So you thought you had a pretty good handle on the parcel industry. Well, maybe you do! But my hunch is that you, like so many people I meet, have some misconceptions about parcel shipping. Let’s clear some of the air.
Here is my list of The Biggest Myths in Parcel Shipping!
1. Carriers can provide shipment integrity
There is no such thing as shipment integrity in the parcel industry. All parcels are handled separately as soon as they are picked up by your carrier. When an entire shipment is delivered to a consignee at the same time, it is purely a function of the carrier’s on-time service performance. The better the service, the greater the probability that your shipment will arrive intact.
2. Air parcels are flown
Low zone “air” parcels never see an airplane. They travel in the same trailer as your ground parcels. These parcels are highly profitable to your carrier because of the high revenue and low operating costs. Save your company some money, stop using air service for low zone parcels.
3. Carriers provide “free” parcel processing equipment
Parcel processing equipment is given to you for one reason: it greatly benefits them. It is the ‘big hook’ the carrier sticks into you. They want it to be an integral part of your operation so you think twice before switching to another carrier. The carrier uses it to electronically collect information to help them plan their operation. They also maintain your shipping history so they can measure the profitability of your business. That comes in handy for their next rate negotiation with you. At that time, they will know more about your business than you do!
4. Benchmarking incentive rates can tell me if my rates are good
Benchmarking is an excellent management tool but, unfortunately, not when it comes to assessing carrier incentive rates. Since no two companies have the same parcel characteristics, comparing incentive rates may be fun to do at the quarterly Traffic Club meeting, but it is a waste of time. There are many factors to be considered, such as average parcel size, weight, zone distribution, parcels per delivery stop. The list goes on and on.
5. Bundling my parcels is not worth my time
Pure and simple, bundling parcels going to the same consignee reduces your total shipping expense. Naturally, carriers discourage the practice. Here’s an example, two 10-pound parcels shipped zone 4 would cost a total of $20.80. If you bundled them using banding you would create a 20-pound parcel that would cost $12.23 to ship. You’d reduce your cost by over 40%. That’s a $8.57 savings! Bundle if you can and save!
6. UPS’ annual rate increase is 3.5% (or whatever it is they claim)
This annual hoax is better than the Sunday funnies. UPS derives this statistic by averaging all zones and every weight up to 150 pounds. The result is meaningless to all. You can expect a sizable increase each year. This year’s increase for parcels weighing between 1 and 15 pounds was 6%.
7. The market is efficiently priced
The Ground parcel industry is an oligopoly marketplace. UPS sets the base rates, FedEx Ground follows. These two national competitors are skillful in not tampering with a formula that enables them to maximize profits. The last thing they want to do is to lower their base prices and cut their margins. There is no need to do that when the shipping public thinks they are getting attractive incentives.
8. You’re getting a good incentive rate
Very few shippers are receiving an incentive rate that properly reflects the value of their business to the carrier. Carrier cost-based knowledge is required to accurate evaluate incentives. Without this understanding, shippers of all sizes will continue to overpay their carriers.
9. Volume drives incentive levels
One of the greatest myths perpetrated on you, the shipper, is that incentive levels are driven by volume. Nothing could be further from the truth. Do you think a carrier would offer an incentive to a shipper whose parcels could not be handled profitably? Of course, not! The only factor that drives incentive levels is the profitability of your parcels. If your parcel characteristics translate into a low operational cost for the carrier and a high profit margin, they can discount their rates. Naturally, it is a great sales tool for a carrier representative to say, “If you only had a little more volume I could get you some more incentive.” Now, repeat after me, “Volume does not drive incentive levels.” Good, now you’ve got it!
Joe Loughran is President of Parcel Rate Solutions and an expert in the parcel industry. Parcel Rate Solutions is a transportation consulting company offering services in Carrier Rate Analysis and Carrier Agreement Analysis. Joe can be reached by phone at (724) 934-0626 or email: firstname.lastname@example.org.