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It
used to be a question of USPS or UPS. Today, even LTL carriers want
to be contenders in the small package delivery market. What’s a
shipper to do
THE
CHOICE WAS MUCH EASIER A QUARTER CENTURY ago. If you had a small
package to ship, you went with either the U.S.Postal Service (USPS)
or United Parcel Service (UPS).
Then
along came Federal Express, with an overnight delivery service,
and Roadway Package System (now called FedEx Ground), which was
the first to offer ground parcel service with package-tracking capability.
Lured by the prospect of money to mine, others—most notably Airborne
Express and DHL Worldwide Express—quickly jumped into the domestic
express service game.
But
that doesn’t mean small package carriers own the market. Today,
they’re getting some competition from an unexpected quarter—the
less-than-truckload (LTL) carriers. LTL haulers, which have adjusted
their networks and upgraded their systems so they can offer time-definite
delivery and tracking, are gearing up to beat small package specialists
at their own game, especially in business-to-business shipping.
As
a result of all the competition, shippers looking to move small
packages today can reach any address in the nation, choose how fast
the goods get there and obtain notification of their exact time
of arrival. Also as a result of all the competition,shippers now
have a lot more options to investigate—not only among the traditional
small parcel carriers, but among LTL competitors and consolidators
as well.
So
many choices, so little time
The pantheon of small-parcel carriers is pretty familiar to most
shippers by now. The grand daddy, of course, is the USPS, of ten
the choice of customers who are interested in saving money. What’s
noteworthy about the Postal Service’s offerings is the absence of
extra charges: There is no extra charge for delivering to residences
or for making Saturday deliveries, and there’s no fuel surcharge.
And even though the USPS does impose a fee for its pickup service,
that fee is charged for the visit, not the number of pieces as is
the case with many of its competitors.
Then
there’s FedEx, which offers a wide variety of services. Domestic
offerings range from same-day, overnight, and two-or three-day delivery
(FedEx Express U.S.) to one-to five-day ground delivery (FedEx Ground
U.S.). International offerings include FedEx Express International
(one- to three-day or four-to five-day service to more than 210
countries) and FedEx Ground International (day-definite service
to business addresses in Canada and Puerto Rico).
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Raising
returns
Parcel
carriers, like most other businesses, suffered some setbacks
under the double shocks of a stalled economy and the 20 01
terrorist attacks. FedEx Express’s average daily volumes,
for example, grew by a scant 0.3 percent in its 20 01 fiscal
year (which closes at the end of May) and dropped by 5.8 percent
in its 2002 fiscal year.
Though
there are signs that some of the business is rebounding—FedEx
Corp. reports that average daily package volume for FedEx
Express and FedEx Ground was up 13 percent in the quarter
ended Nov. 30—it’s definitely not a universal. If you look
at stats through the first nine months of last year, UPS’s
average daily volume of 12.9 million domestic packages lagged
1.8 percent behind the previous year’s.
One
way to offset falling volumes, of course, is to raise prices.
And indeed, most of the small package carriers have announced
rate increases recently. In November 2002, UPS raised its
rates an average of 2.9 percent. FedEx raised its express
rates by 3.5 percent and ground rates by 3.9 percent. Airborne
followed suit, announcing rate hikes of between 3 and 4 percent
for its various services. Those followed a 10-percent increase
by the Postal Service for Priority Mail earlier in the year.
But
that doesn’t immediately or necessarily translate into a rate
increase for all customers, says Donald Broughton, a transportation
equity analyst with A.G. Edwards of St. Louis. “ For example,
customers who have contracts with small package carriers won’t
see increases for up to a year,” he says, “and those who already
have discounts will continue to get those discounts off the
base rates.”
Does
a rate increase among parcel carriers give a pricing edge
to the LTL carriers? No, says Broughton. “Small package carriers’
decisions to raise rates won’t hurt them in terms of going
up against regional LTLs because the LTLs have been raising
their rates, too.”
