Parcel Carrier Diversification vs. Primary Carrier Incentives - Do You Have to Choose?

The parcel industry is rapidly evolving, as the rise of e-commerce, direct-to-consumer (D2C), and omnichannel strategies continue to reshape how goods are moved around the globe. This dynamic, fueled by ever-growing consumer demands and technological advancements, has made the concept of parcel carrier diversification a necessity for businesses to reduce shipping costs, avoid disruption risks, and improve local delivery capabilities.

However, diversifying carrier networks can be complicated and formidable undertaking. A May 2022 survey of 168 retailers by Pitney Bowes highlighted the top two challenges for carrier diversification: 1) integrating carrier web services to automate shipment processing, and 2) risking the loss of primary carrier contract incentives.

This blog will explore the multifaceted nature of parcel carrier diversification and the importance of balancing the benefits against the potential risks.Throughout, we'll offer insights into how technological solutions, particularly parcel Transportation Management Systems (TMS), play a pivotal role in navigating these complexities and implementing a cost-effective carrier diversification strategy.

Parcel Carrier Diversification

The Shifting Dynamic in Parcel Management: Single Carrier Simplicity vs. Diversified Carrier Complexity

The parcel delivery industry is experiencing a significant shift, marked by contrasting trends in parcel volumes and carrier revenues. In 2022, U.S. parcel volumes experienced a 2% decrease, yet major carriers like UPS and FedEx reported a 6.5% increase in revenues. This supply and demand anomaly highlights how major carriers have pivoted towards profitability, rather than volume growth… or as one carrier executive explained “better, not bigger.” Meanwhile, Amazon is driving the demand for omnichannel fulfillment and expedited, same-day delivery services.

These factors have shippers rethinking their final mile delivery strategies and considering parcel carrier network diversification as a means to adapt to evolving market demands.

In addition to regional carriers, new gig-economy delivery services like Uber Freight and Doordash, as well as local couriers have stepped up to meet consumer demand for more specialized final mile delivery service options. And more recently, Amazon seems poised to step into the market and compete with the major carriers with its own delivery services for non-Amazon orders.

But the expansion in carrier service offerings, coupled with a growing demand for localized and rapid delivery methods, has exacerbated the complexities shippers face in managing final mile deliveries. While the single carrier delivery model was simpler to manage, it no longer is sufficient to meet the dynamic demands of today's eCommerce environment. Simple “rate shopping” doesn’t work anymore. Shippers are left with having to make fast, cost-effective decisions about how, when and where to use a wider variety of carrier services during the sale, fulfillment, and shipping processes, while still protecting their margin and optimizing their customer delivery experiences. Routing decisions need to take many more factors into account, including customer preference, SKU type (fragility, hazmat, size), inventory availability, packaging, transit times, pickup limits, and the proliferation of carrier surcharges. And, of course, the preservation of primary carrier discounts.

Key Parcel Carrier Diversification Challenges

Shippers face three key challenges in evaluating how to implement a carrier diversification strategy: carrier integrations, primary carrier contract compliance, and upgrading systems to manage it all.

First, carriers like UPS and FedEx have some of the most sophisticated IT infrastructures in the world. For years they have made it easy for shippers large and small to integrate with their APIs to rate, ship, and track packages. Their technology is reliable, secure and fast. And while many regional and local carriers have made significant strides in carrier automation, the Pitney Bowes survey indicates that large shippers find these integrations surprisingly challenging, or that legacy parcel shipping systems may not be up to the task without a large IT expenditure.

Secondly, one needs to understand the sheer scale of UPS, FedEx, and USPS logistics operations. A major carrier might deliver in a few days what a regional carrier could deliver in a year. This makes it virtually impossible for a high volume shipper to completely replace a primary carrier with a network of other delivery services. So for the foreseeable future, shippers will need to have at least one primary carrier, and they will need to comply with that carrier’s contract incentives, including volume discounts, while diversifying their carrier service network opportunistically.

Lastly, shippers need to implement systems that are capable of handling the complexity that comes with managing a more diverse range of small package delivery services. Freight TMS systems have done this for years, enabling shippers to automate transportation planning, route optimization, and simulations across hundreds of LTL and TL carriers. Parcel planning used to amount to this: “I plan to give everything to UPS.” But those days are over.

Optimize Carrier Diversification with Sendflex Parcel TMS

The Sendflex Parcel TMS emerges as a pivotal solution in addressing the complex challenges of diversification. This innovative platform optimizes data-driven routing decisions, fulfillment planning, and shipping with ease and precision. Several key features make Sendflex Parcel TMS a must-have solution for carrier diversification:

Seamless Integration with Multiple Carriers

Sendflex enables the diversification of carrier networks by offering connections to hundreds of pre-connected carrier services, ranging from global giants to regional players and local couriers. Its no-code tools allow for the swift onboarding of other carrier APIs, significantly reducing the time and complexity typically associated with such integrations.

Real-Time Contract Compliance Monitoring

The system continuously monitors contract compliance, including primary carrier incentive targets.. Sendflex carrier routing instructions won’t consider alternative carriers until primary carrier incentive targets are met. This feature ensures that shippers can maintain the delicate balance between diversifying their carrier network while preserving valuable contract incentives.

Configurable Instructions

Sendflex’s no-code optimization instructions allow logistics managers to configure decision trees that take a wide range of factors into consideration, and then automate and enforce complex shipping, fulfillment, and order allocation decisions. This capability enables logistics managers to control how decisions are made without the need to incur extensive programming costs and long project timelines.

High Speed Optimization Engine

Sendflex features an onboard high speed optimization engine that does not rely on external carrier rating APIs and can process over 20,000 rates, times in transit, and optimization instructions per second. This opens the door for iterative wave planning and simulations upstream from shipping.

Simulation Capabilities for Strategic Planning

Sendflex also offers advanced planning simulation capabilities that model the impact of different carrier strategies based on costs and delivery performance. By applying carrier ratings and routing instructions against shipping history, Sendflex can create a range of "what if" scenarios, from using regional carriers during peak seasons to adapting to proposed GRIs. These insights can then be operationalized as decision-making triggers during planning and execution processes, providing a forward-looking approach rather than the rear-view reporting.

Sendflex Parcel TMS stands as an essential tool for mastering the nuances of carrier diversification. Its robust features address the critical need for flexibility, efficiency, and strategic decision-making in the modern shipping landscape.

Embrace the Future of Parcel Shipping with Sendflex

In today’s fast-paced shipping environment, diversifying carrier networks is essential, not just for cost savings and enhanced service quality but also for meeting dynamic and evolving consumer demands. Crucially, this must be achieved without sacrificing incentives from primary carriers.

Sendflex's Parcel TMS emerges as a key enabler, allowing shippers and 3PLs to adeptly balance these priorities. Its suite of features facilitates informed decision-making, ensuring a strategic approach to carrier diversification. To explore how Sendflex can revolutionize your shipping and fulfillment strategy, we invite you to schedule a consultation with our experts and discover the full potential of our parcel TMS solutions.


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