Many things have changed in the past year, but one thing that is constant has been rising shipping costs. With today’s current market, the addition of more peak surcharges, decreased delivery performance, and new capacity limits, the environment seems to favor the major carriers. With that being said, we are seeing more shippers who are looking for options to level the playing field and showing more interest in utilizing regional carriers. When implemented correctly, using multiple sourcing between major and regional carriers can allow shippers to gain greater control of their shipping strategies, increase package volume flexibility, improve transit times, and lower shipping expenditures. On page 20, we discussed how to decide whether or not a multi-carrier strategy was right for you, and this article will continue the conversation by showing how to successfully integrate regional carriers into your carrier base if that is the direction you decided to go.
There are a number of key considerations, including geographical reach, delivery coverage, transit times, delivery performance, and pickups that must meet your company’s requirements. Additionally, you will want to check for shipment limitations that the major carriers may not have, such as weight limit of 50 pounds, dimensions over a certain size, prohibited items, and oversize or non-machinable packages.
The next step is to dive into is shipping rates, both base rates and surcharges. Regional carriers may offer competitive shipment rates with fewer and lower surcharges than the major carriers. Unlike the major carriers, some of the regional carriers do not have fees for commercial signature confirmation, daily pickup fees, and audit fees.
Regional carriers typically also offer lower surcharges in commonly used areas like residential surcharge, additional handling, declared value, and delivery area surcharges. Secondly, they may also have better transit times within their unique network and may be able to deliver your shipments faster and at a lower cost. There are additional benefits offered with regionals, such as late ground pickups, better DIM divisors, expanded next day ground deliveries, service flexibility, and more personalized customer service (just to name a few).
A final consideration is to see how incorporating a regional carrier is going to impact the overall spend with your primary carrier. Begin by reviewing your existing agreement for volume commitments and potential penalties. Look to see if your current discounts are up front or if they are linked to your portfolio tier / earned discounts. As a matter of practice, most UPS and FedEx agreements are designed to ensure that all the volume and revenue is not given to another carrier.
Secondly, pull historical invoice data or ask your carrier for a 52-week report showing gross spend. Make sure that this is a representative view of your shipping footprint. This will help quantify how much volume you may be able to move to a regional carrier without incurring increased costs with your primary carrier.
Making the Move
Once you have determined out how many shipments would be eligible for a regional carrier, put together a representative data file and provide it to the regional carriers for a bid response. This way, they will respond with a proposal that is tailored specifically to your shipment characteristics: weight, zone distribution, dimensions, residential/commercial mix, etc. Be sure to identify if you are a seasonal shipper in your data sample as well. Many shippers, especially heavy peak season shippers, ran into capacity limits in quarter 4 2020. Major carriers were overwhelmed with packages and put volume restrictions in place. This forced many shippers to look to regional carriers to pick up the packages that were over the limits set by their primary carrier.
After you implement a regional carrier agreement, you need to ensure that you have the necessary automation to create a guide for least cost routing. Consider all of the factors when setting rules for your TMS. Are you comparing the fully landed costs, including the shipment cost and all surcharges? Be sure to use a final billed weight based on dimensions and not just actual weight. Also update the cost tables to include any peak surcharges that were previously not in place. Think of transit times and how fast your package needs to get to its destination. Will it get there faster with your primary or regional carrier? Least cost routing rules will also need to include limitations like location, package size/weight, and peak shipment quantities. Additionally, some customers can override these rules if they have preferences for one carrier over the other.
Bringing in regional carriers can help improve service performance, lower shipping costs, and give you additional package capacity during your peak season. If you can’t make this solution work with your current carrier agreement, it may be time to re-evaluate your current agreements and negotiate a new agreement that will give you the flexibility to realize the benefits of a multi-carrier solution up front.
For the last 13 years, Stephanie Martin has been a senior analyst for Navigo Consulting Group. Her data driven approach has provided shippers with a keen understanding of their requirements and costs, and has given them opportunities to save and optimize millions of dollars in excess shipping costs. Stephanie can be reached at Stephanie@NavigoInc.com.
This article originally appeared in the September/October, 2021 issue of PARCEL.