This article originally appeared in the September/October issue of PARCEL.
Are you a popular B2C shipper or an increasingly rare B2B unicorn? If you primarily ship B2B, don’t be surprised to see carriers work harder to retain your coveted commercial deliveries. However, if you’re growing toward the B2C side, your road is getting steeper, and you will face many yield management battles as the carriers work to cover the operational expenses that result from residential deliveries. In order to sail smoothly through the rising tide of e-commerce, you need to understand carrier sensitivities and how to leverage them to your advantage.
Carriers Built Around a B2B Profile
First, consider the foundation of the FedEx and UPS delivery networks. Both were largely built up around a B2B profile, with the majority of shipments going directly to businesses. As a result, each carrier built their operational structure, cost models, and most of their business plan heavily around that profile.
However, recent trends reveal a paradigm shift in the small parcel supply chain: the majority of shipments are now residential for both carriers. This shift has placed cost pressures on existing delivery networks. Let’s face it — residential deliveries are not as efficient. They involve fewer stops per mile, fewer packages per stop, and are typically lighter-weight packages. All of these factors result in lower revenue per driver stop. So as the winds continue to blow toward a B2C model, residential deliveries will continue to overtake a the B2B profile. You need to be armed with enough knowledge to effectively combat the carriers’ increasingly aggressive yield management tactics.
Margin preservation is at the top of the list for both carriers. They are continually adjusting contracts, pricing structures, and billing methodologies to cover the extra expenses incurred by residential deliveries. In contrast, your commercial shipments are undoubtedly travelling with other commercial shipments, making typical delivery densities much higher than with residential deliveries and resulting in much higher revenue per stop. In a B2C environment, carriers lose out on these inherent efficiencies, so they have to recover them via less shipper-friendly fee structures (e.g. residential surcharges, delivery area surcharges, peak season adjustments, etc.).
USPS for Final-Mile Delivery
For years, the carriers have tried to combat their sensitivities to residential deliveries with more economical means. Utilizing the United States Postal Service (USPS) as a final-mile delivery option has been one such method. It certainly meets the economical half of the equation; where it may fall short is on the time-in-transit requirements. A two-or three-day delivery expectation is placing increasing strain on the carrier network and pushing the carriers and shippers toward innovative solutions that benefit both parties from a cost perspective.
Carriers and E-Retailers Align to Innovate
Shippers balked when the CEO of one large e-retailer announced an edict: a three dollar transportation charge per order. Is that even possible in today’s B2C environment? Through innovation, there is always a solution. This e-retailer had unprecedented brick-and-mortar presence in the marketplace. In fact, 75% of the population lived within 1.2 miles of one of their retail locations. So, they were able to synthetically improve their delivery characteristics by converting lightweight residential deliveries to more economical, heavier-weight commercial deliveries for in-store pickup. The net result was a win-win for the e-retailer and the carrier: delivery expense per order was within target of the CEO’s goal, lightweight residential packages were converted into commercial deliveries, which favored the carrier network, and retail foot traffic was driven to the retail stores for parcel pickup.
It’s Time for Creative Thinking in Shipping
Good for that e-retailer, but what about for me? The beauty of the previous example is that their innovative solution is not an exclusive partnership. Going forward, both national small-parcel carriers can continue to synthetically improve their delivery characteristics. That means that the consumer can now take packages originally shipped and manifested as a residential delivery and redirect them to an alternate pickup location at a commercial address. It also means that you, the shipper, may have the opportunity to align your brick-and-mortar store as an alternate delivery location for one of the national small parcel providers. You are already paying to have your store open — why not drive in more foot traffic and lower shipping costs by aligning to the carriers’ sensitivities?
Develop a Smart Strategy with Your Data
As a final and punctuated note, decisions and action must be driven from data. Good data is the foundation for visibility into how the carrier views your shipping profile. If you don’t have good visibility of your data and an understanding of the opportunities it presents to you, then you’re just pounding a desk and making blind appeals to the carrier. Instead, understand your shipments from a carrier perspective as you formulate a response plan. You will need that insight for the yield-preservation battles you will undoubtedly face.
As you dive in, examine the basic data requirements by asking questions such as:
· What are my volume levels by mode and by day?
· What is my zonal and weight distribution?
· What is the impact of accessorials and surcharges? (Understand how the carriers utilize extra charges to effectively manage yields to their benefit.)
Like any relationship, success with your carrier depends on how you consider their needs. Ask yourself:
· What does my delivery look like in the carrier network?
· How does it align with their operation?
· What efficiencies am I providing the carriers?
· What inefficiencies am I burdening the carrier with?
· Are there ways to make my packages more efficient or operationally friendly for the carrier? If so, what are they and how do I appropriate my share of that efficiency?”