In this volatile economy, increased parcel shipping costs have been steadily eating into the bottom line of high-volume shippers (just take a look at your newest post-rate increase parcel invoice). In the latest revenue reports released by the national carriers, their domestic package volumes have been flat or sluggish at best, but their profit margins have skyrocketed. This is no doubt because they are focusing on yield-management exercises or, in plain English: higher shipping rates.
The good news is that there are cost reducing alternatives that can be used to enhance or even replace the national carriers in large swaths of the US delivery market. Those alternatives are regional parcel carriers. These parcel carriers are truly regional in nature and deliver to large geographical areas in multiple states through an interconnected hub and spoke model. They deliver to Zones 2 through 4 and offer next-day ground delivery to destinations more than 600 miles from their origin. It is important to note that more than two-thirds of parcel shipments stay within that regional footprint. Because they are very capital intensive enterprises, there are only a handful of them located across the US, but they deliver to 40 of the lower 48 states and serve well over 200 million consumers.
A Brief History of the National Carrier Rate Increases
Five short years ago (2007), the Absolute Minimum Charge (the Zone 2, one-pound Ground rate) for the national carriers was $4.00. Now in 2012, it has crept up to $5.49. This is an increase of more than 35%. Thankfully, the rate of inflation has not risen anywhere near that much!
In addition to the increase in the base package charge, there have been a host of accessorial charge increases including, but not limited to, Residential Delivery, Delivery Area Surcharge and Extended Delivery Area Surcharge. To make matters worse, in last year’s General Rate Increase, the volumetric factor used to calculate dimensional weight charges was changed from 194 to 166 for domestic shipments. If your company ships large boxes (20” x 20” x 20” for example) your dimensional weight charge increased by 17%! Many large shippers with aggressive national carrier contracts thought they dodged a bullet when they did not receive the change in the DIM factor last year. However, many of these grandfathered exemptions are expiring in 2012. There really is a “duopoly” in the small parcel industry, and both national players are holding firm on their rates and surcharges. But again, there are viable alternatives.
Cost-Reducing Strategies with Regional Parcel Carriers
One of the quickest ways to reduce your shipping spend is to change your shipping mode from a national carrier Express service to a regional carrier Ground service. This is because regional parcel carriers provide guaranteed next-day delivery at ground rates to Zone 4 destinations. The national carrier’s Ground services will only deliver shipments next day in Zone 2 and part of Zone 3 (see the UPS and FedEx Ground time-in-transit maps for details).
Let’s Look at an Example
If a customer expects next-day delivery and they’re more than 300 miles away, you’ll need an Express service. But those express rates cost substantially more than Ground services. For example, a one-pound Zone 4 FedEx Standard or UPS Next Day Air Saver package costs more than $33.00. A person may rightly respond, “I get a great express discount from my carrier.” However, if they converted that same Zone 4 shipment to a regional carrier’s guaranteed next-day Ground service (a shipment from Philadelphia to Boston), they would pay only $5.94. So, even if a shipper had a 50% discount with the national carriers ($16.50), a regional parcel carrier would reduce the discounted price by over 60%!
Depending on your volume and package level detail, regional parcel carriers can also give you more heavily discounted base rates for Zones 2 and 3. You’ll typically see a net spend reduction of 15 to 20% with the switch.
Regional carriers can also save you money with fewer (and less expensive) accessorial fees. For example, most of them have kept their dimensional weight factor at 194. If you truly need a next-morning 10:30 a.m. delivery, the savings with regional carrier’s Express services can be as much as 40%! Regional parcel carriers are able to provide this reduced shipping spend because they do not need to support a worldwide infrastructure that includes fleets of cargo jets. And, most importantly, any monies saved by reducing your shipping costs go straight to your bottom line.
So, now that you’ve got your latest invoice, check out how one of the regional parcel carriers in your area can provide you with a more cost-effective solution. As my favorite business author Brian Tracy likes to say, “You are only as free as your alternatives!”
Mark Magill is Director of Business Development, OnTrac. Visit www.ontrac.com for more information.
The good news is that there are cost reducing alternatives that can be used to enhance or even replace the national carriers in large swaths of the US delivery market. Those alternatives are regional parcel carriers. These parcel carriers are truly regional in nature and deliver to large geographical areas in multiple states through an interconnected hub and spoke model. They deliver to Zones 2 through 4 and offer next-day ground delivery to destinations more than 600 miles from their origin. It is important to note that more than two-thirds of parcel shipments stay within that regional footprint. Because they are very capital intensive enterprises, there are only a handful of them located across the US, but they deliver to 40 of the lower 48 states and serve well over 200 million consumers.
A Brief History of the National Carrier Rate Increases
Five short years ago (2007), the Absolute Minimum Charge (the Zone 2, one-pound Ground rate) for the national carriers was $4.00. Now in 2012, it has crept up to $5.49. This is an increase of more than 35%. Thankfully, the rate of inflation has not risen anywhere near that much!
In addition to the increase in the base package charge, there have been a host of accessorial charge increases including, but not limited to, Residential Delivery, Delivery Area Surcharge and Extended Delivery Area Surcharge. To make matters worse, in last year’s General Rate Increase, the volumetric factor used to calculate dimensional weight charges was changed from 194 to 166 for domestic shipments. If your company ships large boxes (20” x 20” x 20” for example) your dimensional weight charge increased by 17%! Many large shippers with aggressive national carrier contracts thought they dodged a bullet when they did not receive the change in the DIM factor last year. However, many of these grandfathered exemptions are expiring in 2012. There really is a “duopoly” in the small parcel industry, and both national players are holding firm on their rates and surcharges. But again, there are viable alternatives.
Cost-Reducing Strategies with Regional Parcel Carriers
One of the quickest ways to reduce your shipping spend is to change your shipping mode from a national carrier Express service to a regional carrier Ground service. This is because regional parcel carriers provide guaranteed next-day delivery at ground rates to Zone 4 destinations. The national carrier’s Ground services will only deliver shipments next day in Zone 2 and part of Zone 3 (see the UPS and FedEx Ground time-in-transit maps for details).
Let’s Look at an Example
If a customer expects next-day delivery and they’re more than 300 miles away, you’ll need an Express service. But those express rates cost substantially more than Ground services. For example, a one-pound Zone 4 FedEx Standard or UPS Next Day Air Saver package costs more than $33.00. A person may rightly respond, “I get a great express discount from my carrier.” However, if they converted that same Zone 4 shipment to a regional carrier’s guaranteed next-day Ground service (a shipment from Philadelphia to Boston), they would pay only $5.94. So, even if a shipper had a 50% discount with the national carriers ($16.50), a regional parcel carrier would reduce the discounted price by over 60%!
Depending on your volume and package level detail, regional parcel carriers can also give you more heavily discounted base rates for Zones 2 and 3. You’ll typically see a net spend reduction of 15 to 20% with the switch.
Regional carriers can also save you money with fewer (and less expensive) accessorial fees. For example, most of them have kept their dimensional weight factor at 194. If you truly need a next-morning 10:30 a.m. delivery, the savings with regional carrier’s Express services can be as much as 40%! Regional parcel carriers are able to provide this reduced shipping spend because they do not need to support a worldwide infrastructure that includes fleets of cargo jets. And, most importantly, any monies saved by reducing your shipping costs go straight to your bottom line.
So, now that you’ve got your latest invoice, check out how one of the regional parcel carriers in your area can provide you with a more cost-effective solution. As my favorite business author Brian Tracy likes to say, “You are only as free as your alternatives!”
Mark Magill is Director of Business Development, OnTrac. Visit www.ontrac.com for more information.
