Can You Lower Your Parcel Shipping Costs by Using a Regional Carrier?
Rising small parcel shipping costs have many companies searching for ways to reduce spend in this key delivery mode. For many shippers, this has led them to use a combination of carriers to build a national delivery network and create the lowest total cost of shipping for their specific business.
What’s interesting, however, is that this approach is not just a matter of shippers cherry-picking only UPS, FedEx, or USPS for the best rates by lanes. A lot of smart shippers are now also leveraging regional small parcel carriers to build their most optimized delivery network — and for many it is paying off.
Small vs. large businesses
Shippers that use a combination of national and regional carriers do so to find the best discounts and service. This is no surprise, since these goals are basic to every logistics operation. Taking advantage of this opportunity is not for every company, though. As a general rule, a business that spends over $10 million in net transportation has the ability to leverage multiple carriers to have a real impact on rates.
This minimum spend level gives a shipper the ability to take advantage of a regional carrier’s savings and still maintain enough penetration into their target revenue tier with the national carriers. In other words, the savings with a regional carrier needs to be considered against the potential loss of discounts with FedEx and UPS.
But of course, each shipper and its rate agreements is unique, so it never hurts to explore the idea regardless. The hard truth, though, is that shippers who spend less than that benchmark usually don’t have the negotiating leverage with both national and regional carriers.
Benefits of a regional carrier
Major regional carriers cover approximately 85% of the U.S. and have been steadily moving from the B2B market to the B2C market with the growth of ecommerce. These carriers, by definition, service very specific geographic areas. And when a shipper’s volume closely matches a particular carrier’s footprint the greatest benefits will result.
Faster Delivery: Regional providers are known for high on-time delivery rates — averaging around 99%. This works well for businesses that have a large group of customers in the same area. For those companies looking to stay competitive with same-day or next-day delivery, a regional carrier might be the best option to achieve these goals.
Service: Regional carriers can usually offer a better level of service than national carriers, with more personalized attention and live customer service teams. With the customer experience being so important to retailers today, getting customer service issues resolved quickly and correctly is a good thing.
Flexibility: National carriers tend to be more rigid with their rules than regional providers. Flexible, custom solutions can help meet a business’s unique needs. For example, regional carriers are often able to extend pickup windows for customers because they are not constrained by such inflexible cut-off times.
Lower Costs: Regional carriers have lower operating costs and are able to pass those savings along to their customers, sometimes as much as 10%–40% lower than the base rates of national carriers like UPS and FedEx. They also tend to have fewer accessorial charges and lower minimums compared to their national counterparts.
A regional carrier might offer lower shipping costs and fees, but there are some factors to consider before moving volume to a regional carrier. Make sure you ask yourself and any potential carrier partner the right questions. These can include:
- Can the carrier meet your service requirements in terms of pickup cut-off time and transit time?
- Can the carrier accommodate odd- or over-sized items you may ship?
- What is the on-time delivery performance of the carrier?
- Are rates negotiable or do they require a minimum volume?
- What are the potential surcharges and fees?
Making the decision
In the end, above all else, a regional carrier must be able to meet all the delivery requirements of your business. Asking a regional provider to model rates and service times for your most important lanes should be the first step and can quickly help to determine if the carrier is a potentially good fit.
Know that only using the national carriers may still be the best option for your business. If that’s the case, it’s never a bad time to renegotiate your agreement. Tightening up your rates and service agreement with your existing carriers might be all your business needs to optimize its small parcel shipping operations. Every company’s needs are unique, so exploring the regional carrier option is basic due diligence every shipper should do.