Small and medium-sized businesses (SMBs) that ship direct to consumers are anxious to reduce parcel rates. Why? For every dollar in warehouse-related costs there are another four or five dollars in freight costs. So reducing parcel costs has a huge profit impact.
SMBs struggle, however, when they try to negotiate directly with parcel carriers.
“We’re small now, but our volumes will increase ten-fold in the next year. If you could cut us a deal now, we’ll commit to you….”
FedEx and UPS hear this same story every day from growing businesses. Parcel salespeople may be sympathetic to your situation, but, in the absence of proven parcel freight volume, their pricing analysts won’t be.
The best path to reduce parcel rates is to align with a third party logistics provider (3PL) that manages freight for many other companies. They negotiate with carriers using their aggregate spend as leverage.
How much can you save on parcel rates?
According to Hugh Tait, vice president at Amware Logistics, “We can get parcel transportation discounts in the 40% range for heavier packages. We allow our smaller and mid-sized customers to move up the food chain with the carriers and secure rates similar to their larger competitors. That‘s a big advantage.”
3PLs will add some margin points, obviously, but the parcel discount they can negotiate is still far better than most SMBs will get through direct negotiation.
“For lighter packages, a 3PL’s rate for lightweight ground through postal consolidators will still be better than first-class postage rates,” says Tait, “but the ground freight discount levels are closer to the 10% level off postal rates than the 40% range you would see for packages over 10 pounds.”
How Postal Consolidators Can Reduce Rates for Lighter Shipments
For lighter packages, 3PLs can offer significant USPS discounts – up to 20% below normal rates – by using a zone skipping strategy. Zone skipping consolidates many individual packages from a particular fulfillment center into a full truckload, which is then delivered to a 3PL consolidator. The consolidator will then sort the packages by destination zip codes and ship them to the USPS terminal in the applicable city or region, where they are injected into the postal system for final delivery.
Obviously, 3PLs are in a good position to leverage zone skipping because they work with many shippers and can combine that freight to create full truckloads. 3PLs partner with postal consolidators who specialize in zone skipping. At Amware’s Atlanta fulfillment location, for example, our consolidator partner makes daily runs to Chicago. The strategy works best for lighter packages up to 10 pounds, but can range up to 25 pounds. Postal freight consolidators certainly don’t want anything over 25 pounds since they want to put as many packages as possible in the trailer, and there are limitations on the final mile delivery by the postal network.
Of course SMBs can employ a zone skipping strategy on their own by waiting for their outbound volume to fill a trailer, but waiting a week to ship is not realistic. Consumers have been conditioned to expect rapid delivery. For that reason, 3PLs are the best answer for SMBs who want the significant cost benefit of a zone skipping strategy.
Parcel Rate Discounts Require Leverage
It doesn’t matter what you are buying – noodles, ball bearings or freight capacity – your ability to secure the lowest price will depend on leverage. The more you buy, the lower the rate. SMBs have many advantages in the market – speed, agility, aggressiveness – but leverage is not one of them.
To reduce your parcel rates, talk to a 3PL that already commands low rates. If you are also looking for a warehousing and order fulfillment partner, choose a provider that can offer both fulfillment and freight management in order to maximize your parcel discount.