Close to home

Dec 01, 2006 10:30 PM  By

The national parcel carriers in the U.S. do a great job, says Douglas Kahl, director of sales and business development for AFMS Logistics Management Group, a Portland, OR-based consultancy specializing in domestic and international shipping. “We are very fortunate in this country to have the best transportation system that has ever been available, and it is important to appreciate the national carriers for being able to do that.”

Kahl then adds one other comment: “However, don’t overlook the regionals.”

Fewer and fewer shippers are overlooking the regional carriers, and the number of such companies is growing as a result. “We know of at least 500 in the U.S. alone,” reports Rob Shirley, president/founder of Austin, TX-based shipping solutions consultancy ExpresShip. Some regional carriers serve just one metro market, such as New York City. Others serve entire states. “In fact, there are three that serve every address in California,” Shirley says, “and they offer express and ground service.” And some regional carriers will serve a number of states in the same region.

If you ship only within a limited geographic area, working with a regional parcel carrier certainly makes sense. If you ship beyond your regional market, it is likely that you will be doing business with a national carrier. But this doesn’t mean that all your outbound packages can or should be shipped by the national carrier.

THE BENEFITS OF REGIONALS

In many cases, regional parcel carriers can be competitive in at least four important areas: time, technology, cost, and service.

Time: The primary selling point of the regionals is faster short-zone transit times, according to Brett Febus, president of Hilliard, OH-based parcel shipping consultancy Insource Logistics. “In fact, they usually compete pretty well against the nationals by taking the packages that would normally be delivered in two or three days and delivering them the next day.”

And there is another time benefit, according to AFMS’s Kahl. “Regional carriers are probably going to be able to arrange for later pick-up times than the nationals,” he says. “This lets you fill orders later in the day that can still be delivered the next day.” Some regionals will even offer same-day delivery.

Technology: Until recently, many shippers gravitated toward national carriers because they provided shipment tracking technology that the regionals did not offer. But this is no longer the case. “With the price of technology being as inexpensive as it is, regional carriers have invested in full-blown tracking, tracing, and proof of delivery systems,” says Shirley of ExpresShip. “Previously this was the major edge that the national carriers had.” What’s more, he says, merchants can now order their shipment pickups online with most of the regional carriers.

While many regionals offer real-time tracking information, most of the rest will at least be able to offer timely tracking information.

Cost: “In terms of pricing, when working with most of the regional carriers, the path to achieving discounted pricing is a bit quicker and more straightforward,” points out Febus. “The reasons are that they provide fewer services, and they have fewer accessorial charges, so they can make their pricing and tariffs a lot more simple to understand.”

Some regionals also offer another cost edge: They make residential deliveries for no additional charge. Others have extra charges for shippers that ship mostly residential, but no extra charges for shippers that have few residential deliveries. Still others will negotiate.

Service: Regionals may be able to handle special needs that the nationals don’t have the flexibility to do, says Shirley. For example, you may be able to give a regional carrier five pallets with 200 boxes on each pallet and then send it 1,000 customer labels online. The carrier would then print all the labels and affix them to the boxes for you (assuming that the boxes all have the same products). “Then the carrier will deliver all of them on the day specified,” he says.

And if you are a large enough customer — shipping at least 20 packages a day — you may even be able to personally call the president of a regional carrier to get something changed, Shirley says.

ARE REGIONALS RIGHT FOR YOU?

There are many instances when it makes sense to consider regional carriers. The size of your company is one consideration. “The decision to use nationals or regionals may depend on your total spend,” says Don La France, director of transportation services for enVista Corp., a Mishawaka, IN-based logistics and shipping provider. “If you’re a smaller player, you will typically get better service and pricing from a regional.”

Your location is another factor. If you are in a remote area or a smaller city, La France says, you will usually have better service with a regional carrier.

Also, consider where most of your customers are located. “Look at your distribution and traffic pattern,” Kahl suggests. “If you have a high concentration in a certain geographical area, then it may make sense to consider a regional carrier.”

When comparing prices between regional and national shippers, don’t forget to consider added costs, experts say, especially as the national carriers have increased the number of accessorial charges during the past few years. These charges include fuel surcharges, inside-delivery service, waiting time, address correction fees, oversize shipments, and packages that are nonconveyorable and need to be hand-carried.

“You may want to do some research to see if you can get a more simplified pricing structure from a regional carrier than from a national,” Kahl says. “A lot of the regionals can handle all of your needs without all of the add-ons.”

When determining cost, remember that there are two types of regional carriers. One offers small-parcel ground service. “Here, you can do a simple comparison between a national small-parcel carrier and a regional small-parcel carrier,” Kahl says.

Other regional carriers offer less-than-truckload (LTL) service for heavier shipments, which makes it more challenging to determine pricing, he says. In these situations, you should compare the prices against the national parcel carriers, which have special programs for handling heavier shipments — often called hundredweight or multiweight programs — and the traditional regional small-parcel carriers, which may also have programs designed to handle heavier shipments.

“You need to determine if the minimum charges from an LTL carrier are going to be more or less than the hundredweight or multiweight costs of a national carrier,” says Kahl. “In addition, you have to factor in the regional small-parcel carrier’s program for handling heavier pieces.”

IN THE ZONE


Zone-delivery programs, also known as zone-skipping and pool-point programs, are often considered controversial, but in many cases they can be extremely cost-effective and time-efficient. The program involves shipping products via a long-haul carrier (usually an LTL trucker or an airline) to a large metro area, where a regional carrier picks up the packages for local delivery.

