7 tips for shopping for a shipping consolidator

Oct 01, 2006 9:30 PM  By

Direct marketers have long relied on shipping consolidators to help them get their packages farther down in the U.S. Postal Service mail stream so that they could cut delivery costs.

Shipping consolidators work on the back end similar to how catalog drop-shippers work on the front end: by handling much of the work that the USPS would do. So rather than delivering your parcels to your local post office and have the Postal Service handle the delivery from there, with a consolidator you are having a third party pick up your parcels and then combine them with parcels from other shippers; the consolidator then delivers the packages not to the post office nearest you (or it) but instead closer to the final destination — to a sectional center facility (SCF), for instance, or even to the destination delivery unit (DDU), the last stop in mail stream before it reaches the customer.

With a complex postal rate case pending (see page 19 to read more), it’s no surprise that shippers are reviewing consolidators as a cost-savings option.

You may benefit from adding a shipping consolidator to your menu of package delivery options even if you currently rely on carriers such as United Parcel Service for shipping. Carriers levy scores of accessorial charges in addition to their standard fees, such as surcharges for deliveries to residential addresses. These charges can in some cases erode your margin, making the use of a shipping consolidator and the USPS an affordable alternative. And because, as their name indicates, they consolidate smaller, less-than-truckload (LTL) shipments from multiple companies, many moderate-size shippers rely on them as well.

There are thousands of consolidators from which to choose. Some are small, independent companies; others are backed by significant networks with years of experience and knowledge. Some operate only within one region; others provide all but national coverage. How do you determine which consolidator is right for your business? The following tips can help:

  1. PERFORM YOUR DUE DILIGENCE

    No two companies run their business the same way. But when calamities occur, such as the abrupt closure in March of major parcel consolidator APX Logistics, “everyone paints the industry with the same broad brush,” says Mich Bayley, president of Tucson, AZ-based regional consolidator SP Express.

    “The biggest thing that’s happened since [the bankruptcy of] APX is that there’s more of an emphasis on due diligence when it comes to the selection process,” Bayley says. “Potential customers are looking at reliability and financial stability. They are inquiring about our business history and talking to our principals and our clients.”

    When discussing services and terms, be specific. How expedited is a carrier’s “expedited delivery”? How deferred is “deferred delivery”?

    And don’t merely take the company’s word for things; get everything in writing. “Performance counts,” says David Marinkovich, senior vice president of sales, marketing, and customer service for Weston, FL-based DHL Global Mail, which provides a broad range of delivery services. “Be sure you ask to see performance reports.”

  2. USE A MULTICARRIER SHIPPING SYSTEM

    Carriers often provide clients with free shipping software, to aid with tracking, reporting, and determining the optimal shipping method for each package. But according to Rob Shirley, president/CEO of Austin, TX-based consultancy ExpresShip, “There’s little that’s free in those systems.” Shipping software from a specific carrier will likely have internal business rules that heavily favor the carrier and exclude competitive options. For that reason, Shirley advocates the use of multicarrier shipping systems, which allow you to choose carriers on a cost/performance basis for each package or shipment based upon criteria that you determine. “While they aren’t free,” Shirley says, “the savings they’ll provide throughout the year might surprise.” Systems, he says, vary in cost but basic options start at $10,000. The good news is that you can expect to cut your parcel delivery costs by about 10%.

  3. DIVERSIFY

    This ties in with the usage of a multicarrier shipping system. In the wake of the APX closure, shippers learned once again the dangers of putting too many eggs in one basket — or too many parcels with one consolidator. For instance, Chuck Frenette, the chief financial officer of Chippewa Falls, WI-based B.A. Mason Shoe, had just hours to reroute 7,000 packages that had been on an APX trailer when the consolidator shut down. Because APX was the consolidator for 95% of B.A. Mason’s packages, Frenette couldn’t simply turn to several other of his consolidators to pick up the slack.

    “If you have the best rate because you give a single carrier all your shipments, you could be in trouble,” says Shirley. If you’re intent on consolidating your business so that you can benefit from volume discounts, at least consider using separate shippers for domestic and international packages, he says. “Just make sure both carriers provide the same domestic and international service levels you need.”

  4. SHOP YOUR RATE

    If you’re relying on your sales representative to tell you about the great deal you’re getting, you’re probably not getting that great a deal, Shirley says. Talk to competitive consolidators at least once per quarter. You’ll be surprised at the deals shippers are offering these days.

  5. CONSIDER HIRING A PROFESSIONAL NEGOTIATOR

    Almost every industry has independent consultants to help buyers negotiate with sellers, and the parcel shipping industry is no exception. The negotiator understands the myriad elements used to determine rates — not just price, weight, and volume but also each carrier’s menu of surcharges, which can number in the hundreds. Shirley says that shippers spending more than $3 million annually on express and parcel shipments can expect to save about 10% annually for three years when using a professional negotiator.

  6. GET CREATIVE

    Work with consolidators to understand their processes and how your actions impact their costs, suggests Bill Meehan, the retired director of transportation for Chicago-based business-to-business conglomerate W.W. Grainger who now runs Inverness, IL-based consultancy WSM Transportation Service. For example, if you’re using a consolidator to help you load and unload parcels that’s likely to increase costs. “Ask the carriers to work with you to reduce total costs, and be open to their recommendations.” If cost is an issue, perhaps you might wring additional savings from bundling parcels from another title in your operation. “This would pique a carrier’s interest and you’ll likely gain leverage in pricing because everything in transportation is about volume and leverage,” Meehan says.

  7. BE FLEXIBLE AND COMMUNICATIVE

    “If you have a little flexibility on when the package can get to the consumer, you can lower your cost,” Meehan says. So if you’re running a free shipping and handling promotion, for instance, instead of having packages tied to that free shipping offer arrive the next morning, you could save money by deferring delivering for, say, two or three days. Another example of flexibility, Meehan offers, is the time of day when the consolidator arrives at your warehouse. “Everybody wants a pick-up at 5 p.m. But if you’re flexible enough to allow for a 10 p.m. pick-up, you might lower your overall costs.”

Multicarrier shipping systems at a glance

Multicarrier shipping systems allow you to choose carriers on a cost/performance basis for each package or shipment. There are several systems to choose, but not all of them are carrier independent. Here are the contact names for a few:

DATA TRAK TECHNOLOGIES

St. Paul, MN
www.datatrakmn.com
651-639-0091

ISHIP

Bellevue, WA
www.iship.com | 425-602-4848

KEWILL SYSTEMS

Marlborough, MA
www.kewill.com | 877-815-2049

PITNEY BOWES

Stamford, CT
www.pb.com | 203-356-5000

TANNER TECHNOLOGY SYSTEMS

Jacksonville, FL
www.tannertechnology.com
877-815-2049

Is there a consolidator in the house?

Consolidators offer a full range of shipping services, from picking up to sorting to transporting your parcels. These firms can help save you money. Below, a partial list of USPS consolidators:

AMERICAN PARCEL SOLUTIONS

Salt Lake City, UT
www.american-parcel.com
801-972-4470

CORNERSTONE SHIPPING SOLUTIONS

Milan, IN
www.shipcss.com | 309-787-9412

FAIRRINGTON TRANSPORTATION

Bolingbrook, IL
www.fairrington.com | 630-783-9200

PARCEL POOL.COM

Orem, UT
www.parcelpool.com | 801-434-7400

SPEXPRESS

Tucson, AZ
www.spexpress.com | 520-573-1100