The pandemic’s impact, especially in Q4, showed significant cracks in the supply chain foundation. Regional carriers, which are typically sourced through a 3PL, may be the best protection from now on. That take comes from our experience in 2020 and the work we did to ensure we could meet delivery promises. It’s also backed up by a new report from Green Mountain Technology (GMT).
During the holiday crunch, many eCommerce companies realized how fragile their carrier networks were. An abnormally high buying volume added to the typical holiday scaling led many companies to see how far their networks could push before breaking. Carriers placed caps on companies and 3PLs to minimize harm in their networks. That led to everyone being impacted, at least on a small scale. The Q4 levels were unheard of, and orders placed early weren’t showing up until weeks after the start of 2021.
If you’re worried about your Q4 fulfillment and want to take immediate action to build flexible carrier selection, here’s what to know:
- Regional carriers are often price competitive with major brands
- Shifting some volume now can ensure availability in Q4
- Your competitors are already growing their carrier networks
- Red Stag Fulfillment can add regional carrier options for you in just minutes
- LaserShip, the top-rated carrier by customers, joins our network in August 2021
Keep reading to learn more and see the data behind those claims.
The importance of including regional carriers
As companies start, they tend to have a relationship with one or maybe two carriers. Those partners do well, and the eCommerce brand grows. As they scale, it’s easiest to just continue using the same carrier partners. Companies get stuck in the “if it ain’t broke, don’t fix it” mentality. That may not only lead to you paying higher prices — think about DIM weight differences in particular — but also limits your ability to fulfill orders when a carrier places a limit on you or your 3PL.
The share of U.S. parcel volume that FedEx and UPS declined to 80% in 2020, from 89% in 2019. The issues many eCommerce companies faced in the 2020 holiday season led them to rely on alternatives to protect their ability to help customers. The shift was to both the USPS and regional carriers, and that’s a pattern we expect to grow in 2021.
Plus, it’s a trend some are already adopting. In 2020, regional carriers accounted for up to 10% of total volume from shippers, up from 5% the year before. Major brands like Bloomingdale’s, Macy’s, Urban Outfitters, Anthropologie, Amazon, Blue Apron, and many more already use regional carriers as a core part of their network.
Regional carriers allow you to offload the current volume right now. All of this highlights the need for regional carriers and partner diversification. Your company should be considering how it can protect customer orders and fulfillment by offloading some current volume. That way, you’ve got relationships to lean on when the next crunch hits.
Your competition is diversifying
According to the GMT Benchmark Report, the primary focus for shippers during 2020 was diversifying their carrier selection, beating our fast order fulfillment and brand differentiation. This was the first year in the Benchmark’s history that diversification, such as adding regional carriers, was the chief focus for companies trying to reach their customers.
The report notes that the concern was “likely the result of more strict capacity constraints and related pricing actions by UPS and FedEx.” That’s because the most significant challenge shippers noted was available capacity — the least challenging concern in past reports.
UPS CEO Carol Tomé notes that capacity concerns could be an ongoing issue. In a presentation during the company’s 2021 Investor Day this June, Tomé said: “…it’s hard to know how long this demand capacity shortfall will last because we don’t know exactly how the capacity will be added. But it’s estimated that the (average daily volume) shortfall this year will be about 7 million packages. That shortfall will continue into the next couple of years. It’s going to narrow, but it will continue into the next couple of years in the U.S.”
To address this, eCommerce sellers especially are working with a broader network of carriers. They’re working to build more capacity instead of focusing on elements like lowering costs. By working with regional carriers, many are also addressing their secondary problem of smaller shipment sizes likely due to process adjustments for shippers and large parcel networks.
Regional carriers receive high praise
Many companies needed to move some volume to regional carriers to help ensure delivery during the peak season. That, thankfully, seems to have been a largely positive experience. These carriers are taking on more volume and are excelling at on-time performance, allocations, and price.
According to the GMT report, LaserShip was the highest-rated carrier among its users. Starting in August 2021, Red Stag Fulfillment customers will be able to rely on LaserShip for some of their regional deliveries. They’ll join our roster of partners such as OnTrac.
Ask us about our regional carrier partners
An important reminder is that regional carriers have a limited market share and capacity. Maximizing their inclusion means you’ll want to add multiple regionals. That adds protections for your top consumer hubs. Then, as these carriers grow their service areas, you’ve got overlap and can better price shop while keeping customers happy.
Regional carriers are price competitive
The GMT report found that around 20% of shippers said parcel carriers raised rates unexpectedly, often mid-contract, and 42% saw an unexpected peak season surcharge or cap. That can severely harm your profitability, especially if you’re already paying more than you need to from a carrier.
In our experience, regionals often have an area of the country where they’re more price competitive, especially around goods that are 25 pounds or less. So, if your products are large but light, regional carriers may give you an advantage in core markets. It’s all about identifying your best opportunities to capitalize on different cost savings.
When a regional saves you money now, adding it to your diverse network may protect you even further if a larger partner adds surcharges or raises rates unexpectedly as consumers begin their holiday and year-end shopping.
They may also offer you safety from other price increases. In its Q4 fiscal year 2021 earnings call, FedEx’s Brie Carere said: “To support the network amid ongoing capacity constraints, we have increased our peak surcharges as of June 21 and will monitor and adjust our strategy as capacity and demand warrant.”
Carere also said that demand will continue to outpace capacity domestically and the company’s pricing will respond. “Structurally, as I mentioned, we will continue to use surcharges. Not only for peak but to cover large package and to really just make sure that our pricing quite frankly aligns to our cost.”
Protect yourself during a crunch
Today, eCommerce companies can start adding regional carriers to their network as a risk mitigation strategy. Their importance is growing, especially given the instability in global supply chains. No one is sure exactly what the end of 2021 will look like, or how much availability you can access when your sales start to scale.
Just like FedEx and UPS, regional carriers tend to base what volume they give you in Q4 based on what you use in Q3. For example, they may look at you shipping 100 packages a day or thousands of packages per month and decide to give you that plus 15%.
For help understanding 2020’s capacity caps and possible ways to respond proactively for 2021, contact your Account Representative, or fill out this form.
They’ll do that math to protect their business. No carrier just wants to be just the backup plan or blowoff valve. They don’t want to get zero business from you during the year, but then you try to give them the volume that another carrier can’t handle. It puts the carrier in a position where they would have to prioritize your business over an established partner. So, they often won’t take up that slack. They don’t want to hurt the companies that are reliable, year-round partners.
Start now for the best Q4 results
The best news for Red Stag customers is that you can add our regional carrier partners to your list in a matter of minutes. It’s a straightforward process that many customers are enabling.
Plus, working with your dedicated Account Representative makes it easy to dedicate some volume to regional partners. That way, whenever an issue arises, you’ve already got the relationship to leverage so you can secure more capacity, better rates, or a combination of both.