For example, if you have a lot of customers in a specific major market, such as New York, Chicago, or Los Angeles, you can send these packages via an LTL carrier or an airline on a Thursday or a Friday to the regional shipper, which will deliver them on Monday. “Savings can be as much as 40%, without any loss of delivery time,” says Shirley.

In some cases, the strategy can actually save time. “One of our clients in Cleveland ships to major markets via Continental Airlines, which has a hub in Cleveland and thus offers good rates,” Shirley explains. The marketer puts shipments on early-morning flights; the regional carriers pick up the shipments from the airports and deliver them. Instead of needing to have shipments ready for a national carrier by 6 p.m., the shipper doesn’t need to have them ready until 6 a.m. the next morning, and delivery is assured that day.

“Zone-skipping is certainly a potential viable solution,” Kahl says. “A lot of it, though, requires having sufficient critical mass built in the number of shipments you plan to zone-skip.” If you have enough critical mass, then the cost of the long haul plus the distribution delivery cost of the regional carrier may be less than the cost of using a national carrier for the whole delivery.

GETTING TO THE POOL POINT


Gabriel Brothers, an off-price retailer of apparel, home fashions, and accessories based in Morgantown, WV, has been using enVista’s pool-point program for the past 18 months. As a result, the company has been able to open five new stores in the last year without adding to its delivery costs. And by making some minor modifications next year, the company estimates that it will decrease its shipping costs by one-third.

The company operates two businesses: the Gabriel Brothers chain of 30 full-line off-price department stores and Rugged Wearhouse, whose 73 stores sell off-price clothing. With the namesake chain, “most of these stores are in our general vicinity, so we can deliver direct to them from here,” says Mickey Kimball, vice president of distribution.

The Rugged Wearhouse stores, however, are as far north as Delaware and as far south as Alabama. “Running direct loads ourselves from Morgantown down to these locations is inefficient cost-wise,” Kimball notes. “Since they are smaller stores, we don’t have the ability to send them full trailer loads, so we would have to use multi-unit loads on those deliveries, running two or three stores per trailer.” But the time it takes to get a trailer to, say, Birmingham, AL, and back makes that plan impractical.

Yet the volumes are too high for Rugged Wearhouse to use small-package carriers. “As such, we started looking at pool-point delivery about three years ago,” says Kimball. “As we grew the chain, this strategy became even more efficient for us.” The company began the program on its own, starting out with one third-party provider. As the retail chain expanded farther south and west, it added two more.

“After about a year and a half, though, we brought enVista in to confirm that what we were doing made sense,” Kimball says, “and also to see if we had selected the best locations for our pool-point locations, to further lower the delivery costs.”

While you can cut costs by shifting some business to regional carriers, remember that “the national carriers will have contracts in place based on certain volumes that you guarantee, either in terms of number of shipments or revenue criteria,” cautions Kahl. “If you take this volume out of the national contract, you need to take any potential cost increase into account when you are considering using regionals.”

Insource’s Febus offers a way around the problem: “When we negotiate agreements with the national carriers on behalf of our clients, we negotiate them at volume levels that allow for significant downturn in our clients’ business, as much as 20%-25%.” In that case, if you expected to ship $10 million a year with a national carrier and then ended up shipping only $8 million because of a slowdown in business, you wouldn’t have to pay a penalty or higher rates.

But what if you continued to ship $10 million but shifted $2 million of that business to one or more regional carriers? This may or may not lead to a rate increase, depending on how the contract is worded. “You may still be within the bounds of the contract, although depending on how the contract is written, it may not be within the spirit of the contract,” admits Febus. “Again, it depends on the type of flexibility that you want to build into the contract.


William Atkinson, a freelance writer based in Carterville, IL, has written for Apparel and Risk Management magazines, among other publications.

COMPARE AND CALCULATE


Comparing regional carriers and national carriers is more complicated than comparing different brands of canned peas at the supermarket. For that reason, Douglas Kahl, director of sales and business development for AFMS Logistics Management Group in Portland, OR, suggests putting all the pricing information you gather into a database format or spreadsheet format. Then pull out as much information as you can, down to the package level, from your current shipping system and any electronic invoicing information that you have.

“This will provide you with the costs associated with your current carrier,” Kahl explains. “Then you can compare this to the cost of a potential regional carrier.” Insert these new cost numbers. Then have the database compute the difference. With a spreadsheet, you will have existing costs in one column, and new costs in the other column.

Don La France, director of transportation services for enVista Corp., a logistics and shipping provider in Mishawaka, IN, agrees that software programs or other modeling tools can help you determine the best selection. “The market is so saturated, and the pricing is so complicated, especially with all of the accessorial charges, that you have to rely on a program to make an educated selection,” he says. EnVista uses a proprietary costing model that helps to identify the carrier’s operating ratio up front to put the company and its clients in a better position to make an informed decision.

Besides providing shipping consulting services, Springfield, VA-based CMS Consultants also offers a software program called WorldLink that companies can use in single- or multiple-warehouse environments and that interfaces with their enterprise resource planning and warehouse management software applications. The WorldLink software costs anywhere from $25,000 to $400,000, says CMS president/CEO Will Fekeci, depending on the options that the customer wants. Implementation can cost from $15,000 to $100,000, depending on the number of sites the customer has.

“The program determines which carrier has the best rates and delivery for a specific shipment or consolidated shipments,” explains Fekeci. Information about the standard carriers is already built into the software. “However, clients can build into the system the names of all the carriers they want,” he adds.
WA