The benefits of regional parcel carriers

Mar 16, 2011 8:00 PM  By

When it comes to parcel delivery, FedEx and UPS are clearly the dominant players. But you can use regional carriers to supplement the service of the Big Two. In fact, if you haven’t evaluated regionals, you might be leaving money and value on the table.

Like the name implies, regional carriers serve a specific region within the U.S. These service providers are ideal for shippers with multiple distribution centers, especially if the DCs are aligned to the regionals’ delivery footprint.

Regional carriers such as Eastern Connection, Lone Star Overnight, OnTrac, Spee-Dee Delivery, US Cargo and others offer reliable parcel delivery services at rates as much as 40% less than national carriers. As a result, the larger, established regional carriers have been able to cut into the national parcel market share.

How have the regional carriers been able to successfully compete against formidable and deep-pocketed competitors in UPS and FedEx?

Many shippers will cite overall value proposition, including cost savings, consistent service performance and innovations that make it easier to ship with regionals. What’s more, regional carriers offer multiple delivery options that offer many benefits—including lower cost, flexibility and, in many cases, better service.

Lower cost
As a result of lower operating costs, regionals can often pass along to customers savings of 10% to 40% over UPS and FedEx pricing. Most regional carriers transport packages via truck hubs instead of airlines. Trucking can be as little as 10% of air costs.

Regional carrier pricing and contracts tend to be simpler and easier to understand than the national carriers. Most regionals have fewer accessorial charges than the nationals.

For example, many regionals do not assess delivery area surcharges, which are additional charges of $1.85 to $3 per package based on “rural” zip codes and affect 20% to 25% of all FedEx and UPS deliveries.

Shippers that have a high concentration of customers in a particular market should consider regional carriers in conjunction with less-than-truckload services. As an example, a shipper in St. Louis could take all its West Coast-bound shipments, truck via LTL to OnTrac’s hub in Reno, NV, and receive three- to four-day transit from the Canadian border to the Mexican border (Bellingham, WA, all the way down to Yuma, AZ). From Reno, that’s guaranteed next day delivery at Ground rates to a population of 50 million consumers.

Finally, many shippers leverage regional carriers to lower pricing with the national carriers. Competition enhances leverage, which is essential in any negotiation. Shippers may also feel more comfortable not putting all their eggs in one basket.

Expanded next-day delivery footprint
Since regionals concentrate operations in a well-defined geographic market, service to that market is often better than what the national carriers provide. For example, Eastern Connection handles East Coast deliveries from Maine to Virginia, all included as Zone 2. The same coverage with UPS and FedEx extends to five zones.

Many shippers find the wider next-day delivery footprint offered by regionals a competitive advantage. Imagine if you could offer your customers next-day delivery at a lower cost than what a competitor that charges for a three-day delivery.

Moreover, the regional approach often means later pickup times and earlier deliveries than the standard 10:30 a.m. service, improving both productivity and customer satisfaction.

Flexibility
Some shippers, frustrated with few national alternatives, report that regionals are not so much earning their business as FedEx and UPS are losing their business.

Shippers in a recent national survey cited annual rate increases, hidden “accessorial” charges, complex contracts, arrogant sales reps, invoice errors and poor claims processes as their top frustrations with FedEx and UPS.

Getting the nationals to be flexible can be a frustrating experience—even for multimillion dollar shippers. Merchants that make the switch to regionals often see a greater degree of customer service and accommodation.

As one shipper recently told me: “After getting very little attention from the national carriers, I now feel like a big fish in a small pond with my regional carrier.”

Other benefits
There are many other potential benefits to working with regional carriers. By bypassing national and multiple regional hubs, service can be more reliable in inclement weather. Some shippers reported lower damage rates with regionals, the result of reduced package handling. Regionals can often offer special services or make it easier to ship certain products like hazardous materials.

Are there downsides to parcel regional carriers? Absolutely. We’ll take a look at those next time.

Rob Martinez (rob@shipware.com) is president/CEO of shipping consultancy Shipware Systems Corp.