Diversification of Small Parcel Carriers

Small Parcel Carriers

When it comes to small parcel carriers, many organizations have all their eggs in one basket. The entire supply chain waited nervously last month to see if a threatened UPS driver strike would come to fruition. When it didn’t, everyone sighed with relief—such as a strike could have been massively disruptive, not just for supply chain managers, but the economy. Many companies considered alternative small parcel carriers while awaiting the UPS outcome, and in some cases, they haven’t gone back.

June and July saw an unprecedented uptick in small parcel carrier diversification, which was unusually early for such activity. Late summer and early fall are generally the months when companies consider other carrier options, so the early spike was likely due to the looming threat of the strike. Retailers led the charge to diversify.

While small parcel carrier diversification might be seasonal, as the avoided UPS strike demonstrated, having some variety in your small parcel carriers is never a bad idea. E-commerce has surged in the past several years, and last-mile delivery service takes on a greater percentage of most retailers’ shipments. And small parcel carriers are paying attention and delivering.

In the past few years, the U.S. Postal Service and FedEx have both transformed their residential delivery to adapt to changing circumstances. The USPS, for example, is now a major player for small businesses and high-volume merchants. By offering a “workshare” program, it gained these new customers.

Another change in last-mile delivery is the addition of Amazon and Walmart to the mix. Rather than outsourcing to a third party, each manages its own fleet of small-parcel trucks, allowing them to push the delivery windows ever smaller and setting a standard for competitors to follow.

Limit Small Parcel Carriers to 50% of Your Volume

If you’re a retailer considering a last-mile/small parcel delivery strategy, diversifying can be a good option. You can consider your parcel shipping diversified if one carrier doesn’t move more than 50 percent of your volume. Depending on your objectives, you could work with several last-mile delivery services. Think about a UPS or FedEx for national-scale deliveries, and then add regional carriers for specific markets. Sometimes you can even source your last-mile delivery needs with a larger carrier who then partners with parcel carriers to fulfill all your needs.

How should you determine when it’s time to diversify? Start by thinking about your partners’ capacity—if you’ve got all your eggs in one basket and a strike happens, for instance, do you have another partner with whom you can pivot? Costs come into play, too. Your regional partners might come in at a much lower cost than national carriers who invest a good deal in advertising and building a fleet. Finally, think about delivery performance. Last-mile delivery time matters more than ever today. If you’re reliant on one carrier only, and their performance slips, you might lose customers.

Technology integration and price incentives for loyalty can be barriers to diversifying your small parcel carriers, so make sure you’re weighing the tradeoffs when considering the benefits of additional partners. At the end of the day, for most companies, getting more packages onto different carrier trucks is a good option. If you need assistance in choosing a new carrier, a skilled supply chain consultant is a good place to start.