurance and then the customer is calling you and say, Hey, where's my package, or my package is damaged you're gonna feel a lot more comfortable saying yes Mr. Customer. I'm gonna go ahead and reship you a replacement or I'm going to refund you. And now you know, you turn around, you go to UPS Capital through our Insure Shield product, and 95% of the time you are gonna get your package and your shipment cost paid through the claims process.Tom Raftery:
Okay. Okay. And for SMBs is all this, are all these incidents having a kind of reputational issue for them?Eduardo Lopez Soriano:
So for SMBs and, and you said reputation, the number of instances they are experiencing these when we ask them, Hey, for your reputation for your ability to grow and provide good customer experience for your end customers, is this becoming an issue? And what they said is 72% of them have received negative reviews because of issues with the shipping experience. So it's happening and it's happening frequently. Now we turned around and said, okay, we already asked the SMBs. Now let's ask the end customers. And the top reason end customers would bother to leave a negative review for an SMB is because they had a bad shipment experience, and especially if it takes a while to be resolved. We kept asking them, and 37% of them said if they had a bad experience, if it took a while to get resolved, they're not gonna buy for that SMB anymore. So now you have almost a double whammy, right? You have the impact in the front end when they're looking at their reviews. And we saw now that 72 of SMBs are getting bad reviews, if they had a bad shipment experience, but also in the backend, if a customer already had a bad experience with you, they're not gonna shop again with that SMB.Tom Raftery:
Mm. Yeah. Yeah. I saw somebody talking about having a bad experience recently, and it was something like that. The delivery came broken or something. And when they contacted the retailer, they said the retailer seemed to take that interaction as an opportunity to restore their reputation. They went, you know, they went the extra mile to make sure. That this guy got his delivery and got something else on top of it. They sent him a little gift card or something on an apology. And so, you know, and they did it in a, in a very short space of time. So there, there's the two approaches. There's the, you get a complaint, you push back, or you get a complaint, and you see this as an opportunity to not just salvage your reputation, but, you know, increase your reputation in the eyes of the, the customer. And that that's what happened in this case. So it's, it's nice to hear stories like that.Eduardo Lopez Soriano:
Yeah, no, and and that's a great example. And what we're seeing is we all know about. How the customer experience, the expectation of customer experience has been increasing, driven by large retailers like Amazon, Best Buy, Walmart. So again, doing some research customers were asked, Hey, how would you rate the shipping experience with Amazon? And 64% of them said, Hey, it is either a four or a five with five being the highest. And then we asked them the same question about SMBs and only 29% of those SMBs were in that same range of four or five right? Now, if I am a large retailer, well it's a lot easier for me to go and say, yes right away I'm going to re-ship, I'm going to refund. Because you have all that financial backing. If you are an smb, well, you don't have as much financial backing. It hurts more to your bottom line to be doing this on your own. So there goes back to the solution of insurance. If you have the insurance, then you can provide that experience that you were describing because you feel very confident and you're gonna say, yes, Mr. Customer, right away. I'm going to reship. I'm going to refund you because, you know, you turn around ship insurance, 95% of the times your claim is going to be paid. So now you are competing hand in hand with the large retailers and you're making it an even play field and you're providing a very similar, great customer experienceTom Raftery:
So is this something you would see that would allow SMBs to grow their business?Eduardo Lopez Soriano:
For sure. For sure. So, when you think about the rules of the game, right? And, and we already talk about how important it is for them to have an excellent list of reviews. And you do that by providing that good customer experience. We already mentioned. If you have this ability to react quickly and give them the reship or refund that's going to improve the customer experience. But something that is very important, and it relates to how the expectations and the priorities of customers are changing is we ask the customers, Hey, if you had the option on one hand to have a two day delivery or on the other to have a guarantee replacement in case of a damaged package, 47% of them chose the second one to have the guarantee of a replacement for a damaged package. So having that insurance, having that ability to provide that customer experience will help you grow.Tom Raftery:
Okay. Very cool. Very cool. One thing that we didn't clarify at the outset is although you are UPS, capital, you know, a, a branch of UPS, you will ensure any shipper correct.Eduardo Lopez Soriano:
Yes. Yes. So, so that's a great point. There are a couple of things to, to keep in mind here. So, one, yes, even if you're shipping with FedEx, with USPS, obviously with u UPS, we insure all those, we insure regardless of of carrier. But then the other piece is, okay, why am I gonna go through creating or getting a shipping insurance where all those carriers, UPS, FedEx have carrier liability, right? And then, then it's important to understand the difference between those. And historically, the way that carrier liability came to pass is that the government worked with the carriers and they defined what would be the minimum that the carriers would be liable for in case there was a shipping incident in case a package was lost. And the agreement was, Hey, first $100 are covered for free. The carrier would pay the cost of the shipment and for anything above those $100, then you have to pay declared value and they have different charges. Now, I emphasized that the caries would pay for the cost because that's different from the sales value of the goods, right? So let's say that you're an SMB. You sell a product for $120, you have good margins. The cost for you was $80. Well, if you have an issue and you go to carrier liability, they're not gonna pay you the 120. They're gonna pay you the cost, which is the $80. If you have insurance, then you do get the 120 plus shipping cost. Plus we also pay for, and this is particular for Insure Shield, we also pay for expedited shipping to send the replacement, but there's more, right? There are more differences than that. We talked a lot about porch piracy and how it's growing and we just mentioned he's going from 210 million to 260 million. Carrier liability will not pay for porch piracy. From their perspective, they delivered the package, they're done. Insurance will pay for it. Carrier liability after they deliver the package. If it rains a lot, your package got wet, it got damaged they're not gonna pay for weather issues. Insurance will pay for that. Other part important about carrier liability and a lot of consumers don't know about is that you have to prove as a merchant that the carrier was negligent. They didn't follow the right process. Where insurance, you don't have to make any proof of negligence. You just have to show that the package was lost, damaged, or stolen, right? So everything we've talked about so far is, hey, what are the amounts covered? What situations are covered? But now let's think about the claims process. So you are a merchant and there is a lost package. And you go to a carrier and say, Hey, I would like my declared value. And they say, well, give us 20 days. We have to wait for 20 days to make sure that the package is in fact lost before we start with the claim process. With insurance, there's no wait period. Alright, so let's say you waited the 20 days, or it's not a lost package, it's a damaged package. Everybody can see it. So you start the claims process. With carrier liability it takes 72 minutes in average to complete the claims process with the process that we have created with Insure Shield, those 72 minutes turn into five minutes, right? So now you submitted the claim. You are waiting for them to make a decision. In average, it takes 18 days for carriers to decide whether they're gonna pay for the claim or not. It takes Insure Shield, us in UPS Capital less than five days to come up with that determination. When you have gone through all that process we asked SMB's Hey, are you satisfied with the outcome of the claims process? And only 42% were satisfied. The other 58% like no, I, I really didn't like it. Compare that to what we mentioned before 95% of the claims that are submitted through Insure Shield are being paid right now. So again, you have the dynamics, you have the importance of providing that great customer experience. And then you have the contrast between carrier liability and insurance. And that's why we think it's a very important solution. So with all this, you would say, okay I see all the additional value for all this additional value, I am sure that insurance and Insure Shield is gonna be more expensive than carrier liability. Well, it's not. It's actually cheaper. Right. So just something to think about.Tom Raftery:
Okay. I'll have 10 of them, please. Okay, we're coming towards the end of the podcast now, Eduardo, is there any question that I haven't asked you that you wish I had or any aspect of this that we've not discussed that you think it's important for people to think about?Eduardo Lopez Soriano:
No, I, I would just like to emphasize that we know how the market is evolving. We talked about all the, the different dynamics some of these tools to do your supply chains. Some of these tools in logistics you as, an SMB, will continue to use. But you may not be able to control completely the customer experience as you're using different partners. So, like we said before, if you have insurance, then you have that ability to be nimble, that ability to turn a bad situation into a positive customer experience, and that will help you grow.Tom Raftery:
Super great. Really interesting, Eduardo, that's been fascinating. If people want to know more about yourself or about Insure Shield or any of the topics we discussed in the podcast today, where would you have me direct them?Eduardo Lopez Soriano:
UPS capital.com. We have all the information thereTom Raftery:
Excellent, Eduardo. Fantastic. Thanks a million for coming in the podcast today.Eduardo Lopez Soriano:
Tom, thank you very much. It was a pleasure.Tom Raftery:
Okay, we've come to the end of the show. Thanks everyone for listening. If you'd like to know more about digital supply chains, simply drop me an email to TomRaftery@outlook.com If you like the show, please don't forget to click Follow on it in your podcast application of choice to be sure to get new episodes as soon as they're published Also, please don't forget to rate and review the podcast. It really does help new people to find a show. Thanks, catch you all next time.