Overall,
LTLs have tended to use far less discipline in terms of not
negotiating back all of their rate increases through discounts,
he adds. “In other words, if you have a discount with a small
package carrier that raises its rates, you will still continue
to receive that discount. However, this isn’t always the same
with LTL carriers. For example, if an LTL carrier announces
a 5-percent rate increase, a customer with a 50-percent discount
may end up with a 52-percent discount.”
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Meanwhile,
megacarrier UPS, already a huge player in both the domestic ground
and air-express business, is looking to strengthen its foothold
in the international small package market. The carrier, through
its UPS Supply Chain Solutions division, launched its “Trade Direct
Ocean” service in Brazil and China late last year. Under that program,
which is popular among shoe and apparel manufacturers, the company
works with vendors and manufacturers to prelabel small packages,
which are then moved via ocean container to the United States. Upon
arrival, UPS unloads the packages and imm ediately places them directly
into its small package network.
Another
major player is Airborne, which offers overnight, next-afternoon,
second-day, and ground service as well as a deferred one-to five-day
service. The company’s recent focus has been on expanding its Web
site, Airborne.com, to include a number of transactional capabilities.
Shippers now can print their own labels, track shipments, schedule
pickups and pay bills—all online.
Along
with the national players, there are a number of regional parcel
carriers. Eastern Connection, for example, provides parcel delivery
services in cities from Maine to Virginia. Small by comparison to
UPS or FedEx (it handles about 8,000 packages a day), Eastern Connection
provides next-day service to most of its destinations.
Grounded
But the regionals are not the only carriers nipping at the traditional
parcel and express carriers’ heels. The LTL haulers are making headway
among shippers that move large volumes of small packages to business
consignees. The major carriers in the marketplace have reduced transit
times on thousands of lanes and have tracking capabilities comparable
to the parcel carriers’. For example, Roadway Express, one of the
nation’s largest LTL carriers, now offers services that historically
have been associated with parcel and express specialists, such as
delivery within specific time windows and tracking by its own PRO
number, by bill of lading and by purchase order or booking number.
Yellow
Transportation, another national LTL carrier, offers what it calls
Exact Express, which provides time-specific delivery the same day
or the next day. Its Definite Delivery services offer guaranteed
on-time delivery for non-expedited shipments. As an added bonus,
shipment status information is available 24/7.
Con-Way
Transportation Services, a group of regional LTL carriers, also
offers time-definite and day-definite delivery services. It provides
a number of tracking options, including tracking via its Web site
and tracking by bill of lading, purchase order, PRO number or shipper-specific
identification number. Last month, the company introduced a service
offering tracking information via e-mail.
Another
player is national LTL carrier ABF Freight System, which provides
a premium delivery service it calls Assured Service. That service
guarantees delivery on the advertised service date by the shipper’s
choice of noon or 5 p.m. ABF also offers a non-guaranteed express
service providing next-day, second-day or third-day delivery.
Even
the multi-regionals have gotten into the act. For example, Old Dominion
Freight Lines, a multi-regional carrier with direct service in 38
states, offers three levels of guaranteed delivery service. Its
Speed Service Guaranteed provides a guarantee of delivery within
regular transit times; Speed Service On Demand provides expedited
service; and Speed Service Next Day Air provides next-day service
in the United States.
Getting
PO’d
But the traditional parcel carriers and their LTL competitors do
not have the field to themselves. Companies that ship the bulk of
their small packages to residences also have the option of using
consolidation and mailer services. These services arrange for packages
to move most of the way by truck before being deposited into the
U.S. Postal Service’s system for final delivery.
This
can mean big savings for shippers. R.R. Donnelley Logistics Services,
which is probably the largest of the consolidators, handling more
than 150 million packages a year, says the service can save shippers
up to 25 percent over other ground delivery services. This service
is a variation of an older concept called zone-skipping, in which
consolidators placed packages into either the UPS or the Postal
Service delivery network at the end of the linehaul and near the
point of delivery.
