This article originally appeared in the September/October issue of PARCEL.
The names FedEx and UPS are so ubiquitous in the parcel space that there’s often no room to talk about other options. But other options do exist — potentially valuable options. Regional carriers, niche carriers, the U.S. Postal Service, and, yes, the big two national carriers all play a role in today’s complex small-package delivery world. But in a complex rating environment, with geographically divergent and other market segregations, with varying levels of service, how are shippers to find an optimal solution?
Understanding Your Requirements
First and foremost, shippers must understand and codify their business requirements. By knowing what you and your customers absolutely must have will allow you to narrow the field and reduce the number of viable scenarios. Transit times, pickup locations, and cutoff times are just three of many variables that could be used to limit the number of considered carriers. But make sure your requirements are actual requirements. Adding requirements that unnecessarily limit your options could result in suboptimal savings. After this exercise, you may find that using a single national carrier is your only option, and that’s okay. But it’s better to make that determination based on some simple due diligence before spending months and dollars to implement a sourcing project that’s incorrectly scoped and based on misleading requirements.
The national carriers are largely homogeneous at this point. Some minor rating logic and transit differences aside, one can evaluate them using a single service-level-based dataset. Not so when evaluating regional/niche carriers. To properly evaluate the cost benefit of an alternative carrier, you must be able to granularly assign transit times to each segment; you must be able to segregate and evaluate carriers based on specific geographic constraints at the five-digit ZIP level. This must all be completed before you begin your baseline analysis. As always, package-level data is the cornerstone of parcel analytics.
Over the years, many shippers have expressed interest in using technology to rate-shop across carriers. And at certain, high-spend levels, this can make sense (with caveats). However, we have found that for small- to mid-sized shippers, it is generally beneficial to maximize what leverage you have with a single national carrier, while potentially carving out certain segments to take advantage of one or two regionals’ transit time and/or cost advantages.
Negotiating Revenue Tiers
Revenue-based discounts have become the standard in pricing carrier agreements over the last 15 years or so. At this point, over 95% of all carrier agreements contain some form of revenue-based discounting or rebates. UPS and FedEx have become very adept at setting their thresholds in such a way that the shipper’s hands are tied, effectively prohibiting the use of alternative carriers without serious loss in discounts/rebates. Understanding your attainment is the starting point. But more important is negotiating the revenue tiers themselves in such a way as to give you maximum flexibility without a negative impact on discounts. As always, knowing how to strike the balance is key. In addition, being able to apply granular analysis to determine the cost increase of losing a discount tier with a national carrier to realize savings with a regional/niche carrier is necessary to do a valid cost/benefit analysis of some more advanced strategies.
This is one of the deepest topics in the parcel management space, and a single article will never cover all of the things you need to think about regarding multi-carrier strategies. But we will explore the topic in more depth at the 2017 PARCEL Forum. Join Mark Taylor and me at 10 am on September 19 at the Gaylord Opryland in Nashville, TN to learn more about how to make a multi-carrier strategy work for you.
Joe Wilkinson is Director, Transportation Consulting for enVista. Visit www.envistacorp.com for more information.