It is no secret that regional carriers are gathering steam as the push for faster and cheaper delivery continues. Regional carriers have capitalized on the weak points of major carriers (such as peak season surcharges and operational limitations), which has caused increased interest in regional service offerings. Some of the regional carriers’ desirable attributes include their flexible networks, speed, and decreased accessorial charges.
Regional carriers can certainly be beneficial partners in many cases. However, like with any decision parcel shippers make concerning their operations, certain characteristics of the supply chain should be evaluated. Here, we’ll highlight five specific characteristics or network components that should be considered before selecting a regional carrier, including: the goal of the supply chain, carrier sourcing, artificial intelligence capabilities, the geographic characteristics of the supply chain, and system flexibility. Before making any requests or negotiations, it’s important the cause and effect of incorporating a regional carrier in your system be evaluated in relation to each of these five components.
#1 Supply Chain Goal
First and foremost, the goals of the supply chain must be clear and well-defined objectives. As the push for same-day or next-day delivery continues, it is imperative to align your network’s internal benchmarks to the area in which value add is needed. Regional carriers have created a reputation for offering shortened ship-to-delivery times, flexible networks, and even decreased expenses. However, those offerings need to be tied to an internal goal. Offering speedy delivery service may not be the value add needed for your supply chain, brand, or customers.
Alternatively, decreased per package expenses from a regional carrier may be overshadowed by increased operational expenses. When exploring the opportunity to incorporate additional carriers, the possible effects to the network need to be thoroughly explored in conjunction with the supply chain’s underlying objectives.
- What are the ultimate goals of your parcel network? (i.e. Is same-day or next-day delivery important, or is support for specific geographic locations more important?)
- How does a prospective regional carrier support these goals?
#2 Carrier Sourcing
After the goals of the supply chain have been well-defined, the peripheral components of the network need to be taken into consideration. When the question of including another carrier arises, first consider the supply chain’s existing sourcing model. The introduction of an additional carrier needs to be evaluated in conjunction with current carrier relationships, contractual stipulations, and spend.
Introducing a dual or multi-sourced network may affect the working relationship of existing partners. Furthermore, regional carriers could positively or negatively affect future negotiations for contract renewals or proposals. Evaluating and understanding these contractual obligations will provide necessary insight to the available flexibility within the network. Some of this flexibility will be determined by existing spend or volume commitments. If current contracted rates include earned discounts or tier discounts, allowing regional carriers to compete for volume may reallocate spend. In turn, this could cause an increase in per package fees for existing carriers. Modeling the cost benefit scenarios of onboarding additional carriers will provide the data and insight needed for efficient decision making.
#3 Artificial Intelligence
Data drives many of the supply chains in the shipping sphere today. Artificial intelligence (AI) tools help guide and monitor these day-to-day operations. Some benefits of an AI-based transportation management system (TMS) include reduced spend, network visibility, and improved efficiency. However, to reap the benefits of these technological advancements, the integrity of the TMS must be upheld. As the question of regional carrier sourcing arises, the relationship between the supply chain’s AI and the regional carrier of interest needs to be gauged.
With carrier implementation, the accuracy of the system’s decision-making when choosing between multiple carriers must be considered. If the constraints placed within the TMS are not consistent, then the forecasted savings may never be experienced. Another valuable point to consider is the capability to monitor carrier performance. With the implementation of any new carrier, it will be valuable to monitor the actual performance and spend following the start of the partnership.
Finally, the transfer of data or other information will need to be done in a mutually acceptable form. When considering a regional carrier, consider the capabilities of your current TMS, and the cost of AI implementation and maintenance in relation to the value add from their services. Regional carriers are aware of this possible technological barrier. Conducting research into the regional carrier’s existing solutions may prove more cost effective than internal implementation. Regardless, the supply chain’s technological components should be a main point of consideration when debating a regional carrier play.
- Will the accuracy of the system’s decision making remain intact when choosing between multiple carriers?
- Can the performance of the carrier be easily monitored to quantify wins or losses?
