Dean Maciuba served UPS and FedEx for over 37 years, working in senior sales and operations roles. His experience gives him a unique and in-depth view into nearly all aspects of small parcel shipping, including the role of parcel carriers and fulfillment service providers. Dean is currently the Managing Partner, United States, for Crossroads Parcel Consulting, where he is responsible for managing consulting initiatives in the US. We recently spoke to Dean about best practices for establishing collaborative relationships with parcel carriers.
How have major parcel carriers changed to support the phenomenal growth of eCommerce?
They have expanded their capabilities to cost-effectively deliver the high volume/low revenue, eCommerce residential parcel shipments. This has been a huge challenge for parcel carriers. They’ve had to build more infrastructure to support that middle-mile, line-haul/hub sortation and last-mile delivery capacity. This expansion has a significant cost.
How have the carriers’ significant capital investments in capacity impacted merchants and order fulfillment service providers?
The additional cost that the parcel carriers are incurring to handle the “ugly freight” – eCommerce residential parcel/delivery – is being passed on to merchants and their fulfillment partners. Everyone is paying more for small parcel shipping.
Could these added merchant costs for transportation ultimately lead to the end of free delivery?
First-of-all, home delivery has never been free. Merchants have been building higher costs into the retail purchase cost of the products, and we can expect that to continue. Order fulfillment service providers have also had to reluctantly pass on their added parcel carrier costs to their customers, the eCommerce merchants.
Exactly how are the parcel carriers passing on the added cost?
We have not seen significantly higher base transportation cost via the annual rate increases. However, we are seeing significant increases in surcharges that tend to apply to eCommerce shipments. These surcharges include:
- Residential Delivery
- Rural Delivery
- Additional Handling
- Oversize (greater than 135 inches length and girth combined)
- Special Peak Season Surcharges
The minimum shipment charges that apply to lower weight/lower zoned ground shipments are also increasing.
Can these surcharges and special-charge rates be negotiated downward?
Unfortunately, the power lies with the carriers, and they are much more reluctant today to open negotiations early, prior to contract expiration dates. This means that, in most cases, somewhat punitive annual surcharge increases are difficult to negotiate downward immediately after they are implemented.
What about changing carriers to get a better deal or giving all your parcel business to a single carrier in a near exclusive relationship?
There are opportunities to open contract negotiations with an alternate carrier if you can turn over significant new parcel volume. However, any new agreement with the alternate carrier will also result in strict net revenue minimum requirements. These requirements could result in significant cost penalties if you do not meet the revenue tier.
Are regional parcel carriers a viable alternative to the major carriers for small parcel shipping?
Yes, but only if you are prepared to manage multiple parcel carrier relationships to realize lower transportation expense. Also, merchants must understand that splitting their parcel spend among multiple carriers could negatively impact revenue-based earned transportation discounts.
The parcel carrier pricing programs can be difficult to understand as multiple pricing variables come into play. Should a shipper hire a pricing consultant to manage a carrier pricing negotiation?
Smaller shippers, up to an annualized spend between $100K and $500K, can probably manage a carrier pricing negotiation if the lead negotiator has parcel shipping experience and solid analytical skills. However, larger shippers should be open to paying for support from a parcel carrier pricing consultant.
If a merchant ships under the parcel contract of its fulfillment services provider, most of those providers will have experienced small parcel shipping specialists on staff.
Any final suggestions?
No matter what you ship, pay attention to the cost of parcel shipping. Audit your invoices and understand where you are feeling the most pain on small parcel shipping costs. Then, take your findings to your parcel carrier representative and quantify your request for an additional discount.
Most importantly, be respectful and don’t threaten to move your business if you do not get what want. While you might not be happy with your current pricing, a collaborative pricing negotiation will more likely earn you the best deal possible.
Finally, don’t be afraid to counter the carrier proposals as many times as necessary to get what you want, and be prepared for a long and draw-out negotiation.