The "Other" Parcel Carriers
Expeditors Give Shippers a Choice
Parcel Shipping & Distribution, USPS Issue, Nov/Dec 2000
By Robert A. Persuit


Quick, how many parcel carriers offer nationwide B2B ground service? How about B2C If you answered three (UPS, FedEx Ground and the U.S.Postal Service) and two (UPS and USPS), you may be pleasantly surprised to find out you have more choices. While it is true that three carriers offer coast-to-coast ground delivery, there are a growing number of parcel expeditors that offer coast-to-coast service. Furthermore, these parcel expeditors offer an outstanding value proposition - reliable service at a much lower cost!

What Is a Parcel Expeditor?
If you are asking yourself why you have not heard about parcel expeditors before, it's because you probably have. You may have heard them referred to as ''parcel consolidators'' or ''zone skippers.'' In truth, the companies do refer to themselves as such. However, these terms, while not entirely inaccurate, believe the true value proposition of these companies.

For example, the term consolidator generally implies that shipments are received, sorted and held until a full truckload is ready for dispatch. Unlike traditional consolidators, parcel expeditors receive, sort and dispatch shipments on schedules just like their integrated carrier counterparts.

As for ''zone skipping,'' this practice usually involves a shipper contracting with long-haul truckload carrier for delivery to another carrier for ''last mile'' delivery. In the vast majority of cases, the two carriers have no relationship with each other. In contrast, parcel expeditors have workshare agreements with the USPS to handle final delivery. In addition, most parcel expeditors offer seamless tracking from pick-up to delivery using the USPS' delivery confirmation barcodes. By integrating their information systems, the USPS and parcel expeditors essentially have formed alternative integrated carriers, which adds up to more choice for shippers.

From One to Many
It may be surprising to some that parcel expeditors have been around since before trucking deregulation. CTC Distribution Direct was established in 1982 in Minneapolis, Minnesota. The granddaddy of parcel expeditors handled over 130 million parcels last year alone. This number accounted for 40% of all the parcels delivered by the USPS. For awhile, CTC had the playing field to itself. In fact CTC had only a handful of competitors up until the mid 1990s. Then, a chain of events occurred that changed the competitive landscape.

First, the USPS parcel volume began to grow, thanks in part to the reliable service provided by parcel expeditors like CTC. Next, came the staggering predictions by Forrester Research, et al. regarding e-commerce B2C sales. The USPS saw the opportunity to capitalize on its competitive advantage over its commercial parcel delivery rivals - 325,000 delivery vehicles on the road delivering to every business and every residence every day. A decision was made to concentrate this core strength, and in January 1999, new postal rates were introduced with deep discounts for dropshipments into Sectional Center Facilities (SCF) or local USPS sortation facilities and Direct Delivery Units (DDU). This essentially opened the door for parcel expeditors to give e-consumers what they craved - fast, inexpensive delivery.

Delivering E-fulfillment
In the late 1990s, a new term was introduced in the logistics industry - e-fulfillment. Market research firms provided seemingly unbelievable numbers as to the amount of online sales we could expect in the not-to-distant future. ''Online sales totaled $46.2 billion in 1999. Of that number, $33.1 billion were B2C e-tail sales (a 120% increase over 1998 and 1.4% of all US retail sales), while B2B retail sales totaled $13.1 billion online. The Boston Consulting Group estimates that B2C sales will reach $61 billion this year, increasing 85% in 2000,'' according to the E-Commerce Times .

In order to meet this new demand for B2C parcel delivery, a wave of new parcel carriers emerged touting e-fulfillment capabilities. One such company was the GATX Logistics-Lockheed Martin partnership, Paxis LLC. If there was any doubt of how much potential Paxis saw in e-commerce fulfillment, it was quickly erased as the company rapidly opened a nationwide network of eight hub sortation facilities in less than one year. These highly automated hubs have IT systems that provide full end-to-end tracking visibility.

Building a Network
To provide reliable on-time service for B2C deliveries, a nationwide delivery network is essential. One major carrier learned that earlier this year when it launched a new B2C delivery unit, FedEx Home Delivery. Customers have seemed to be unwilling to ship with a carrier that only offers delivery to 50% of the United States population. In response, FedEx Home Delivery has hastened its schedule to provide 100% population coverage. This costly undertaking demonstrates how high the barrier is for entry into the B2C delivery market.

