If you’re not convinced there are dangers posed by the lack of competition in the US small parcel market, please read the transcript from FedEx’s earnings call on March 19, 2014. Near the end of the call FedEx stated that the 2013 peak season debacle was caused more by its customers' behavior than by the severe winter storms and lack of preparation by the national carriers. And despite the repeated pummeling UPS received in the media, it stated right after peak season that it would not be increasing its capacity for 2014. UPS actually bragged how it decided not to have its drivers work on Christmas. (UPS wisely changed its tune and in July declared 2014 “the year of investing for the customer.”)
FedEx and UPS are both world class companies offering first class service, yet only in an atmosphere lacking in competition could they make public statements like the ones above. I could not imagine a regional parcel carrier criticizing its own customers or crowing how they favored their employees at the expense of the companies that pay their bills. This column is called Regional Alternatives for a reason: because you do need alternatives to the national carrier duopoly.
The two examples above are merely words so allow me to give you some concrete examples on how limited competition can hurt the consumer (you). In just the last six weeks I was told of three companies where a national carrier threatened to immediately raise their shipping charges to full tariff rates if they diverted any shipments to a competitor. The companies in question are not small volume shippers. Rather, they are very high volume shippers whose names you would recognize. That is certainly a strong arm tactic and it would not be occurring if DHL/Airborne still served the US domestic marketplace.
The good news for two of those three large shippers is that they prepared ahead of time to defend themselves against the threats. The first large shipper simply converted most of their shipments to the other large national carrier. Tip: If you are a large shipper, do employ the services of a third party shipping software provider so a carrier change like the one just mentioned can be accomplished quickly and easily. If you only have the technology provided by the one national carrier you use, you are left at a distinct disadvantage.
When the second large shipper was threatened, they told the national carrier that if they followed through on their threat, they would immediately stop using them. The national carrier responded that the other member of the duopoly would never have the capacity to pick up their high volume of packages on such a short notice. But because he had thoroughly prepared in advance, the second shipper countered that he had multiple regional parcel carriers in place to move a large portion of his shipments. He also informed them that he contracted the services of a third party line haul company so he could inject his shipments directly into the hubs of the other national carrier. Result: The threatening carrier ended up losing half their volume when the contract was re-negotiated. Best of all, the shipper reduced his shipping costs and improved his customer experience by providing them with faster Ground delivery than the national carrier was providing.
And the third large shipper? Well, for now they are handcuffed into that exclusive contract. Had they instead signed a contract allowing for multiple carriers, they could probably be getting better rates and they could definitely be getting faster Ground time in transit. Tip Number Two: Don’t sign exclusive contracts!
You can see more evidence of a lack of competition every time you look at your shipping bill and notice the new accessorial charges added each year. You’ll probably be negatively affected by a lot more of this evidence in January when the new dimensional weight policy goes into effect. Not to mention that the national carriers severely discourage their customers from being educated by the services of third party spend management consultants.
So I highly recommend you take proactive measures to protect yourself from a market with limited competition. Don’t sign exclusive contracts and do actively explore what third party shipping software companies have to offer. There are many to choose from at various price points. And as peak season rapidly approaches, reach out to regional parcel carriers. There are only 18 shipping days this peak season and having a well thought out carrier strategy will mitigate the risk to your business and win the loyalty of your customers. And rather than criticize your shipping methods, I trust the regional parcel carriers will welcome the chance to serve you.
Mark Magill, Vice President of Business Development, OnTrac, can be reached at mmagill@ontrac.com or 818.482.0844.
FedEx and UPS are both world class companies offering first class service, yet only in an atmosphere lacking in competition could they make public statements like the ones above. I could not imagine a regional parcel carrier criticizing its own customers or crowing how they favored their employees at the expense of the companies that pay their bills. This column is called Regional Alternatives for a reason: because you do need alternatives to the national carrier duopoly.
The two examples above are merely words so allow me to give you some concrete examples on how limited competition can hurt the consumer (you). In just the last six weeks I was told of three companies where a national carrier threatened to immediately raise their shipping charges to full tariff rates if they diverted any shipments to a competitor. The companies in question are not small volume shippers. Rather, they are very high volume shippers whose names you would recognize. That is certainly a strong arm tactic and it would not be occurring if DHL/Airborne still served the US domestic marketplace.
The good news for two of those three large shippers is that they prepared ahead of time to defend themselves against the threats. The first large shipper simply converted most of their shipments to the other large national carrier. Tip: If you are a large shipper, do employ the services of a third party shipping software provider so a carrier change like the one just mentioned can be accomplished quickly and easily. If you only have the technology provided by the one national carrier you use, you are left at a distinct disadvantage.
When the second large shipper was threatened, they told the national carrier that if they followed through on their threat, they would immediately stop using them. The national carrier responded that the other member of the duopoly would never have the capacity to pick up their high volume of packages on such a short notice. But because he had thoroughly prepared in advance, the second shipper countered that he had multiple regional parcel carriers in place to move a large portion of his shipments. He also informed them that he contracted the services of a third party line haul company so he could inject his shipments directly into the hubs of the other national carrier. Result: The threatening carrier ended up losing half their volume when the contract was re-negotiated. Best of all, the shipper reduced his shipping costs and improved his customer experience by providing them with faster Ground delivery than the national carrier was providing.
And the third large shipper? Well, for now they are handcuffed into that exclusive contract. Had they instead signed a contract allowing for multiple carriers, they could probably be getting better rates and they could definitely be getting faster Ground time in transit. Tip Number Two: Don’t sign exclusive contracts!
You can see more evidence of a lack of competition every time you look at your shipping bill and notice the new accessorial charges added each year. You’ll probably be negatively affected by a lot more of this evidence in January when the new dimensional weight policy goes into effect. Not to mention that the national carriers severely discourage their customers from being educated by the services of third party spend management consultants.
So I highly recommend you take proactive measures to protect yourself from a market with limited competition. Don’t sign exclusive contracts and do actively explore what third party shipping software companies have to offer. There are many to choose from at various price points. And as peak season rapidly approaches, reach out to regional parcel carriers. There are only 18 shipping days this peak season and having a well thought out carrier strategy will mitigate the risk to your business and win the loyalty of your customers. And rather than criticize your shipping methods, I trust the regional parcel carriers will welcome the chance to serve you.
Mark Magill, Vice President of Business Development, OnTrac, can be reached at mmagill@ontrac.com or 818.482.0844.
