To say that 2020 has been a challenging year might be the understatement of the century. The disruption to our lives brought on by the COVID-19 pandemic has been far-reaching and pervasive. It has touched us all in some way and continues to do so. Just as we all have had to make significant personal efforts to stay healthy, keep our families safe, and get our kids back to school (whether in-person or virtually), parcel shippers have gone the extra mile to get their products delivered to customers in a timely, cost-effective manner — and that’s been challenging.
Peak season came early this year, and there was simply no way for shippers to predict it. And it’s not over. The artificial peak brought on by the pandemic will roll into the natural, Q4 peak with no rest in between for the weary. What are some lessons that parcel shippers learned in Q2 that might serve them well in Q4? How can shippers use those lessons to ensure that product gets picked up and delivered in a timely manner (and at a reasonable cost) with minimal disruption to operations? Let’s discuss some of those lessons here.
The overwhelming, unprecedented shift in retail from brick and mortar to e-commerce was seismic. And probably not temporary. As stay-at-home orders from local governments proliferated, consumers were forced to do most of their shopping online, and brick and mortar retail stores were shuttered. A consumer shift that had been underway for years was dramatically accelerated. One study indicated that e-commerce, as a percentage of total retail sales, grew as much in eight weeks (March and April) as it had in the past seven years! Traditional e-commerce shippers saw huge order increases, and many traditional B2B shippers were forced to convert their operations to allow for B2C shipping and a chance at survival.
Perhaps the most important byproduct of this phenomenon was that the national parcel carriers, UPS and FedEx, were slammed with unplanned, peak level volumes. They struggled to keep up and delivery performance suffered. Furthermore, they were forced to cap volume from key, large volume shippers in certain regions of the country. This left parcel shippers, especially those who use one carrier for most of their volume, in a serious bind. Those shippers learned lessons, however, that other shippers can use to their advantage going into Q4.
The most important lesson learned for many shippers during the COVID pandemic is that single sourcing can be a recipe for disaster. A recent survey of large volume parcel shippers indicated that their most pressing concern heading into peak season is their ability to “Provide a positive customer experience.” In order to do that, shippers must know that packages will be picked up, processed, and delivered in a timely manner. By the time shippers realize that their primary carrier is experiencing capacity issues, it’s usually too late to do anything about it.
Consider Branching Out
Now is the time to start establishing relationships with secondary and tertiary parcel carriers. If your volume warrants it, you can likely divert packages to any number of regional carriers at a cost that is competitive with your primary carrier. Smaller shippers may need to make the decision to divert volume to a regional carrier at a cost increase for the sake of ensuring that packages will get picked up and delivered in a timely manner. After all, it’s less expensive to keep an existing customer than it is to win a new one. DHL, USPS, Newgistics and others can also be viable options for certain shippers. But you must start having those conversations with alternative carriers now. Waiting until next month is too late.
Of course, understanding whether dual carrier sourcing is an appropriate strategy requires a certain degree of forecasting capability. While peak season forecasting is an exercise with which large volume e-comm shippers are already familiar, it will be critical for all shippers who expect any degree of peak volume surge in Q4 and beyond, to understand forecasting models. It is likely, given their experience during the pandemic, that carriers will expect more shippers than ever before to share some level of peak forecasting. Carriers will want to plan accordingly to avoid the capacity issues that plagued them this past spring.
If your operation is not prepared to forecast peak season volume, and to share those forecasts with your carriers, now is the time to start building that capability. Not only will it be critical in helping to understand peak carrier requirements for your business, but it’s also likely that your carrier may demand it. Failing to accurately forecast peak volumes can result in financial penalties from the carrier. Shippers will need to be able to project weekly volumes accurately within a given range. Of course, like most aspects of carrier pricing, any financial penalties which carriers may attempt to attach to this process are negotiable.
Lastly, but equally as important to many shippers, is the ability to analyze, understand, and mitigate the impact of what will most certainly be another round of peak season surcharges introduced by the carriers. Or, depending on the lifespan of the COVID surcharges currently in place, shippers could experience a continuation of those, expanded to include new, broader reaching surcharges. A few of the more significant COVID surcharges were limited to shippers who reached certain thresholds in terms of number of occurrences of the condition that triggered the surcharge or who experienced incredibly dramatic growth in certain types of volume over a period. It’s unlikely that Q4 peak surcharges will carry the same requirements, so the impacts will be more broadly felt, as they have been in the past.
Experience, however, tells us that all surcharges are negotiable, even those brought on by a pandemic or Q4 peak volumes. Shippers should first understand the surcharge. Who does it apply to and when does it apply? Next, they should analyze the potential impact to the organization and build a business case with the carrier for mitigation. But, like everything else we’ve discussed, planning is key. The earlier you start, the better off you’ll be.
These are challenging times, and it’s likely to get even more challenging as we head into Q4. But savvy shippers learned lessons this spring that will serve them well going forward. Learn from those shippers and follow their lead. Advanced planning, accurate forecasting, carrier diversification, and timely negotiation backed up by data and analytics are the keys to ensuring that shippers are able to navigate their way through another peak season.
David Sullivan is the Vice President of Professional Services for Shipware, LLC, a San Diego-based parcel consulting firm that specializes in cost reduction and recovery services. Shipware has helped some of the world’s largest parcel shippers reduce costs by an average of 25% through a combination of invoice audit and recovery, rate and contract evaluation and optimization and carrier and mode optimization.
This article originally appeared in the September/October, 2020 issue of PARCEL.