The future of parcel shipping

For years, speculation regarding the future of parcel shipping focused on who would succeed United Parcel Service as the dominant carrier. By 2001, it appear no one will, but it’s also unlikely that UPS will retain its dominance. Instead, the most significant trend in parcel shipping come 2001 will be the rising number of catalogers using a multitude of parcel carriers and even drop-shippers.

Challenging the leader In the early ’90s, Federal Express seemed to be positioning itself as the parcel carrier of choice, offering steep discounts to many consumer catalogers in exchange for exclusivity. But FedEx quickly discovered how expensive it was to ship door-to-door. And with L.L. Bean, Omaha Steaks, and only a few others currently signed to exclusive contracts, FedEx won’t become the next UPS in the catalog market.

After last summer’s UPS strike, the U.S. Postal Service reaped publicity touting the low cost and effectiveness of its Priority Mail and parcel post services. Already consumer catalogers have shifted more parcels to the USPS. According to the 1998 Catalog Age Benchmark Report on Operations, 50% of consumer catalogers use the Postal Service for standard package delivery, while 59% use UPS (many use both carriers). In contrast, in the 1995 Benchmark Report, 71% of consumer catalogers used UPS for standard package delivery, while only 35% used the Postal Service.

What’s more, the USPS is testing a system, to be implemented next spring, in which mail carriers use hand-held scanners to confirm delivery of packages at individuals’ homes.

“If the USPS can effectively roll out a delivery confirmation system and become a real competitor to both UPS and Federal Express, that will lead to a real material change” by enticing more mailers to use USPS for parcels, says Sydney Klevatt, president of the Rohnert Park, CA-based Children’s Group of multititle cataloger Foster & Gallagher.

Largely because of its delivery confirmation system, by 2001 the Postal Service expects to ship 3 billion parcels a year; as recently as 1989, the agency shipped just 110 million a year. Additional postal discounts are also likely to contribute to the rise in USPS parcel volume-as well as to increased usage of freight consolidators for drop-shipping into postal facilities.

The discounts the USPS already offers for drop-shipping into its 26 bulk mail centers (BMCs) have led catalogers to use consolidators such as CTC Distribution Direct and printer Quad/Graphics’s new Parcel/Direct service to haul parcels from their warehouses to BMCs. CTC has fine-tuned its drop-shipping systems to the point where virtually the only USPS personnel handling the packages are the postal carriers walking their rounds.

And in the recent postal rate case, the USPS filed for sectional center facility (SCF) and destination delivery unit (DDU) parcel entry worksharing discounts. As the Postal Service has more than 200 SCFs and DDUs across the country, compared to the 26 BMCs, the discounts will enable consolidators to drop-ship packages even closer to recipients. Minneapolis-based CTC says it will add eight facilities to its network of 12 distribution centers in anticipation of catalog parcel growth brought on by the expected discounts.

The more carriers, the merrier But the Postal Service’s delivery confirmation system and possible worksharing discounts won’t be enough to bump UPS from its pedestal. For one thing, delivery confirmation goes nowhere near as far as the UPS system, which also tracks and traces packages. And with its two-tier-residential and commercial-pricing structure, UPS has won the loyalty of many business-to-business catalogers, which can ship to their business customers via UPS for rates that are still competitive with those of the USPS. The 1998 Catalog Age Benchmark Report on Operations shows that 79% of b-to-b catalogers use UPS for standard package delivery; only 18% use the USPS.

By 2001, it’s likely that more, if not most, catalogers will use more than one carrier. Gifts cataloger The Paragon has used both the USPS and UPS since March 1997. The $60 million mailer uses a software system “to determine which way a package should be shipped based on weight and value,” says vice president of operations Mary K. Pescatello. For instance, the cataloger ships packages via USPS standard A if they cost less than $50 and weigh less than 16 oz., while more expensive packages that weigh less than 2 lbs. are shipped via USPS Priority Mail, and packages weighing more than 2 lbs. are picked up by consolidator CTC to be drop-shipped and sent USPS standard B parcel post. The Paragon uses UPS for those customers who request it or for air service at an upcharge.

“There are more software programs coming on the market that allow even small shippers to choose how to take advantage of the best rates and service for particular parcels,” says Jim Jellison, executive director of the Parcel Shippers Association. “This will enable catalogers to choose carriers on a package-by-package basis in the future.”

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