In an era of restricted carrier capacity, ongoing changes to carrier pricing practices, and changing consumer behavior, one may wonder, is now the right time to diversify your stable of carriers? Many shippers faced monumental difficulties last year when they were surprised by their sole carrier placing limits on peak-season volume, and many large enterprise shippers received unexpected rate increases, often ranging from 20% to 50%.
A shift to a multi-carrier solution may help mitigate these issues and create opportunities for cost reductions and an improved customer experience. That said, having multiple carriers is not necessary for all organizations, and there is a myriad of advantages and disadvantages associated with creating a multi-carrier environment.
Savings Opportunities: Pricing can vary substantially between carriers, even between those that offer similar services. In addition, regional carriers, consolidators, and others can be substantially more cost-effective based on service, zone, weight, or applicable accessorial charges. They can offer superior service performance in select areas, often at much lower prices. Most of these “other” carriers carve out a niche for a smaller overall percentage of the shipper’s volume. Even the global carriers can offer superior transit times and solutions for certain types of shipments, perhaps strategically positioning an offer for express volume, international shipments, or other select shipments. Being able to optimize service solutions based on these factors can improve service performance while reducing costs. These creative solutions often require out-of-the-box thinking and effective communication between the carrier representatives and the shipper.
Cost Implications: When including additional carriers into your portfolio, there are several cost implications that must be considered. Since most agreements are structured based on volume requirements, often with a limited buffer to shift volume away, the costs that are related to making a shift to other carriers can be quite substantial. It should be noted that volume is the primary driver when negotiating most carrier agreements, so any lost savings resulting from lesser volume should be weighed against savings that are gained elsewhere. There are additional direct costs tied to investments in technology to manage the shipment processing, as well as additional resources to manage carrier relationships and processes.
Operational Flexibility: In today’s environment, where the carriers have exercised their ability to increase rates or cancel agreements, typically upon 30 days’ notice, having the flexibility to shift volume to other carriers can be essential. With capacity constraints being an ongoing issue, having additional carrier options is not only a nice alternative, but often critical to a long-term successful supply chain model. Regional carriers, USPS consolidators, and other niche carriers can often service a specific segment at a fraction of the cost of the global carriers, so carving out a portion of one’s volume with non-global carriers can be a great solution, should one’s shipment profile and volume support it.
Customer Service: With the shift to 2 Day, Next Day, and even Same Day delivery, many companies continue to shift towards local and regional carrier options that can service clients quicker, while at a reasonable rate. Adapting the local carrier model will continue to play a key role for companies with a local brick and mortar presence. Others may find other ways to differentiate, focusing on a high level of service. This may include allowing clients to choose the carrier and service. Although the industry continues to shift from a carrier-specific solution to focusing more on optimal delivery dates, there are companies that continue to focus on providing carrier options to their clients. It may be that one services a specific area more effectively than others or simply caters to a sense of comfort for the recipient. It tends to come at a cost, however.
Complexity: Managing multiple carriers can be complex. In addition to managing and negotiating multiple agreements, one has to ensure that volume requirements are met. Unless a simple routing process is developed, investment in a carrier-agnostic shipping system is typically a necessity. This allows one to implement agreements from all applicable carriers, allowing employees to rate shop based on time in transit and cost. It eliminates much of the guesswork about which carrier and service is the best option, saving time and money. It increases productivity and can maximize the service performance and value. Most can also be integrated with ones WMS, ERP, and other systems, resulting in streamlining and improving additional processes. The cost can be minimal to upwards of several hundred thousand dollars to purchase and to maintain.
Keeping Carriers Honest: A multi-carrier model helps keep carriers in check. When carriers know that options exist, they remain more engaged and interested in accommodating pricing-related and other requests. If rate-shopping is applied, shipping decisions are no longer perceived to be made by the shipper, but rather the technology that’s in place. The threat of making a carrier switch also exists when a carrier-agnostic shipping system exists. That transition can otherwise take weeks or months, versus simply implementing new pricing and transitioning volume as soon as the next day.
There’s no single solution that’s best for every organization. For smaller to midsize shippers, the likelihood of having volume limitations and substantial rate increases applied is certainly less likely than enterprise accounts. Managing a single agreement and relationship is simpler and can often involve utilizing the carriers’ technology for shipment processing. If the volume is limited and the shipment profile lacks complexity, managing a single carrier relationship may just be the most effective solution.
Yet, there are a variety of other factors that may contribute towards adding carriers to the mix of business, so start by assessing the current shipment profile. As for the relevant data points, one should identify if shipments within the current portfolio are better suited for another service level or carrier. Common scenarios may include lightweight residential shipments that can be serviced by a USPS-integrated solution, identifying shipments that can be serviced by regional and local carrier models, and if service performance and cost benefits exist or may be feasible with another carrier.
Thomas Andersen is Partner/EVP of Supply Chain Services for LJM Group.
This article originally appeared in the September/October, 2021 issue of PARCEL.