In normal times, conventional wisdom held that a parcel shipping network was best served by utilizing one national provider. Yet, the last 18-24 months have made conventional wisdom for the parcel shipping industry obsolete by pushing the limits of network infrastructure and highlighting the need for alternative strategies. For the foreseeable future parcel network capacity will remain largely unchanged, and a single carrier solution may no longer work for many shippers. Finding the right balance may seem like a daunting task, but it has never been more critical. Understanding the financial ramifications of these changes and how they impact your service and speed to market will help mitigate much of the risk associated with optimizing your carrier base.
Does a Single Carrier Still Make Sense?
It’s no secret that all the national carriers have struggled over the past couple of years. In most cases, they’ve charged more for service that would have been considered sub-par only a short time earlier. Yet with all these shortcomings, in some situations, a single-sourced carrier may still be the best fit.
The revenue incentive is often the largest discount component in a shipper’s agreement. Diluting your primary carrier’s volume can result in increased transportation costs through a lower revenue tier discount. With other costs surging and inflation at a 40-year high, many shippers cannot justify taking that hit. Due to stronger peak performance in most areas by the national providers and the continued hope the new year will bring relaxed market conditions, some shippers are electing to stay with the status quo.
It may sound enticing to bolster a shipping program by adding a new carrier, and may even make sense on paper, but there are also real-world barriers that can impede or block the process entirely, most often being a technological barrier. Internal IT resources are some of the most sought after at any company, and integrating with a new carrier’s software and systems can be a challenge. The national carriers will sometimes mitigate the cost impact and help streamline the process, but ultimately it will still require a level of internal support. Regional carriers can potentially be even more challenging with their own sets of issues. Some shippers simply do not have access to this level of internal support.
Even if the integration goes smoothly, there is still the issue of operational feasibility. Often small to mid-sized shippers have a limited ability to rate shop between multiple carriers, while even larger companies can struggle with the sortation capabilities needed. In light of these barriers, transitioning away from a single-source solution can present real-world challenges. It is important therefore to evaluate the current state of a parcel program and honestly assess the risks and rewards of a multi-carrier parcel solution. Depending on your findings, the traditional business model may make the most sense. Most significantly, however, the cost savings and operational efficiency once attributed to single-carrier models is no longer as certain.
The Multi-Carrier Approach
Traditionally, one of the largest barriers to a multi-carrier shipping program, as previously mentioned, has been the impact to your incumbent carrier’s revenue tier. While this is still a large consideration for most shippers, after seeing peak volumes capped, or in some cases dropped completely, revenue tier discounts have taken a backseat to getting freight off the dock. This is where having access to and understanding your shipping data can have a significant impact on your program. Knowing where you fall in your current revenue tier and understanding how much volume can be shifted to a different carrier with minimal impact to your discount is one of the first considerations many shippers have to make. In some instances, shippers have siphoned off select volume from their primary carrier, bringing on a secondary carrier – even at list rates – just for the sake of business continuity.
With the continued strain on the national carriers’ infrastructure and the seemingly endless list of surcharges, utilizing regional and niche carriers has seen a resurgence. Regional carriers have, perhaps, been the biggest beneficiaries of the last 18-24 months, with many shippers clamoring for their assistance. Whether it is taking advantage of delivery density in their network, compensating for a national provider’s poor on-time performance in a specific geography or simply preferring the ease of doing business with a simple two-page agreement, shippers all over the country have been exploring regional carriers and couriers. Speed to market is another benefit regional carriers bring to the table, often with final delivery being faster than their larger competitors. And while the need for additional capacity has driven much of the interest in these smaller carriers, some shippers are also seeing cost savings by making the switch. Many regional providers do not invoice the litany of assessorial charges utilized by their national counterparts, and though transportation rates may be higher, there is still the potential for overall programmatic savings.
Some retailers have weighed the cost/service benefits and taken advantage of the growing number of postal consolidators. While it is not for everyone, certain low-density/low-velocity packages, such as poly-bagged apparel, are especially suited for this mode. Volume commitments must be met for most postal consolidators, but they remain an effective means of delivery, often with little IT integration needed. Again, there are typically service trade-offs, but by managing the customers’ expectations, leveraging postal consolidators can be an effective way of realizing cost savings while also circumventing volume caps set by national providers.
Maintaining a single national carrier may be an optimal solution for some, while others may realize modest cost savings or faster delivery times with diversified programs. Ultimately, there is no one-size-fits-all approach to the parcel world, and each shipper will have to determine what is best for their program. Service commitments, the cost to serve and even the commodity shipped will continue to drive the changes in each network, with some small- to mid-sized customers being technologically constrained to one carrier while others have the ability and need to experiment with regional capacity. But in either scenario, understanding the delicate balance between cost and service is paramount. For every action, there is an equal and opposite reaction, and the laws of physics still apply to the 2022 parcel shipping environment.
Andy Johnson is Project Manager, enVista. With 15 years of experience, Andy has worked extensively in supply chain and managed transportation. His background includes sitting on both sides of the table, allowing him to anticipate what most shippers need to drive results and what many carriers are looking for in a good partner.
This article originally appeared in the March/April, 2022 issue of PARCEL.