As retailers, manufacturers, 3PLs, and other shippers bring on new carriers to meet their ever-growing shipment capacity constraints, they need to be wary of the volatility they are exposing themselves to in the market. Gone are the days of only having one or two carriers. In its place, we now have the potential for volatility.
20 years ago, there were only a few choices that a shipper could make. You picked UPS or FedEx as your carrier, and maybe added the United States Postal Service, and you were done. If you shipped a robust amount internationally, you might have gotten fancy and added DHL to your list – but that was about it.
For a smart enterprise shipper, there was good reason to do this, as consolidating your shipping with a single carrier meant that you received the best rates, biggest discounts, and highest service levels for your customers.
However, in time, e-commerce increased the demand for small parcel shipping and opened the door for the general acceptance of regional carriers like OnTrac, LaserShip, LSO, and Spee-Dee Delivery. In turn, shippers quickly found that they needed more sophisticated shipment execution plans that added flexibility in terms of carrier rates, omnichannel fulfillment, and shipping options for customers. Many shippers grew to the point where they used both UPS and FedEx, along with USPS, as their national carriers. Regional carriers were also added, but often only in the regions that a shipper had the most end-customers.
Handling these additional carriers increased the need for integrated technology that could handle multi-carrier rate shopping, increased parcel throughput, and compliance. Shippers that took advantage of this opportunity to install sophisticated multi-carrier shipping software gave themselves a leg up on their competitors at the beginning of the pandemic.
The Pandemic Capacity Panic
The near overnight increase in small parcel demand in early 2020 sent nearly every shipper into the market looking for additional capacity. Within months, the national carriers and the “established” regional carriers had their entire capacity for the year booked out. Some even announced that they would stop taking on new customers.
Because of this, funding began to pour into small parcel shipping companies. Some of this was to expand niche players into larger carriers, and others to start companies from scratch.
Some of those investments included:
• ShipHero - $50 million
• Sendle - $35 million
• AxleHire - $20 million
• Better Trucks - $3 million
But not all of this investment meant that every company was going to expand. For example, PCF Final Mile, an existing logistics company that operated in the Northeast of the US, tested the small-parcel delivery market and exited rather quickly.
As expected, mergers and partnerships started happening due to the influx of cash flow. LaserShip’s $1.3 billion purchase of OnTrac signaled the first and largest known merger. Their plans to expand to the center of the US will have a material effect on the small-parcel delivery market.
The consolidations don’t stop there. UPS purchased Roadie to expand into crowdsourced same-day shipping. Target’s Shipt has purchased several companies, including all of Deliv’s assets, to further expand their logistics capability. American Eagle Outfitters, Walmart, and Staples have all purchased or created their own small-parcel carriers to help alleviate their capacity constraints. As new and old delivery networks expand, they will have efficiencies of scale. These efficiencies will allow them to use less labor per thousand shipments than other carriers. Carriers that cannot procure labor or automate to do more with the labor they can procure will struggle.
National carriers are not sitting still either. Though UPS, FedEx, and all of the established players have become “selective” as to the contracts they will accept, they continue to accelerate plans for network capacity expansion, meaning they will eventually catch up and exceed demand again.
Once network capacity exceeds demand, what is going to happen? Which companies will be purchased and merged? Which may just go out of business? More importantly, will shippers be prepared to respond?
What will a shipper do if they have a temporary interruption in shipping capacity due to a labor issue, merger, or cash flow issues? Which carrier will be the first to go if capacity exceeds their needs? Will shippers have the flexibility in their software stack to move that volume to a new or existing carrier? Will shippers have the contacts to add an additional carrier if needed?
There are plenty of strategies that a shipper can and should be doing to be fully flexible and equipped. Here are some steps that are strongly recommended to be prepared for upcoming carrier volatility:
• Make a list of all your current and potential carriers.
o Note the capacity they have allotted for you this year.
o Note their coverage area.
o Ask them about their expansion plans, as well as how and when this might allow you to increase capacity with them.
o Determine if you have carriers that could take over the capacity you expect to ship with said carrier if that carrier is no longer in business or provides a set of rates that would make it impossible to do business with them.
• Ensure your software stack is ready to quickly add AND remove carriers.
o Specifically, ensure you have a robust shipping software with proper isolation from your ERP, OMS, WMS, and POS as this is key to allow changes to occur quickly and with little to no operational impact.
Justin Cramer is Co-Founder of ProShip, where he has deployed, designed, or consulted on over 300 customer solutions within 4 continents and has designed shipping solutions executing more than 3 million labels a day. Listed as one of Supply & Demand Chain Executive’s 200 “Pros to Know” in 2019, Justin has been on the IT side of shipping since 2001.
This article originally appeared in the May/June, 2022 issue of PARCEL.