This article was originally published in the second issue of FreightWaves’ Supply Chain Playbook.
Parcel shipping in the U.S. used to be a fairly simple proposition. Businesses shipped to other businesses in a straightforward way. The two dominant carriers, FedEx Corp. and UPS Inc., offered the shipping equivalent of three flavors: vanilla, chocolate and strawberry.
Today’s environment couldn’t be more different. Most of the deliveries today are business-to-consumer and increasingly direct-to-consumer. Consumers want their orders when, where and how they want them. Goods are moving anywhere from everywhere. The increasing demands and complexity of the delivery infrastructure — who would have conceived that fulfilling from a ship-from-store model would be mainstream? — requires shippers to be more nimble than ever.
That has paved the way for the development of multicarrier shipping platforms, dynamic engines that in a split second can provide shippers with the best options for their situation. These platforms continue to expand their carrier universes, adding much value to shippers, who just enter shipping information and click a mouse to get what they need.
“You can’t work with just a handful of carriers anymore. It’s become way too complicated,” said Bill Catania, CEO of OneRail, a multicarrier platform provider based in Orlando, Florida. “There’s too much volume, and it’s going everywhere.”
OneRail works with 10 million courier drivers, which Catania says gives its customers optionality. For many retailers with spiking e-commerce demands and footprints, working with a select few providers is no longer viable, he said.
Multicarrier shipping platforms are also one of the weapons that shippers can use to combat the renewed dominance of the large carriers. Until the pandemic, U.S. parcel delivery was a shipper’s market for decades. That changed as demand spiked and the big carriers toughened up on volume acceptance requirements. Unlike other modes, express and ground parcel rates remain strong on the heels of record general rate increases imposed by FedEx and UPS at the beginning of 2023. “Today, carriers can pick their shots, and they are more discriminating than ever,” Catania said.
The takeaway for the shipper, he added, is to be carrier-agnostic and to “diversify your risk.”
Diversifying carrier bases is a balancing act, however. A May 2022 survey of 168 retailers by Pitney Bowes Inc. found that technology integrations and the risk of losing volume-based discounts were the top two barriers to executing carrier diversification.
The Pitney Bowes experts were surprised that large shippers found IT integrations to be the most challenging since those organizations typically have sophisticated software and in-house teams. “This suggests that the technology investments these retailers have made leading up to the pandemic were not in the realm of multicarrier enablement,” Pitney Bowes said.
Multicarrier platforms don’t always work for e-commerce shippers, according to Jason Murray, founder and CEO of Shipium, a multicarrier platform. Merchants with relatively small volumes, say 100,000 shipments or less per year, may find that it is not worth their time given the discounts they may lose, he said.
Also, businesses with no specific directives, such as faster speed and more accurate deliveries, may choose to stay with what they have. “If [the] status quo is the only business requirement pushed down to you from executives, then there are few reasons to make changes,” Murray said in a LinkedIn message at the end of March.
That said, the ability to leverage these tools is, on balance, a tremendous benefit. “I talk to shippers who have all their eggs in one basket, and I ask them why?” Murray said. “With these platforms, you have access to more people and you gain better pricing power.”
He said shippers benefit in both a short-term transactional way and in a longer-term approach by being able to protect themselves during negotiations.
The concern that a shipper with an exclusive contract will lose certain discounts if it diverts traffic is somewhat overblown, Murray said in a separate phone interview. “Yes, it does happen,” he said. “But we haven’t seen it beat out the benefits of optionality if we get to pick and choose between different carriers and negotiate with that knowledge in your back pocket,” he said.
If a shipper’s incumbent carrier thinks you are “wired into them,” it wouldn’t give you as good a break, said Murray. A multicarrier network capability keeps those incumbents at arm’s length, he said.
At the heart of the parcel-shipping world is a coterie of consultants whose job is to optimize shipper spend. Most of these executives come from daily battles in the parcel shipping world. Their primary job is to match a shipper’s needs with a carrier’s strengths and weaknesses, and to exploit those matches to realize cost savings that weren’t there before.
Consultants are mostly made up of spend management professionals, who analyze a carrier’s spend, identify cost savings and get compensated on a gain-share model that can be split 50-50 or can be reduced on percentage terms for the consultant if the size of the client and the savings gained are larger. There are also companies that strictly specialize in post-audit services to determine if the carriers lived up to their service-level agreements and performed as committed.
Mike Erickson, CEO of consultancy AFMS LLC, said he estimates that only 20% of businesses are savvy enough to understand how parcel carriers are pricing their base rates and, most importantly, the bevy of add-on or accessorial charges that rise every year are harder to identify yet can cost shippers millions of dollars. “Most purchasing people are focused on general procurement and are not educated on supply chain,” Erickson said.
“All carriers have good and bad points, and the good consultants recognize this,” said Dean Maciuba, managing director U.S. for Crosswinds Parcel Consulting and a former longtime FedEx executive.
While Maciuba said price is important for shippers, other factors, such as the incidence of loss and damage claims, understanding how transit times capabilities impact distribution center operations, and providing package delivery visibility, can be equally important.
Building a sustainable solution for shippers is a holistic process, Maciuba said: “It isn’t just cost.”
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