When Parcel Demand Exceeds Capacity: What Should Shippers Do?

As we begin 2021, the parcel market is very different than it was a year ago. Simply put, the surging growth of e-commerce, driven in large part by the pandemic, has created a capacity crunch in the market. How should shippers respond? What technology will help shippers move up the parcel shipping capabilities curve to reduce costs and better serve their customers? Those are some of the key questions I discussed with JP Wiggins, Co-Founder & Vice President of Logistics at 3Gtms, during a recent episode of Talking Logistics.

State of the Parcel Market

I began our discussion by asking JP for his view on where the parcel market is in early 2021. JP comments that the pandemic has driven demand beyond the capacity in the marketplace, especially with the big three carriers (FedEx, UPS and USPS). “They are overwhelmed,” says JP, which is making it difficult for them to meet their service commitments for next day or guaranteed on-time deliveries. “The service we’re getting from parcel carriers is completely changed from a year ago.”

“The carriers know it’s a carrier’s market and they are focusing on value growth rather than just adding capacity, which can cost billions. They’re concentrating on value growth and profitable freight rather than market share.

“We’re seeing general rate increases of five to six percent, which is fairly normal, but we’re also seeing growth in surcharges,” JP continues. “USPS, for example, is adding a $100 surcharge on overweight/oversize shipments and if you’re doing shipments through your warehouse and haven’t updated your rates, you may not even know about that surcharge until you see your bill. FedEx and UPS are adding similar charges, so it’s going to get expensive.”

Adding Carriers

One way to get around the capacity crunch is to add more carriers to your network, in particular, local and regional carriers. But onboarding new carriers takes some effort, and in many ways, it’s actually getting harder because of e-commerce and the need to integrate with carrier systems to get real-time tracking numbers and tracking updates.

“However, there are 50+ really good regional carriers in North America alone that are good alternatives in their regions to the big three carriers and their prices will be significantly lower most of the time,” says JP. “But onboarding these carriers means you need to integrate with them electronically to set up rates. You need label compliance. You have to integrate them with your ERP and warehouse systems so shipping with them works just like it does when dealing with FedEx or UPS.

“That integration effort is why a lot of companies have traditionally worked with a single carrier and their free shipping system. But during this e-commerce capacity crunch, you’re going to see big rate and surcharge increases. As these huge shipping cost increases are hitting CFOs’ desks, they’re saying we have to do something new.”

Business Case for a Multi-Carrier Approach

“Doing something new” is moving away from single-carrier systems. I asked JP what the business case is for moving to a multi-carrier approach.

JP explains, “Multi-carrier shipping solutions enable you to rate shop and determine the best carrier for a particular shipment that day because rates are changing so quickly. We have integrations with about 60 carriers, so if you want to work with them, you just call them up to negotiate rates and the system starts to work. That way, when you’re doing your shipment planning and rate shopping, you know you’re getting the best rate on that day for that package.”

These multi-carrier solutions are also integrated to your ERP, warehouse and transportation systems so you can take advantage of opportunities for load consolidation, zone-skipping, pool distribution, and multi-modal options.

Technology Options

How can technology help? JP states that, “If you’re shipping more than 10,000 orders/day/location, you may want a specialized rating engine. But for everyone else, you want to use APIs. Also, during the planning process, you may not know what packaging will be used or what size box the order will ship in. We do a service called ‘predictive packaging’ that will estimate what size box the order will ship in. This goes into determining what carrier and mode you should use. Then you use API rating to get the best cost. In addition, you can use your transportation management system (TMS) for load consolidation opportunities that can really reduce costs.”

JP and I covered the benefits of using API rating in much more detail in an earlier Talking Logistics episode, so check it out to learn more. In this episode, he shared some additional technology considerations and how companies can best position themselves to thrive in this new normal of high-volume parcel shipping. Therefore, I encourage you to watch the full episode for all of JP’s insights and advice. Then post a comment and share your own thoughts or perspectives on this topic.