The parcel industry is projected to grow 9 percent annually to more than $343bn globally by 2020, according to Accenture, thanks to the increase in e-commerce orders, which are forecast to surpass $600bn by 2021 in the US alone. Parcel carriers are challenged in this era of explosive e-commerce growth to maintain historic profitability as the number of stops per delivery and the size of packages increase, while customer expectations for speedier deliveries continue to heighten. -Dan Clark, Founder and President, Kuebix

Making a profit in the parcel market is difficult to achieve without increasing prices. Small parcel carriers are adapting with more targeted annual general rate increases that disproportionally impact packages with characteristics that do not operate favorably in their networks. Shippers may notice these changes as a pure increase to base rates or an adjustment to the dimensional divisor used in the calculation of a package’s density weight. The packages at risk here tend to weigh between 70 and 150 pounds, are often awkwardly shaped, unusually long, and/or bulky in nature. These large packages take up lots of space in the truck and often require more time to move on and off the trucks. Large, bulky packages can also cause problems in distribution centers and warehouses where big boxes can cause back-ups on the conveyors, requiring them to be manually handled, adding additional labor charges to the mix.

Increasing the price on these packages is a simple but unsustainable solution and will inevitably impact the growth rate of certain verticals within the e-commerce space. Parcel carriers need to closely collaborate with both pure play e-commerce players as well as brick-and-mortar retailers to develop more innovative solutions that ultimately increase margins for all participants. Parcel carriers have begun to add store or more centralized customer pick-up locations. Increasing the number of packages per delivery reduces the overall delivery costs. Some parcel providers have added heavy-weight service levels to their offerings in order to incentivize shippers to move bulky packages to an environment more conducive to handling their characteristics.

Working with high-volume retailers/fulfillment centers, both parties can take advantage of zone skipping to lower costs. With this technique, a shipper consolidates many individual packages, destined for the same local carrier terminal onto a full or multi-stop truckload. The packages are sent from one location to another, then inducted into a local facility for sorting, where they will then be loaded to a truck for delivery. This process lowers the overall cost for the retailer by inducting freight into the carrier’s network closer to the final consumer, and reduces the carrier’s cost by minimizing the number of times a package needs to be handled (loaded and reloaded to a truck) while in transit.

The Outlook

The rapid adoption of transportation management systems can help businesses realize significant cost savings while increasing the overall experience of the customer. Whether understanding opportunistic speed changes (air vs. ground) to meet predefined delivery times or optimizing a shipment’s mode based on the characteristics of the freight (parcel to LTL or vice versa), a TMS automates the decision process. In addition, shippers can use the more advanced features of a TMS to plan, in order to meet the challenges that peak seasons present.