Since 2020, shippers have diversified their programs at a rapid pace. But what are the best strategies to determine which parts of your program should be given to each carrier? The common tool of the revenue attainment or earned discount tier has been in use for decades. However, now that most shippers have mixed carrier scenarios, how can you balance the attainment to maximize discounts?
Why should you add carriers?
There are several reasons to mix a program, but two reasons are most common.
#1 Capacity/Business Continuity
• Surge capacity at peak requires a second carrier
• At other times, if one carrier is unable to pick up, the other can be used as a supplement
#2 Transit Times
• To meet the changing expectations of consumers, shippers need to supplement to get a transit time that will match their customer commitments
• This could include regionals or specialized carriers that have better ground transit than the nationals in a particular region, or a second national that has a different service standard for a particular geography
What is the best way to supplement capacity? That is best determined by what capacity is needed. Do you need additional pick-up capacity with the ability to reach the entire country? Do you need the ability to deliver to increased demands in a particular region? Do you have specialty demands like cold chain or large packages? Incorporating the right carrier will typically depend on these types of guiding discovery questions.
The first step for most small shippers is building an affordable alternative to their primary carrier with a national reach. Adding UPS SurePost or FedEx Ground Economy could suffice in this space (depending on who you are primarily using now), but DHL eCommerce and the USPS itself are also alternatives. There are a host of new carriers that have begun to offer services with a national reach. However, the majority of these new carriers utilize the USPS for the last mile. The choice between them comes down to the differences in what they do with your packages before induction to the USPS for delivery. Increasingly, FedEx is pricing itself out of a slower, cheaper service (FedEx SmartPost has morphed into FedEx Ground Economy).
Another consideration for additional capacity may be that you need national coverage. In today’s era, if you are a shipper that ships more than approximately $20 million per year, it is advisable to include both FedEx and UPS in your program, even if you use one of them in a limited way. This affects your pricing and will have implementation costs, but ensuring that both carriers are implemented gives you the ability to switch, if necessary, in future negotiations.
In a recent Pitney Bowes box poll (“Multicarrier appears to be a privilege”), shippers identified technology integrations as the biggest obstacle in implementing a multicarrier solution. It is worth the investment to implement and thoroughly test both national carriers prior to them being needed. This could also be expanded to include a direct link to the USPS or one of its consolidators.
Amazon is, of course, the standard bearer of online transit. With two-day transit being standard for the contiguous US, overnight shipping available on many items, and even free same-day delivery in some ZIP Codes, Amazon is the industry’s culture and expectation driver.
Regionals may help to improve the transit time in a given region by taking advantage of their larger overnight footprints. Although UPS and FedEx are at parity in most of the US ZIPs, there are some geographies where they differ greatly.
When Do I Mix My Program?
The answer to this question has changed in the past two years. Before 2020, most shippers branched to two carriers when they were spending above $20M per year on their parcel program. The reason is that UPS and FedEx bound their incentives to those with higher spend. At one point, network saturation was needed, and the more volume, the better. These carriers cycle with the economy. When goods are in high demand, margin and profit are the focus… when demand for shipped goods falls, volume and revenue are more desirable.
Consumer demands also play a key role in determining focus. As e-commerce has grown, consumer expectations have changed. Two days is practically a universal expectation of delivery, with overnight and same-day options growing in popularity.
The Basic Mixed Program
Most shippers start with a single carrier solution with national reach. Namely, UPS or FedEx typically serves to start the parcel program. They are still the all-purpose, go-to carriers that are scalable and meet modern expectations for service time, national reach, and tracking.
Often, the first experiment in a mixed program is adding a postal consolidator, regionals, or the USPS to the mix. Typically, this is going to happen above $10 million in annual parcel spend, but capacity or other constraints could call for consideration sooner. At this level of annual spend, there is enough shipping volume to use a mix of carriers while being able to maintain revenue tiers with national carriers. It is best to use well-established carriers during this stage and spend to ensure your first split carrier scenarios are successful. These would include DHL eCommerce, LaserShip/OnTrac, or the USPS itself.
Above $20 million of annual spend, many options become available and may make strategic sense. These would include a second national carrier and additional regionals. As a note, any carrier that has been established in the last five years should be piloted before promising them any significant portion of your parcel program. Although a host of new alternatives have arisen, they are so new that they do not have a tremendous amount of customer or performance history.
As a general rule, your pool of carriers and technology should grow to meet the demands of your spend.
Practical Application: “What Should I Do About This?”
Several steps in the management of your operations and contracts will empower you to stay current or ahead of the curve.
#1 Data, data, and more data
To be poised for change going forward, vigilance in the collection and interpretation of your operational and invoicing data is going to be paramount; specifically, develop independence from your carrier by collecting the following:
• Invoicing data: collect and store package level detail for every invoice, for every package by tracking id. The carriers do not retain accessible invoicing data indefinitely. Typically, it is only available for six months – two years.
• Dimensional data: collect data on every box size used for every package, tied to tracking id. UPS and FedEx do not share dimensions for every package; they only share the dimensions of packages of which they have assessed a dim weight. When changes in dimensional policies occur, if you rely on the carrier, you will not have complete information to assess the costs of new policies or charges.
• Transit data: capture data on ship date & time and delivery date & time. Transit time from the carriers typically excludes service failures for weather and other causes at the discretion of the carrier.
• Do not accept any limiting clauses like Early Termination, Minimum Commitments, or Rebate paybacks in your carrier agreements. The rate of change in the industry will make it crucial to have the ability to renegotiate at any time.
• Arm yourself with the data to assess impacts before negotiating.
#3 Develop a community with other shippers
• Reach out to other shippers via conferences, social media, and industry events.
#4 Build out your operational and organizational capabilities
• Your flexibility to use other carriers begins on your dock. If you are only using one carrier currently, develop a relationship with other carriers, establish an agreement with them, and periodically test shipping.
• Keep in mind using a new carrier not only involves change management of your dock operations, but all their supporting processes of accounting, marketing, and other internal groups.
#5 Develop a partnership with subject matter experts
• Even the most seasoned transportation and procurement professionals in your organization can use an additional set (or a dozen sets) of eyes. Ask your SMEs about the ROI on their services, and partner with those you can trust.
Mark Taylor is Director of Parcel Consulting, enVista.
This article originally appeared in the September/October, 2022 issue of PARCEL.