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You
might think that all small package shippers want pretty much
the same thing. But you’d be wrong.
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One
event that has spurred the growth of the consolidation and mailer
segment has been the development of tracking capabilities up to
the point of delivery. Historically that was the weak point in the
zone-skipping model. But in October 2001, Donnelley Logistics and
the Postal Service integrated their tracking systems, allowing shippers
to follow packages for which they had requested delivery confirmation.
Though
Donnelley may be the biggest player in the market, it doesn’t lack
for competitors. Parcel/Direct, another package consolidator serving
companies that ship to residences, began operations in 1998 and
now runs seven distribution centers around the United States. Other
players include Parcel Corp. of America, which began as a zone-skipping
consolidator and now offers fulfillment services on the West Coast
to direct marketers. PFI, also on the West Coast, specializes in
daily delivery of parcels directly to 1,500 post offices (called
“destination delivery units” in Postal Service jargon). Established
in 1999 as PaQast Inc., it has aimed from the out set to establish
a joint venture with the Postal Service to provide expedited parcel
delivery.
What
shippers want
Given the wealth of options out there for moving small packages,
the question on everybody’s mind is what shippers really want. You
might think that all small package shippers want pretty much the
same thing. But you’d be wrong. According to a recent survey by
J.D. Power and Associates, what shippers are looking for varies
markedly with the type of shipment. For example, the survey found
that where ground service was concerned, shippers ranked “shipping
& delivery” (that is, consistency of delivery and damage-free delivery)
highest (51 percent), with “invoicing” a distant second (11 percent).
Where international service was concerned, “shipping & delivery”
again ranked highest (42 percent), followed by “value” (24 percent).
But those survey respondents using air service saw things differently.
With this group, “value” ranked highest (23 percent), with “shipping
& delivery” a close second (19 percent) and “driver relationships”
a close third (16 percent).
Other
factors included in the survey were reputation, account executives,
tracking information, communication, special services and customer
service reps.
Though
both air and international shippers gave “value” a lot of weight,
that wasn’t the case among ground shippers, who relegated it to
seventh place (3 percent). Surprising? Not necessarily, says Curt
Carlson, director of custom research for J. D. Power and Associates,
which is based in Westlake Village, Calif. “Costs for ground service,”
he points out, “tend to be lower than they are for air and international
services, which typically lowers expectations as well.”
Not
only did the J.D. Power survey look at attribute rankings, but it
also asked its shipper respondents which carriers they preferred—though
the research included only the traditional small package carriers.
The survey found that participants (almost 1,000 shipping managers
in companies with more than 10 employees that spent $10,000 or more
a year on small package shipments) preferred the following carriers
in this order:
- Ground
service: FedEx, UPS and the USPS. (Airborne did not have a
sufficient sample to be included.) “Ranking between FedEx and
UPS was reasonably close in this area,” reports Carlson.
- International
service: FedEx, then UPS. Airborne and the USPS did not have
a sufficient sample to be included.)
- Air service:
FedEx, UPS, Airborne and the USPS.
Suit yourself
Though the shippers surveyed by J. D. Power had definite ideas about
which carriers deserved a place on their “preferred” lists, patterns
of usage in the industry are much less clear cut. Some companies
use different carriers for different DC locations, and some even
use different carriers within the same site.
One such company
is Acme Distribution Centers in Denver. “Our decisions in selecting
small package carriers vary depending on the physical location of
our distribution center and the physical attributes of the product,
”says Doug Sampson, senior vice president. “In making the decisions,
we look at service, price, technology and support. In other words,
everything is customized. Certain carriers perform better in certain
areas than others, and certain carriers handle certain pack a ges
better than others.”
The J. D. Power
survey confirms that Sampson is not alone: “While there were a few
surprises in the survey overall, the biggest one was that one size
doesn’t fit all,” notes Carlson. “The industry works hard at creating
a combination of services designed to meet everyone’s needs. However,
as seamless as carriers try to make those services, our survey has
shown that shippers have many different expectations.”
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