Shifting Gears - Changing Small Parcel Market Increases Options for Shippers

by Michael J. Ryan

This article comes from the January 2009 Supply Chain Link newsletter.

For years the small parcel market in the United States began and ended with UPS and FedEx. It seemed the only mystery was which company could come up with the most creative ad.

However, the 2003 “right sizing” of DHL in the United States spearheaded one of the biggest shifts in the history of the small parcel industry. The company’s commitment to the U.S. market sent a much-needed message to UPS and FedEx: Don’t rest on your laurels.

And for awhile, the strategy worked. But DHL’s recent reorganization, aggravated by its decision to cease domestic service in the United States starting Jan. 30, derailed its momentum in the domestic market, leaving the express delivery company as a niche international player (USA Inbound and USA Outbound).

Advantage back to FedEx and UPS, right? Conventional wisdom says this “duopoly” will gain strength and jeopardize U.S. shippers’ efforts to keep costs down.

But it’s not a fait accompli.

A More Level Playing Field — Really!

Shippers are under extreme pressure to find cost savings. Fortunately, several options beyond FedEx and UPS exist in the United States that shippers can take advantage of to reduce their growing parcel costs.

U.S. Postal Service (USPS) offers very competitive solutions for shipments under 5 lbs. The USPS has re-invented itself, focusing on competitive delivery times, package tracking, pickup service, free Saturday delivery, and automated shipping processes. The USPS has an opportunity to carve out a piece of business that plays to its strengths.
Purolator USA offers a great value proposition for high-volume shippers to Canada. Purolator also offers domestic services in the United States.
TNT Express maintains the No. 2 position in Europe and offers a viable international outbound/inbound solution in the United States. TNT Express’ flexibility meets its customers’ needs at a competitive price point.
Eastern Connection, Spee-Dee, OnTrac, Lone Star Overnight, and other regional small parcel carriers compete in the Zone 2 ground service, offering a good alternative to FedEx and UPS on a regional level.
Demand management solutions, including shipping software programs, give shippers the freedom to compare small parcel carriers and LTL carriers (for multipiece shipments).

A “Perfect Storm”

Navigating the triumvirate of cost, demand, and the economy has always required due diligence on the part of shippers. However, today’s small parcel market merits even more scrutiny, as the following elements have come together in a perfect storm:

Unstable fuel rates
Economic recession
Major carrier retraction (DHL)
Mode changes (air to ground)
Changes to network infrastructures
New president/administration
Technology advancements

Although many of these elements are beyond their control, shippers must factor them into their decision making when choosing a carrier. In addition, shippers must take responsibility for thoroughly reviewing their specific programs, investigating all carrier options for the best fit, and continually examining ways to reduce costs.

Small Parcel, Big Price

Even though it’s early in the New Year, the small parcel industry has already set a record — but not the kind of which to be proud. A 5.9% price increase for ground service was implemented in January; this hike is the single largest in the history of the industry.

Carriers, struggling to reduce their costs against increasingly shrinking volumes, will look at the increase as reason to improve their own financial results. This, combined with DHL’s U.S. restructuring, portends well for UPS and FedEx. But it also provides opportunities for other carriers.

Game Plan

Although it seems that they have little ammunition with which to battle high costs and the FedEx-UPS duopoly, shippers actually can take several steps to mitigate the current small parcel environment, including:

Review USPS services, particularly for shipments under 5 lbs
Research regional carriers, TNT Express, and Purolator USA
Renegotiate the current contract (use a consultant)
Deploy a demand management tool
Communicate openly with current carriers.

The small parcel industry is at a crossroads as it struggles to provide good service for the right price in an ultra-competitive environment. The good news is that there are viable options beyond the “Big Two.”

Shippers can’t afford to be passive when it comes to selecting a parcel carrier. During these volatile economic times, it’s incumbent on shippers to do their homework — to get the best rate, best service, and best return on this very important investment.

Michael J. Ryan is Vice President, Business Development of Parcel Solutions at GENCO Supply Chain Solutions. GENCO Parcel Solutions specializes in reducing clients’ shipping costs, anywhere from 5 percent to 20 percent. Mr. Ryan has been in the parcel industry for 25 years and can be reached at (708) 224-1498 or ryanmj@genco.com.