A Cheaper Choice?

Mar 01, 1999 10:30 PM  By

When the new postal rates went into effect on Jan. 10, the U.S. Postal Service also introduced a discount that encourages “zone-skipping”-drop-shipping parcels all the way to customers’ nearby post offices. Although the base parcel post rates rose nearly 13%, the USPS’s new discounts for bulk parcel shipments that are sent to destination delivery units (DDUs)-local post offices-are significant enough for many catalogers to consider paying to transport their packages to DDUs via freight consolidators.

Since the rate structure was finalized by the USPS Board of Governors last July, “the number of inquiries from catalogers has probably doubled,” says Mike Talbott, executive vice president of business development for Minneapolis-based freight consolidator CTC Distribution Direct, which currently has more than 300 catalog clients. Meanwhile, year-old consolidator Parcel Direct, a division of Pewaukee, WI-based printer Quad/Graphics, expects to at least double the number of catalog clients it has, from 10 to more than 20, by the spring, according to managing director Steve Zwieg.

Two other freight consolidators, launched last year, are looking to woo catalogers away from CTC and Parcel Direct. Owego, NY-based technology supplier Lockheed Martin and Jacksonville, FL-based logistics provider GATX Logistics joined forces to launch Paxis, which according to director of marketing Cathy Dixon has already signed on several catalogers. And the Harte-Hanks Logistics division of Deerfield Beach, FL-based Harte-Hanks Direct Marketing introduced a delivery system that partners with more than a half-dozen freight shipping firms nationwide.

Most of the consolidators claim they can get packages into DDUs within three to eight days. Harte-Hanks Logistics, however, claims its packages can reach DDUs within two days, because of its multicarrier national network, says director of new business development Dennis Elliott.

The consolidators’ rate structures vary considerably, based on transportation costs, package size, sortation costs, and distance. Overall, however, their rates, combined with the USPS delivery rates, compare favorably to UPS’s door-to-door ground residential rates: CTC claims its rates combined with the Postal Service rates are $1-$3 less per package than UPS’s; Parcel Direct says its combined rates run 70 cents to $2 less; and Harte-Hanks says its combined rates run $2-$4 less. All the consolidators pick up packages at catalogers’ warehouses.

But Jim Eastham, vice president of operations for apparel cataloger Faith Mountain, is in no hurry to begin zone-skipping. “If you’re saving on shipping expenses but find customer service costs going up because of USPS delivery problems, then you don’t save anything,” he says, referring to USPS’s record of being less reliable than UPS and its lack of tracking capabilities. The $25 million-plus Faith Mountain now uses UPS for half of its packages and sends the other half via USPS’s Priority Mail, which offers two- to three-day delivery.

But advocates of zone-skippinginto DDUs point out that once packages are drop-shipped into the local post offices, they go through only one USPS sort, minimizing the chances of parcels being mishandled. And the Postal Service claims that through its Parcel Select service (a renaming of the old parcel post), it can deliver 98% of packages from DDUs to residences within a day. Furthermore, beginning in March, all letter carriers will carry hand-held scanners that will confirm delivery of all parcels.

Postal officials concede that delivery snafus are much more likely to occur when packages are drop-shipped by consolidators to the nation’s 21 bulk mail centers (BMCs), because the packages have to be sorted from letter mail, then hauled by the Postal Service to DDUs. It usually takes the USPS two or three days to deliver packages from BMCs to customers’ doors in bulk via Parcel Select, and two days from the country’s 467 sectional center facilities (SCFs).

You can’t get there from here Now that the discounts for drop-shipping parcels into DDUs are 63% greater than those for drop-shipping into BMCs and 31.3% more than for drop-shipping into SCFs, catalogers such as Hanover Direct and Orvis-which have been drop-shipping to BMCs since the Postal Service initiated worksharing discounts in 1995-find DDU delivery exceedingly attractive.

But as Gary Firebaugh, the director of corporate transportation for $557.6 million Hanover Direct, points out, Parcel Direct, CTC, and other consolidators aren’t yet able to get parcels to all 32,500 DDUs nationwide. “Most are saying 60%-80% of their packages will be to DDUs by the end of this year,” he says.

As of January, CTC was reaching nearly 20% of the population through DDU delivery, Talbott says, with most of the rest of its packages still being drop-shipped into BMCs. “Our goal is to reach 60% DDU coverage by year’s end, and eventually 70%-80% of the population through DDU delivery.”

Likewise, Paxis is hoping to reach 40% of the population’s DDUs by midyear. Harte-Hanks’s Elliott says his firm will reach about 90% of the population through DDU delivery by the fall; Zwieg says Parcel Direct hopes to reach 200 DDUs by the spring.

And while delivery to DDUs eliminates the number of sorts the U.S. Postal Service has to perform on the parcels, it means that the consolidators had to add sorts to their procedures. Andy Travers, distribution director for apparel cataloger Orvis, said in late January that as a result “we’re seeing two-day delays for transit of these packages. I think CTC underestimated some of the complexities involved in sorting.”

To make up for any market share it might lose to freight consolidators and USPS, United Parcel Service is eyeing online merchants. “We’re able to give online marketers all the online tools and programs they need for package tracing, so customers can trace packages themselves via direct links to UPS’s Website,” says spokeswoman Susan Rosenberg. “We’re finding more and more that customers when ordering online want access to data on their shipments. But we’re always going to have catalogers that come back to us for our reliable service too.”