Carrier capacity constraints, looming labor disruptions, shifting consumer behaviors, and shuttered carrier facilities are just a sampling of the hurdles parcel supply chains have had to navigate in the past several years. While shippers gleaned valuable lessons from navigating these challenges, a reverberating refrain has been, “I can no longer risk putting all my eggs in one basket.”
Thankfully, we find ourselves in a more carrier-rich environment than has historically been the case. The traditional national carriers and a rich assortment of effective tertiary regional carriers and regional consolidators make this an excellent time to explore a multi-carrier strategy.
Benefits of a Multi-Carrier Network
The advantages of a diverse carrier pool are significant and touch multiple aspects of a modern supply chain. Depending upon a shipper’s annual volume, many shipper segments can realize significant cost savings by building out an effective multi-carrier solution. A robust rate shopping solution will allow you to take advantage of areas of savings with each carrier, optimizing what each one does best.
With diversity comes flexibility. Having some “capacity overlap” can aid when one carrier is delayed by weather, scarce equipment, labor disruption, or conflicts with operating hours and pick-up time. Having multiple carrier options can also help should peak season capacity constraints surface again and could even assist in mitigating peak season surcharges by spreading volumes over multiple carrier networks.
The end consumer experience is often improved by providing a variety of carrier options. The delivery time and method flexibility, cost savings, and improved time-in-transit derived from the ability to choose between multiple delivery options can all lead to a more rewarding delivery experience.
Securing the above-mentioned benefits does not come without challenges, however. Let’s delve into some top tips to building out the best possible multi-carrier network.
Technology Tips
The most common roadblock to implementing an effective multi-carrier solution is usually technological constraints. The limitations of carrier-provided shipping systems, or home-grown legacy systems which were designed with a single carrier in mind, often torpedo multi-carrier solutions before they even launch. I have observed shippers leaving millions of dollars of annual savings on the table due to their inability to generate a label for a second carrier. Thankfully, there are ways to mitigate this roadblock and take full advantage of our current environment.
First, evaluate your current shipping platform to determine if the functionality to support multiple carriers already exists or if it would require a simple upgrade. Many systems have bolt-on solutions that are easy to implement and are relatively inexpensive. If this solution isn’t available, there are a bevy of effective carrier-agnostic third-party shipping systems on the market that effectively manage multiple carriers. ShipStation, e2open, 3G, OracleTMS, Manhattan, and Mercury Gate are all popular examples.
Contract Tips
Introducing a second, or even a third or fourth carrier, into your supply chain will certainly impact the contractual relationship you have with the incumbent carrier. The majority of carrier agreements, particularly those with UPS and FedEx, have a “self-regulating” element to them. This performance tier-based structure bases discount levels on shipper spend over a period of time, typically 52 weeks. Due to this “carrot & stick” contract structure, diverting spend to other carriers may trigger cost increases with the incumbent. Some carrier agreements even contain “poison pill” provisions such as minimum commitment language or primary carrier provisions, which may risk invalidating the existing contract if a significant diversion is made.
It is critical to the success of any multi-carrier initiative that contractual constraints be fully understood and their impact quantified. Often, shippers have enough flexibility in their carrier agreements to engage an additional carrier without significant penalty, but not always. It is essential the impact to your current set of carrier agreements is understood before this initiative is undertaken. If you are unsure, seek some professional assistance in the evaluation. It is possible your existing agreement may need to be re-negotiated to make room for your new strategy.
Facilities & Staff Tips
With multiple carriers comes multiple processes. Each carrier will have different methods for tasks such as returns, claims, adult-signatures, HAZMAT, size restrictions, etc. The process multiplication can create an employee training burden both for the logistics department and the customer service function. The introduction of multiple carrier invoices will mean a larger lift for finance when it comes to auditing, GL coding, and invoice payment. These departments should be engaged from the start to ensure complete organizational buy-in for the new carrier strategy.
Oftentimes, carriers are eager to assist in overcoming these hurdles to win your business. Carrier-led training sessions and detailed process documentation are typically available and encouraged. We have found most carriers to be receptive to requests for assistance with items such as training, payment terms, and operational accommodation.
The most difficult restriction to overcome when attempting to introduce additional carriers to your supply chain has traditionally been facility constraints. Multiple carriers mean multiple trucks, and some locations suffer from a shortage of adequate bays or floor space for staging packages. These shortcomings can sometimes be overcome with careful planning and collaboration. For example, we have a client who launched an initiative to improve same-day order throughput. To achieve this, they altered their operation to run later in the day to process a higher percentage of orders on the day they are received. Their bottleneck became the incumbent carrier pull-time. Due to the distance of the carrier hub from the shipper’s facility, the carrier could not push out the pull-time to match the new extended operational hours. An added constraint was the limited dock space at the facility, removing the possibility of a drop-trailer from a second carrier. The solution was to introduce a second carrier that had the ability to pull later. The first trailer was pulled, then the second was live-loaded and swept the orders processed between the exit of the first carrier and the close of business. This remedy allowed the shipper to process more orders on the day they were received without requiring any facility upgrades. With some creativity and openness with the carriers about your goals and your constraints, there is often a mutually beneficial solution that can be unearthed and implemented.
Conclusion
The substantial and far-ranging benefits of a multi-carrier solution are too great not to be explored. Though the hurdles to implementation may be significant, with careful planning, open communication (both internally and with your carriers), and an understanding of the costs and benefits of the decisions involved, an effective strategy and its rewards are within your reach.
Kenneth Moyer has leveraged his 30 years of industry experience to effectively serve as a Partner & V.P. of Supply Chain Strategies for LJM Group. In his role, Kenneth combines his carrier pricing and consulting experience to aid shippers in implementing robust Supply Chain solutions and negotiating best in class parcel agreements. He can be reached at kmoyer@myljm.com.
This article originally appeared in the May/June, 2024 issue of PARCEL.