However, to provide coast-to-coast service, parcel carriers do not need their own coast-to-coast delivery networks. By partnering with the USPS, parcel expeditors are immediately linked to over 25,000 thousand delivery terminals. Thus, parcel expeditors simply need to put in place a hub sortation network that can be linked to Postal Service DDUs to provide coast-to-coast coverage. While Paxis simply built facilities from ground up, others such as long-time USPS partner Quad/Graphics used a different strategy. In anticipation of the postal rate change, Quad/Graphics subsidiary Parcel/Direct opened a hub sortation facility in New Berlin, Wisconsin in April 1998. While the organization quickly expanded their network building by three additional hubs, it also formed an alliance with Postal Freight, Inc. (PFI) for delivery of its West Coast parcels. This alliance helped both companies expand their coverage areas quickly. No matter how the network is built, the bottom line remains clear - partnering with the USPS for parcel delivery clears a major obstacle for entry into the very lucrative parcel delivery market.

Not Just B2C

While the majority of parcel expeditors cater to the needs of catalog retailers and e-tailers, others have gone after the business-to business market. One such expeditor, SmartMail concentrates on flat-size mail and parcels weighing less than one pound. Historically, this is the profile of the business shipper. By individually weighing and barcoding each piece of mail, SmartMail offers businesses what they want - detailed information about the package (including address, date of shipment, weight, etc.), fast delivery (one-to-four days transit time) and en-route tracking.

Virtually Integrated
RPS (now FedEx Ground) introduced en-route tracing to the small package industry in 1985. Customers liked the idea that they could ''see'' their packages move through the delivery network and know where their packages were at all times. Now, this feature has become an industry standard customers will not do without. Integrated carriers held an advantage over their rivals because they could offer full end-to-end tracking. However, the parcel expeditors and the USPS in a move indicative of a true partnership developed integrated IT systems that allow end-to-end tracking of shipments using the USPS' delivery confirmation barcodes. By providing full tracking capability throughout the delivery process, the hand-off from the parcel expeditor to the USPS SCF or DDU becomes invisible to the end-user. With this virtual data link, the parcel expeditor and the USPS essentially become one integrated carrier.

Value Proposition
While these ''other'' parcel carriers have found a way to integrate their data systems with their partners, the fact remains that the commercial integrated carriers have had this ability all along. So the question remains, why ship via parcel expeditors?

• Value - Parcel expeditor rates are often $1 to $4 less per package shipped than commercial integrated carriers. When you take into consideration that the USPS delivers on Saturday, your transit time via parcel expeditors is not much longer than their competitors (normally one to two days longer). If a company has the ability to plan ahead and ship earlier to compensate for this transit time difference, it can substantially reduce its shipping budgets.
• Choice - Aside from the USPS, there is only one company offering ground parcel B2C delivery to 100% of the population and only two delivering B2B shipments. Large-volume shippers unhappy with their carriers often do not feel they have other options. What's worse some shippers choose not to complain to their carriers for fear that the carriers will refuse to transport their packages. By utilizing the ''other'' parcel carriers, shippers can gain leverage with their current service providers.
• Lower Damages - The parcel expeditors operate less hub facilities than their integrated competitors, therefore, there are less ''touches,'' or handlings, of packages along the way. This equates to less damages.

Opportunities on the Horizon
Currently, parcel expeditors are a great value to shippers who can settle for a little slower transit time and a little less tracking information about their packages. However, opportunities exist for the parcel expeditors to create a value proposition, which large integrated carriers would be hard pressed to match. The ''other'' parcel carriers can enhance their positions by employing three key strategies:

• Establish and publish set transit times - In the age of just-in-time shipping and inventory control, shippers are reluctant to tender parcels to a carrier that offers a transit time window versus a transit time standard. If the transit time varies only by a day, shippers are more concerned with consistency of the delivery service than the speed. But they want to know exactly when they should expect the shipment.
• Develop faster transit times - With fewer hub facilities, parcel expeditors have more direct point-to-point dispatches. With shorter linehaul transportation times, parcel expeditors are in a position to offer faster service than the large integrated carriers, whose linehaul networks are designed to maximize load factor, which increase circuitous miles. As volume and density increase, parcel expeditors will be able to deliver more packages directly to DDUs. By doing so, the parcel expeditors will be able to provide service times that are equal or better than the large integrated carriers.
• Signatures - In order to become a serious player in the B2B market, parcel expeditors look to provide signature proof-of-delivery (POD) on all shipments. Currently, they can only tell their customers that packages have been delivered. However, the USPS has plans to offer Signature Confirmation service later this fall, which will collect a signature at delivery. With the ability to offer customers signature POD, parcel expeditors will become a viable option for many B2B shippers.

In summary, whether you call them consolidators, zone skippers or expeditors it is clear that the "other" parcel carriers value proposition is already attractive in the B2C market. And the opportunity exists for these carriers to deliver an even better value proposition that cannot be beat - faster service at a lower price.