The COVID-19 pandemic has profoundly changed eCommerce business and eCommerce fulfillment. Shopping from home created unprecedented demand for parcel services, which the leading carriers responded to with higher parcel rates and, ultimately, diminished capacity. In this article, we’ll review the current parcel landscape and help you identify additional ways to lower your overall eCommerce costs.
Due to this growth, the major parcel carriers (i.e., FedEx and UPS) saw a tremendous increase in demand for their services. But not only was there an increase in demand, there was also an increase in the number of locations that required parcel pickups. A good chunk of this resulted from ‘ship-from-store’ capabilities that many large retailers embraced during the pandemic. Walmart, for instance, increased its ship-to-store offering to 2,500 stores to better serve its online customers. Many other retailers followed suit.
What happened next is that the major parcel carriers raised parcel rates, added surcharges (including 2020 peak season surcharges that have yet to be withdrawn as of February 2021), and reduced capacity by closing their networks to new contracts and even altering existing contracts to reduce service. This left many shippers scrambling to find capacity during their busiest season.
Importantly, it’s not just the small companies that are affected by these changes. According to SupplyChainDive, large companies like Nike and Macy’s were negatively impacted by service reductions in 2020.
These rate increases, reductions in capacity, and reluctance to enter new contracts do not appear to be a one-time event caused by the pandemic and a historically busy peak season. Instead, they appear to be the new norm. The major carriers are continuing to increase rates and turn down new contracts in 2021. The USPS, while it can’t turn away business like UPS and FedEx can, has also announced new parcel rate increases of its own.
The leading carriers have all the volume they can handle with their existing assets. And, as there aren’t national alternatives to match their operational sophistication, they can more or less do as they please. And right now, this entails maximizing profits for the business they choose to serve.
For shippers of many sizes, especially small and mid-sized ones, this new landscape is daunting. The opportunities to save big on parcel through volume-based discounts simply aren’t there anymore as the carriers are not incentivized to take on more shipments, let alone reduce their rates to do so. As such, shippers are left to weigh a variety of options such as partnering with a mix of parcel carriers, partnering with regional parcel carriers, extending current contracts with carriers in hopes of locking in capacity, and signing up for longer-term carrier contracts (when a carrier does offer a contract, it’s currently a 7-10 year agreement as opposed to the traditional 3-year term).
While it may be a challenge to score discounts with the large parcel carriers at the moment, there are still ways to reduce eCommerce costs. By outsourcing your eCommerce fulfillment operations to a third-party logistics (3PL) provider, you can take advantage of several cost-saving efficiencies, including the following.
From helping you devise a custom solution to your parcel challenges to implementing the efficiency-boosting measures outlined above, 3PLs can help optimize your fulfillment operations to deliver a great customer experience. And in the hyper-competitive landscape of 2021, that’s every bit as important to your bottom line. To learn more about working with a trusted fulfillment partner from the West Coast, contact Weber Logistics today.