When it comes to striking a balance between controlling costs and maintaining service levels, is it better to use multiple carriers or a single carrier? That question is becoming increasingly relevant, thanks to dramatic rate hikes and frequent changes in the parcel industry. Both approaches have merit, but to determine what’s best for your business, you must first evaluate your objectives.
If improving customer service is your primary goal, you can leverage service strengths and reduce transit times by redistributing shipping volume across multiple carriers. For example, you might choose carriers by lane. Or you might pick one carrier that specializes in air services, and another carrier for its ground services for shipments in shorter zones. But be warned: If you think managing one carrier is a challenge, managing two or more can be even more difficult.
When working with multiple carriers, make sure that the incentives you receive from each carrier are based on the volume and services that you are giving them. It’s not uncommon for carriers to offer substantial discounts for services that are rarely used and sub-par discounts for services that are shipped the most. Also, once the contracts are aligned, it’s important to have an effective tool in place that guarantees that you are selecting the right service for each type of shipment. Many of our current clients use our information management tools to examine shipment volumes by service level and zone. This way, they are sure to take advantage of the discounts that are in place in their contracts.
There are risks, however, in using more than one carrier to handle your shipments, including the danger of losing your aggregated volume as a price negotiation point. If your carriers are aware that you are also doing business with their competitors, they will typically structure your contract in tiers in order to motivate you to bring in more volume. If, say, 50% of your volume is going elsewhere, a carrier has no incentive to offer you better rates. So if your objective is to reduce costs using a simplified process, contracting with a single carrier for at least 85%, if not all, of your volume is a good choice.
Without a doubt, the way you structure your carrier portfolio will have an impact on your bottom line. A thorough analysis of your shipping operations, in coordination with strategy reviews with your customer service, sales, and marketing teams, will help you to find the right balance between cutting costs and maintaining service levels.
Jeff Jolin is marketing communications manager for Andover, MA-based logistics optimization services provider, Birddog Solutions.