Package shippers are always looking for improved service and reduced cost. An emerging dual-carrier model wherein shippers add U.S. Postal Service products as an alternative to their existing commercial carrier delivers significant savings on transportation expenses. The convergence in service levels for commercial carriers, recent improvements in infrastructure and performance at the U.S. Postal Service, as well as a shift in the market towards two- to five-day service needs and more residential/remote deliveries, are fueling the need for the dual-carrier paradigm. Recent technology for U.S. Postal Service desktop shipping and pre-shipment decision-making enables the implementation of the dual-carrier process using and without disruption to a shippers existing integrated shipping environment.
An Emerging Paradigm
Historically, since the early days of shipping automation, multi-carrier systems (as illustrated in Figure 1) have been used to shop for the best rates as well as automate and integrate the shipping process. This model allowed shippers to diversify their shipping mixes, lower shipping costs on a package-by-package basis and streamline their operations. However, the multi-carrier paradigm often leads to complex system implementations, managing and accounting for several vendors, reduced access to volume discounts and less leverage on the shipping carriers.
More recently, many shippers have standardized on one commercial shipping carrier to earn volume discounts and to take advantage of free carrier-provided software that includes automation and integration (Figure 1). While this paradigm eases the cost and complexity of some multi-carrier implementations, it puts all of the shippers eggs in one basket, exposes the shipper to a bevy of surcharges and annual rate increases, limits access to PO Box or APO/FPO addresses and is less efficient for residential and extended areas. If the shipping carrier encounters a disruption due to a strike, the shipper must change vendors or risk a loss of business both of which are costly.
The best solution for many shippers is an emerging dual-carrier paradigm that adds U.S. Postal Service products as an alternative to the shippers existing commercial carrier. Each of the two carriers handles the packages that are best suited for its respective networks, and shippers diversify their transportation without diluting their buying power. Shippers still maintain a volume with the commercial carrier to earn discounts, but can now avoid exorbitant surcharges, expand their reach to PO Boxes, APO/FPO addresses and add cost-effective solutions for residential, low-weight and international packages.
Market Dynamics Causing Shift
While in the past, different carriers had different service niches and different regional coverage strengths; the service levels for commercial carriers have been converging. Morgan Stanleys October 2004 Parcel Shipper Survey results indicate that price is becoming the differentiator as service levels near parity. The study also reports that the majority of shippers are encouraging a shift to deferred or ground services, and 85% of respondents who had switched carriers cited price as a primary factor. The price sensitivity of the market and the shift towards products with two- to five-day service levels play right into the strength of the U.S. Postal Service products.
The Postal Service, for its part, has invested heavily in upgrading its infrastructure and performance. New package handling systems, scanning equipment, electronic delivery and signature confirmation, carrier pickup and software technology from third-party vendors are some of the changes that have brought U.S. Postal Service parcel delivery performance to unprecedented levels. In December 2004, the New York Times tested commercial carriers and the U.S. Postal Service for one- and two-pound packages from Houston, Texas to New York and California and reported that the Postal Service was the fastest and least expensive beating the others by at least a dollar and a day. Similar results were reported by the Grand Rapids Press for lightweight parcels shipped to California, Texas, Virginia and Florida. Today, shipping · with the Postal Service is as convenient and reliable as commercial carriers and for a considerable percentage of a shippers small packages, more cost effective.
Market needs are diversifying and putting pressure on any single carrier to deliver the level of service needed by customers across the board. An increasingly larger share of product shipments is originating from online sales, which results in more residential and extended area deliveries. This is diversifying customer needs away from commercial delivery networks that are optimized for handling B2B packages in dense metropolitan areas. While the high-volume shipping market is somewhat saturated, there is significant growth in the market for mid-range shippers, which tend to qualify less for discounts with commercial carriers. And this brings the U.S. Postal Services attractive shipping rates more prominently into play.
Furthermore, while in the past, shippers were able to pass on their costs no matter how high to customers through shipping and handling fees; the Internet is terminating this flexibility. Online customers frequently comparison shop the product vendors and have far more visibility into shipping and handling costs than ever before. Many online sellers use free or discount shipping rates as a lure to attract business, and this is passing the burden of reducing freight costs right back to the shipper.
Perhaps most importantly, shippers now need complete visibility into total shipment costs before their customers place an order. This means that shippers are increasingly resentful of hidden charges that commercial carriers can add to a shippers bill after their customers have already paid the shipping and handling charges. Indeed, The Wall Street Journal has reported that delivery companies are introducing and increasing dozens of extra fees on their shipments, which has allowed commercial carriers to boost revenues without having to announce huge rate increases. Three of the most costly and frequently imposed hidden fees are the address correction fee, the residential surcharge and the remote surcharge. These fees can easily double the shippers transportation bill after a customer has already paid for his shipment. Fortunately, new technology for address correction and residential/remote destination identification allows shippers to avoid these fees with the dual-carrier paradigm.
