By Jim Haller | Senior Manager, Parcel Spend Optimization Service | Chainalytics
Traditional parcel delivery business models have always revolved around the pricing and service level capabilities offered by the U.S. Postal Service (USPS), DHL, FedEx, Purolator or UPS–not necessarily around the changing needs of the shippers who purchase and use these services to meet their customer demands.
As a shipper, you literally have to keep your eye on the pricing ball:
- Most of these large parcel providers are asset-based, have shareholders to report to and government regulations to work within. And they change or add extra fees and rates on a whim to meet their capitalization requirements or Wall Street expectations (via general rate increases and the like), despite three-year agreements with shippers.
- This “pricing ambiguity” is further complicated by highly complex pricing matrices (new third party billing fees; a shift in the dimensional pricing index for ground shipments; higher handling charges for long, oversized or unauthorized packages; frequent changes to the fuel surcharge index; peak season surcharges; etc.).
- All the major parcel carriers routinely make changes to their individual tariffs mid-year that can have a huge impact on your parcel spend, shipping and transportation planning, and service levels that will impact your bottom line.
Pricing ambiguity and constant change are especially challenging for the growing cadre of shippers whose operations include extensive B2C e-commerce-based parcel freight or omni-channel strategies or those with exorbitant large-parcel provider rates “embedded” in their transportation and operating systems.
Parcel spend is getting to be a much more costly, complicated and sophisticated part of doing business.
Who’s Really Driving Parcel Delivery to Meet Customer Demand?
A few large parcel deliverers are slowly reacting to “the Amazon effect” (USPS now delivers to every address six days a week and delivers Amazon packages on Sunday; UPS now accepts and delivers U.S. packages for ground delivery on Saturdays in certain markets; and competitors like FedEx and the U.S. Postal Service offer similar services.
But really, it’s the customer behind the wheel–along with their high expectations and use of technology to order, track and trace their purchases–and dozens of often-well-funded new parcel delivery technologies and app-based services that are changing the small parcel pickup and delivery landscape.
These alternative fulfillment capabilities are becoming a reality: Niche crowd shipping like PiggyBee connects shippers with a traveler; end-to-end shipping like Shyp collects, packs and ships your items; local small parcel delivery like the Postmates local delivery app enable delivery by a real person; and small parcel storage options like MakeSpace provide pickup, storage and on-demand retrieval. Nevermind drop-off boxes or services like CargoBeacon that enable a device to monitor valuable cargo. Meanwhile, technology-enabled regional parcel delivery companies (PDCs) are on the rise and aggressively competing for the last-mile delivery package.
Even traditional parcel delivery companies are investing in “future” technologies–as an example UPS is currently testing drone deliveries and building large automated sorting facilities. Other non-traditional delivery companies like Otto have been testing autonomous vehicles on the road. We are also beginning to understand and see the future benefits of artificial intelligence (AI)–but how this will impact the parcel delivery industry is to be seen!
So how can you harness all this technological change, to take control of your parcel spend, avoid getting locked into inefficient practices or inflexible costs, achieve better services levels and costs and retain customers?
Our cross-disciplinary supply chain work in areas including transportation, packaging optimization, supply chain design, logistics operations and integrated demand and supply planning has always shown that clients benefit when they can move their organizations into better use of technology and data.
This is especially true for companies that need to flex to meet growing e-commerce demands or omni-channel strategies. In this case, technology needs to be the #1 priority from an operational perspective, to ensure parcel spend optimization.
And despite what a shipper might think, parcel spend optimization is quite possible, even if you currently have a dedicated carrier system on site. We advise clients to take “incremental” steps over time to overcome any current challenges due to EDI or system integration with a current parcel system that’s integrated into your customer service department, labeling, document system, hand-held or tracking devices, etc.
To fully understand what it takes to manage your parcel spend and technology requirements, we advise clients evaluate:
- Multi-carrier platforms including cloud-based solutions. These can help you to simultaneously manage a host of carriers. Being able to load multiple rate tables and service offerings into a platform like this is key to enabling you to “switch on a dime.” These platforms support pricing bids from multiple carriers (not just traditional national or international providers, but also regional parcel delivery companies) to better meet customer delivery expectations with lower costs.
- The operational value of regional parcel delivery companies, local providers and a short list of parcel delivery technologies and app-based services. Choose from the options we noted above to meet the specific needs/demands of your customer base, while at the same time staying up to date on technological changes in the parcel delivery landscape. Who knows what company will step up next and lead the charge?
- Your options for better systems that will allow you to collect and analyze solid data. With better data-driven industry insights, you can challenge your existing distribution and delivery network; continue to learn and gain an understanding of your customers’ needs and future expectations; and create internal energy within your team, allowing them to be bold and imaginative and execute continuous incremental improvements.
Better use of technology gives you as a shipper an even more important tool, enabling you to increase your ability to negotiate parcel spend, get better service and avoid having rates dictated to you. And of course, at the end of the day, it’s all about meeting service levels and keeping your customers satisfied.
Chainalytics Senior Manager Jim Haller leads the firm’s Parcel Spend Optimization offering, which enables multi-level organizations to reduce costs, improve service levels, negotiate better pricing agreements and generate cost savings of 8-15 percent on their parcel spend.
Read more about how Chainalytics supports our clients’ transportation and spend optimization success: