When Do You Need A Multi-Carrier Parcel Solution?

Every retailer and distributor who ships goods in any quantity is faced with a ‘million dollar’ question.

The question is about carrier selection. When reviewing their transportation strategy and calculating shipping budgets, they are forced to ask,“Do we want to or can we afford to be held hostage by our carrier?”.

And where significant volumes are involved and goods are shipped nationally and internationally, the question is often literally a million or even multi-million dollar one.

Carrier performance is critical to success in retail and distribution – customers aren’t prepared to hang around and expect to receive their orders increasingly fast and on their terms, so carrier selection plays a critical role in the transportation strategies of shippers, and carriers are well aware of their resulting power.

Whether you want to admit it or not a carrier knows if they are the only game in town and therefore when a company commits to moving most, to all parcel freight with a single carrier they are signing away their freedom to be flexible, and to negotiate.

The dependence on one carrier often starts in the early stages, as you’re building up your business or have reached critical mass where shipping costs are looked at centrally, perhaps via an organized procurement process. At both ends of the scale, it makes a lot of sense to leverage the preferred carrier’s “free” software to ship with – it’s the obvious, easy and cost effective option, right?

So you commit to that carrier, they deploy their shipping software, helpfully integrate it into your shipping process workflows, and offer free assistance to automate as much as possible, leaving you with a warm and fuzzy feeling.

Source: “A Mixed Blessing for Parcel Companies,” Financial Times, March 11, 2012

The problem is that 12 months, 24 months down the road when you go to negotiate your next contract, the carrier knows they have you. You have invested time, resource and energy in having their systems embedded in your workflow and now have a potentially costly change to consider if you shift carriers. You are now held “hostage” – negotiations seem futile, even if your business model has changed or is changing and that single carrier is no longer the best option to meet all of your needs.

So what should retailers and distributors do? Should you invest in a multi-carrier parcel solution from the start, even though the relatively high costs could easily eat into the margins of smaller volume shippers?

The quick answer to this is yes, but you have to do it in a smart way. You want to invest in a multi-carrier parcel solution that is committed to the whole market and one that gives you the possibility of leveraging many carriers, services and special services.

Don’t select a multi-carrier solution and then find out you are restricted by carrier, or they are an ERP or generalized logistics software provider that happens to offer a parcel solution as an afterthought. Parcel is a different ballgame to shipping containers or pallets, and in the rapidly-changing world of Omni-channel retail, you need to be nimble and agile to keep pace with the increased expectations of the consumer and operational pressures to keep cost down.

Related: Omni-Channel Supply Chains Designed for a Retail World without Boundaries

The immediate upside of using multi-carrier parcel software - is the true independence you get in carrier choice – you can make the right choices from multimodal transportation options or service levels based on your and your customers’ requirements.

For example, by testing new international markets or offering promotions on shipping. Unless your business is very niche and localized, restricting your shipping to one carrier limits your ability to respond to market trends around delivery, like the trend to leverage regional carriers and last mile services to drive cost savings in a growing market of “free shipping”. If you have a system that can grow with you then you won’t be forced to keep using more expensive, traditional services trying to keep up with a competitor that is saving more on the bottom line.

The other (big) benefit is that when carriers know you have your own, multi-carrier solution in place, it tends to lead to a more equitable relationship and a level playing field at negotiation time.

In summary, consider carriers as a central element of your transportation strategy. Think ahead and understand where you want to be in 1, 2 or 3 years and you may well find that a larger up front cost might save in ways you didn’t think of before. Remember, nothing in life is ever free, so when the carrier offers you free software, the million dollar question you need to ask yourself is; “What is it going to cost me to implement this for “free”?