Technology Enables Shift
Technology changes are making it easier for shippers to use the U.S. Postal Service. In the past, customers had to qualify for manifesting or use a manual process to take advantage of the Postal Services nationwide coverage and attractive rates, and package induction was a serious issue. With PC Postage technology (Figure 3), shippers can now instantly ship any number of packages with the Postal Service, without any minimum volume requirements, certification or audits.
Many PC Postage applications have a number of advanced features designed specifically for desktop shipping:
1. Stealth postage technology allows shippers to print fully prepaid Postal Service shipping labels with the postage amount hidden, to support shipping and handling charges and to avoid irate customers.
2. Shippers can send customizable e-mail shipment notifications to their customers to reduce their customer support costs.
3. International shipments are now dramatically simplified with international mail advice on rates, limits, prohibitions, restrictions and delivery area integrated right into the software application. Many software solutions print pre-filled customs forms for the international shipments.
4. Software solutions also offer a variety of tools to integrate U.S. Postal Service shipping with the shippers existing applications and processing. Solutions include ODBC links to access the shippers order database; seamless integration into order management, auction management and e-commerce applications; and application programming interfaces (APIs) for shippers who develop their own in-house systems.
5. Shippers can now go online and request free Postal carrier pickup of their pre-paid packages, eliminating any need to deliver packages to a BMU. Some software applications print the barcoded ASN form for bulk acceptance of all the shippers packages with a single scan. Package induction is no longer an impediment for Postal Service shipping.
6. Most software solutions now offer integrated third-party parcel insurance with lower insurance premiums, simpler usage and improved claims handling.
These full-featured solutions enable shippers to add the U.S. Postal Service into their shipping mix and diversify their shipping from a single commercial carrier.
Diversifying Without Disruption
Making the jump from one commercial carrier to a dual-carrier paradigm utilizing the existing carrier and the U.S. Postal Service is seamless with recent technology for pre-shipment advice (Figure 4). The pre-shipment advice technology uses a three-step process to help the shipper avoid hidden fees and choose whether to send the package with the commercial carrier or the U.S. Postal Service: address correction, residential and remote address identification and rate shopping.
A shipper who is currently using a single commercial carrier installs pre-shipment advice software (Figure 5) as a companion to their existing carrier-provided software. The shipper continues to use the current process, and the existing integration between the carriers software and the shippers databases remains untouched.
With the companion software installed, every time the shipper pulls up an address for shipping, the pre-shipment advisor verifies the address against Postal Service databases to correct and standardize the address, determine if the address is residential or lies in the commercial carriers extended or rural areas, and present desired Postal Service rates for that package based on mail classes corresponding to the carriers service. The shipper compares the cost in the commercial carrier window with that in the Postal Service window. If the carrier price is acceptable to the customer, the shipper presses the Process Shipment button in the carrier software. If the Postal Service savings are compelling, the shipper presses the Process Shipment button in the Postal Service window.
The companion software can be configured to choose the desired U.S. Postal Service mail classes, create mappings to equivalent commercial carrier services, customize label layouts, customize shipment notification text and define other business rules. Local dealers offer help with the installation and configuration of the software.
Significant Savings
The savings potential for implementing the dual-carrier shipping model is substantial. Savings are achieved by avoiding address correction surcharges, avoiding residential and extended-area surcharges and taking advantage of the U.S. Postal Service rates for lightweight packages and international products. To illustrate the savings, consider the scenario of a shipper that sends an average of 50 domestic ground packages each business day:
If one of the shippers packages requires an address correction each day, 10 are residential packages weighing three pounds or less and one is in the commercial carriers remote area, the shipper can save an average of approximately $350 each month with the dual-carrier model using Priority Mail for the residential and remote packages.
In this same scenario, if the residential packages weigh less than 13 ounces, the shippers average savings jump to over $1,000 each month using First-Class Mail.
If the shipper also diverts any expedited international shipments to Global Express Mail, the savings will be even more dramatic.
Steve Rifai is Director of Marketing at Endicia, an internet postage service for desktop shipping. Endicia received the U.S. Postal Service Industry Star Award in 2004, and its parent company received the first annual U.S. Postal Service Quality Supplier Award in 1989. For more information, visit www.endicia.com.
