We know the value of shipping with the Big Two. What many shippers may not realize are the benefits of looking outside the box of the Big Two and utilizing an alternate carrier that specializes in residential delivery and returns. Similar in concept to a regional carrier, whose focus is on a particular zone based segment of shipments, residential and parcel return carriers focus on mode based shipments. Regardless of zone, the goal of these carriers is to provide quality B2C (and C2B) e-commerce solutions as well as depth into the mail supply chain.

The network concept is similar to FedEx’s SmartPost and UPS’s SurePost, utilizing the USPS for the final mile. These residential carriers bypass postal sortation centers and “inject” the shipments directly at the DDU (Destination Delivery Unit) so the package is ideally as close to the customer as possible for the final delivery. A selling point with some residential carriers is the seamless movement of the packages; the packages are not held at one location but rather continue to move through the network until delivery. As well, handling is always a consideration, given the target package metric for SmartPost/SurePost is the residential package weighing less than 5lbs. Handling can vary per carrier, but often the bulk mail pieces and lightweight shipments travel in sealed containers until they reach the DDU to ensure shipments of that size are not lost or damaged. 

Who can benefit from mode-based shipping carriers? Realistically anyone with a dense residential or returns profile. Like SmartPost and SurePost, the niche carriers do not assess Residential or Delivery Area fees. With the average increase in these fees for 2013 around 7.5%, eliminating them is advantageous to keeping costs competitive. E-commerce is ideal for mode-based carriers as well as pharmaceutical companies, fulfillment houses, publishers, and financial institutions. These carriers can move parcels, BPMs, and flats — domestically, internationally, and into Canada. And given their partnerships with the USPS, they deliver to millions of residential addresses, including rural routes and Post Office Boxes.

Shippers currently using FedEx and/or UPS, and considering a shift to a residential carrier, must watch how pulling volume from their current agreement can affect their Earned Discount tiers and subsequent costs. Earned Discounts are based on cumulative base transportation spend (the occasional UPS agreement will also include select accessorial charges in the cumulative total, which as we will see, can be even more detrimental to costs if a shift in carrier occurs). Structure of the basic Earned Discount includes spend from Domestic and International Air, Ground Commercial, Ground Residential, and any applicable SmartPost/SurePost services. This spend includes Returns revenue. A shipper with 84% of their volume in Home Delivery or Returns must be cognizant of their thresholds and watch that pulling volume from FedEx or UPS does not yield a net rate increase as they drop to a lower tier with less aggressive incentives. With UPS, especially, the drop from the second to first tier can be significant —some shippers seeing more than a 20% net increase in cost as they fall off tier. If Residential accessorial spend is included in the thresholds, when you remove the volume, you also remove the reason for the Residential fee, and net costs could further climb.

One other item to consider is package weight. Residential carriers will take up to 70lbs, but as we can see from SmartPost/SurePost costing models, once a shipment crosses over 10lbs Ground Residential/Home Delivery networks become more cost effective. A good blend of each residential shipping option is ideal if the structure of your agreement can support it.

Brittany Beecroft, MBA, Manager of Parcel Services for AFS. Prior to joining AFS, Brittany spent 12 years at FedEx as a Strategic Pricing Analyst, analyzing over 5,000 agreements in her FedEx tenure. She consults regularly with some of the largest shippers in the world and is a sought after speaker and consultant.