Are you ready for transportation's seismic shift?

Carriers traditionally pegged "parcel" are emerging as global full-service parcel and freight providers. If you think reviewing their contracts, data or reports is challenging now, within the next 18 months the task becomes far more complex.

How Did We Get Here?

Historically, shippers viewed parcel carriers for certain strengths, contracting with one primarily for ground and another for air. Shippers awarded remaining transportation to a bevy of other freight carriers who fought for business based on price more than characteristics like service and coverage.

In the late 1990s, as parcel carriers began tapping into the freight segment, market dynamics started changing.

FedEx implemented an aggressive acquisition strategy of complementary assets for domestic transportation. What is now called FedEx Freight was formerly East/West (originally American Freightways and Viking Express), FedEx National (originally Watkins) and FedEx Custom Critical (originally Roberts Express).

UPS soon followed with their own asset acquisition strategy branded UPS Freight, formerly Overnight and Marten, as well as shoring up air freight programs with Fritz and acquiring port rights in other countries.

Where Are We Now?

Today, DHL and UPS are the largest Third Party Logistics Companies in North America with UPS's 2006 gross revenue estimates just over eight billion dollars.

DHL, including their subsidiary Excel Logistics, is the largest provider Globally, with North American revenues similar to the UPS estimates of in excess of eight billion dollars.

Although FedEx Supply Chain Services and FedEx Trade Networks do not fall into the same revenue category as UPS and DHL, FedEx's transportation asset family branded FedEx Freight penetrates domestic markets more deeply than either UPS or DHL.

While customers and third party providers chase UPS and FedEx late packages as a method of managing their parcel spend, the parcel carriers have been building infrastructure, integrating platforms and expanding markets to exponentially drive their revenue, while customers are left unprepared to take charge of that impact. They have positioned themselves to usurp traditional freight carriers.

In disbelief? Recall what happened with postal consolidation:

UPS and FedEx bought and built their way into the postal consolidation market quickly in the early 2000s. They were able to systematically coordinate inbound and outbound drop ship programs for a one-stop contract, running Donnelly Logistics/APX out of business. By 2006 high volume parcel shippers fled to UPS and FedEx for delivery to residential addresses - and a much higher rate.

What Does This Mean to Me, the Shipper?

Shippers used to be able to compare apples to apples. Now, determining which carrier to use for a particular mode and consequently managing those contracts has just become an order of magnitude far more difficult.

UPS and FedEx see individual shippers as a single market, and they want to penetrate that market from as many angles as possible: managing inbound and importing freight, assisting with international freight and customs services, and offering a wide variety of asset based freight services to complement their asset based parcel and third party services.

As "parcel" carriers increase their presence within the customer, it creates a growing challenge for the traditional freight providers to compete. Parcel carriers now blend freight and 3PL services with parcel incentives to gain a foothold in key market shares not currently replacing their parcel revenue. Their cross-selling will effectively offer new services that you currently purchase from a different freight carrier.

The parcel carriers' strategy to "bundle" or "bake in" expanded freight contracts will bind your parcel and freight spend into one agreement. For example, you may need to figure out if giving them freight to reduce your parcel discount by two percent is a good decision. Compound those numbers with variables like gross revenue tiers with 52 week rolling averages, and quarterly rebates based off gross freight, or maybe net freight, or just a flat amount. Makes your head spin, but their information systems are catching up to meet these pricing programs.

So let's say you have freight proposals from the traditional freight carriers and the morphing parcel carriers as well. How do you make your decision?

You'll need to determine what your key performance areas are, be it cost, service time, customer service. Then you'll need to develop a system to measure the offerings against each other.

How Can I Analyze Transportation?

Parcel carriers' broadening scope amplifies your need for data to strategically determine your best carrier portfolio and then manage that transportation spend. That's the primary issue.

The immediate second is that no one repository exists to extract all that data. Finally, once you have all the numbers, you need the tools to transform that data into intelligence.

The first step is to merge your freight and parcel data to a single database. The figures captured in this database should be directly tied to what you paid the carrier, not what you expected to pay the carrier. To get this information, use the invoice data instead of the manifest data or merging of carrier reports.

Note that monthly carrier reports or shipping data extracts do not illustrate the full story. For example, while rates may have hypothetically increased for you 4.9% (actually 6.9% with a temporary fuel surcharge discount that will rise again quickly) your non-transportation based fees may have increased as much as 10 or 20% with the rate change. Invoice analysis allows you to count every penny.

Once you have consolidated your data in one place, you'll need to analyze your spend - and do so at the same specific level and competence as your carriers.

Look at your numbers in comparison to the key performance issues you laid out at the start. You should also look at the broader data set to determine what areas a carrier may seek from you in expanding their presence. Developing or partnering to obtain a core competency in statistics is critical to crunching the numbers.

Where Do We Go from Here?

UPS and FedEx are proving that their ability to build out non-traditional freight services by leveraging their foothold with each customer will be successful. Only the most prepared shippers - armed with an intimate knowledge of their own transportation data - will come out on top.

Jonathan Shaver is the President and Founder of IntraVex, a premium provider of multi-modal freight invoice processing and data analysis services. He has been a leader in the parcel and transportation field for 17 years working for Pitney Bowes prior to launching IntraVex in 2000. He is an MBA from Northwestern's Kellogg Graduate School of Business with a focus of Transportation Management, Marketing, and International Business. Mr. Shaver also serves on the Board of The Freight Transportation and Consultants Association and a member of the Council of Supply Chain Professionals. Contact: www.intravex.com.