- Does the value add brought by prospective regional carriers outweigh the costs of implementing the regional carriers into your TMS?
#4 Geographical Characteristics
In the evaluation of a supply chain, many of the elements are most notably reflected on in a fiscal manner. However, there are some physical and geographical components that come into play as well. Regional carriers are just that: regional. Although strides are made to increase the service areas of these smaller carriers, there are significant limitations to take into consideration.
If regional carriers seem like an attractive option, quickly develop a short list of potential partnerships. Do so by noting the geographical location of their hubs or origin points in relation to the network’s own distribution centers (DC). It should also be noted that some transfer of goods to a regional carrier hub may be required. If regional carriers are a cost play for the supply chain, then the transference of shipments and/or the payment of line haul expenses should be forecasted for a more accurate potential savings calculation. A large distance between the DC and the regional carrier hub may negatively affect cost and transit goals.
Another important point to discuss is the geography of the supply chain’s parcel recipients. The service area of the regional carrier should align with high-density recipient locations of the supply chain. To receive the full potential of a regional service offering, align the dense recipient destinations with the service area of potential carriers. When ensuring the actions of the supply chain directly correlates to its goal, also ensure that the regional carrier delivers to a highly serviced sector of the supply chain.
#5 System Flexibility
The remaining component of the supply chain to review, system flexibility, differs slightly from the evaluation of these other elements. When determining the level of flexibility within the supply chain, assess the harmony of the components working together simultaneously.
Previously, as each topic was discussed in further detail, certain attributes and reactions of the supply chain component were called into question. For example, when discussing regional carrier eligibility, the current carrier sourcing model was called into question. What contractual constraints is the supply chain under obligation to uphold? This process can present constraints specific to each element, and consequently, the ripple effect to the rest of the network due to its limitations. As an example of far-reaching effects, consider the geographical characteristics of the network. A supply chain with distribution centers located in rural areas will limit the carrier sourcing options to those in the surrounding regional area. Although the network may have available volume and spend for reallocation, no viable regionals exist in the area of interest. Another example is the network’s main goal. Although a regional carrier may provide excellent pricing initially, pricing lower than the current rates, if the cost of implementing and maintaining a new carrier within the TMS is too high, the underlying cost initiative will be mitigated. As this internal evaluation of each element progresses, more and more information is collected regarding the constraints that are “naturally” occurring within the network. The outcome of this evaluation may not be indicative of the flexibility needed to pursue a new sourcing option; however, that does not necessarily have to be negative for the supply chain.
If the findings from the evaluation of the supply chain elements and derived level of flexibility makes regional carriers seem less attractive, consider the flexibility of the network in another light. It is easy to assume that regional carriers solve many challenges of a national carrier that is limited within their own network; however, forcing a carrier relationship within a network unequipped for the new partnership will not bring the desired outcome. Instead, review alternative options that will more positively benefit the supply chain. If geographical constraints or current carrier obligations are limiting flexibility, a possible re-evaluation of terms may provide some benefit. Further, refocusing efforts into strengthening current working partnerships, may bring similar opportunities to the supply chain (e.g. national carrier pilot programs or special service offerings). Oppositely, if the evaluation of the supply chain shows promise for a successful regional partnership, pursue additional information from the regional carriers of interest. Negotiating terms at the start of the agreement may provide the solutions to any withstanding obstacles in the network.
In our battle with the “Amazon effect”, it is crucial to identify new and effective ways to better our parcel networks. By understanding how a prospective regional carrier fits into the five crucial decision areas discussed, any retailer will also be in possession of a more complete understanding of their parcel network as a whole.
Cassidy Hardy is a Strategic Solutions Engineer at Green Mountain Technology (GMT), a Parcel Spend Management service provider for shippers with over 10 million parcels per year. In this role, Cassidy partners with customers to provide GMT’s strategic Parcel Spend Management solutions – Network Optimization, Spend Analytics, and Contract Management. Cassidy has a Bachelor of Science from Mississippi State University.
This article originally appeared in the May/June, 2020 issue of PARCEL.