Working the Globe - Options and costs for parcel shipping
Parcel Shipping & Distribution, July 1999
by Satish Jindel

Introduction:

When it comes to global express and parcel shipping, the industry has a very different set of carrier choices, services and rates. Consequently, shippers are faced with a more difficult task managing global transportation needs.

For decades, ocean carriers have handled the bulk of global shipping including the transportation of commodities, automobiles, machinery, and container loaded merchandise. These carriers have been slow in responding to the shift in the global economy towards just-in-time practices for the technology-driven economy and manufacturing of high tech products in overseas markets. This article highlights some the key differences in domestic and global shipping to help shippers better understand and capitalize on growth opportunities in the global market.

There are several differences between the parcel and express services available to US shippers for domestic and global service. These differences are extensively influenced by factors outside the direct control of the industry. Examples include: government control over the international movement of carriers and the lack of necessary infrastructure to transport parcels via air or trucks in many overseas countries. A comparison of few factors influencing the express/parcel market for the domestic and global shipping are presented in Figure 1.

Figure 1: Comparison of factors influencing the market

Industry Regulation and Customs Clearance:

One major difference between the domestic and global parcel/freight industries is the extensive role of government still plays in determining which products can move into and out of the nation and on which carriers. The cost of securing rights to operate aircraft and ocean vessels between nations and to cross boundaries overland via trucks are impediments to a more competitive global transportation industry. This contributes to much of the premium for global shipping charges for comparable services and parcels. The need to have parcels and freight cleared through customs not only adds to the transit time but to the shipping and inventory cost for businesses in both countries. Depending on the products being shipped and the destination country, a shipper will incur different cost as a result of these government regulations, as reflected by the premiums in Table 2.

Global Service Levels and Parcel Rates

Within the last decade, the global economy has experienced rapid growth in high value products like electronics and computers, and placed greater emphasis on faster transit times. Yet, the ocean carriers do not have faster ships that could provide a value-driven standard service alternative to the express services of air carriers. USPS is the only parcel carrier that offers International Surface Parcel Post. However, it takes weeks instead of days with rates almost as expensive as the express rates of private carriers. But even the express services of private carriers take one day more than for similar services in the domestic market. Two major factors for difference in transit times are: government restrictions and significant difference in time zones.

Besides service difference, the express rates for parcel services to global destinations carry a huge premium over the domestic destinations for comparable distances and service levels. Table 2 below illustrates the premiums that can range from 94% to 385%. These premiums are partly attributable to the additional cost for operating rights to those countries and customs clearance. However, express letters contain documents and rarely require customs clearance. Moreover, offsetting these costs are the lower labor costs for delivery in many Asian, Latin American and African countries.

Consequently, difficulty of establishing operations in overseas markets, and inadequate marketing and presence by foreign express carriers in the US market, contribute to some of the premium for the global parcel services.

Figure 2: Comparable domestic and global express rates for letter and 20 lb. parcel

Zone Skipping Limited:

In the domestic market, many large volume shippers have benefited both with cost savings and improved transit times through zone skipping services available through consolidators, distribution companies and regional carriers. These services require a large presence of regional carriers who can offer full coverage of the region. In the global environment, the opportunity for zone skipping has not been realized partly due to a lack of global regional carriers and inadequate infrastructure for such services in the overseas markets.

Most global shippers, for example, would have difficulty identifying a regional carrier that could handle delivery of parcels in all countries of Latin America. The reason being that such carriers either do not exist or, when they do, they lack the expertise to capitalize on the opportunity. Moreover, due to differences of culture, language, currency and infrastructure in the countries within the same global region, the establishment of global regional carrier has been a difficult undertaking. The ocean carriers and air freight forwarders/carriers have also not aggressively promoted the zone skipping opportunities similar to those available in the domestic market.

Regional Developments

In the US, there are several national and regional carriers for both parcels and freight. This has contributed to improved services and competitive pricing for the shipping community. On the global scale, the parcel and freight industry is dominated by a few global carriers like FedEx, UPS, and DHL, and niche carriers like Emery Worldwide, BAX Global and Airborne Express.

However, looking at the global regions like Europe, the Middle East, Southeast Asia, the Orient, Africa and Latin America, it is hard to identify regional carriers with full coverage of the particular region. Even the emergence of regional carriers in Europe that cover all countries on the continent is a recent development with the creation of the European Union and aggressive acquisitions by Deutsche Post and TNT Post Group.

Options for US Parcel Shippers:

Parcel shippers who wish to penetrate the global markets need to take a serious look at the logistics and transportation costs for such expansion efforts. In the domestic market, a regional shipper can expand its customer base to the other regions with minimal logistics complexity. However, the same approach to other regions of the world involves a through planning and cost analysis of transportation services to achieve the desired profitability.

Already the express and parcel carriers in the domestic market are responding to the changes in the economy being pushed on the industry by the growth of e-commerce. With the easing of communication barriers between nations and the impact of the Internet, global business-to-business commerce stands to grow at a rapid pace. Some nations have already moved to remove some of the restrictions on e-commerce. Recently, China recognized the power of the Internet with the launch of MeetChina.com. This has encouraged many US companies to develop Internet portals to promote e-commerce. This development will contribute to significant growth in international parcel services which, in turn, will make it more attractive for other options to emerge for global shipping.

The growth in global parcel volume should increase options for shippers, including three listed here. First, a Philadelphia-based company is planning to introduce FastShip between US and Europe, reducing the transit time by several days. If successful, it should offer an attractive standard service between the two largest global regions similar to the ground parcel service in the US domestic market. Second, with the growth of logistics companies in the US and overseas, the industry will find ways to squeeze costs from the system to capture a greater share of the global cargo market. Third, with the willingness of certain governments to reduce trade barriers as reflected by the establishment of European Union and NAFTA, the shippers could notice reduced premium for global shipping.

More extensive research by shippers will allow them to identify more cost effective and efficient alternatives to global shipping and make the penetration into the global markets more attractive. But most importantly, the shippers can help themselves by seeking deregulation of the global transportation industry.

Satish Jindel is a Principal of SJ Consulting Group, Inc. a transportation strategy and planning consulting firm based in Pittsburgh, PA.