Where Do We Fit? How Regional Carriers Fit Into the Supply Chain Along With the Big Two
An Interview with CLDA Keynote Speaker Rob Martinez, President and CEO Shipware, LLC
In a world dominated by two big delivery players, how can regional and specialized carriers find their footing with shippers? CLDA Magazine sat down with Annual Meeting keynote speaker Rob Martinez to discuss these issues. Rob is President & CEO of Shipware LLC, a leading parcel consulting and technology firm whose mission is to help volume parcel shippers reduce shipping costs. Rob offers 25 years’ experience negotiating parcel contracts – on both sides of the negotiating table – for some of the most recognizable brands in the world, and is a sought after speaker and industry thought leader.
Question: You meet with shippers all over the country. What are they telling you about regional carriers?
Martinez: Big shippers want to work with regionals, but they don’t know enough about what you offer. They are hungry for alternatives. Many have taken steps over the past 12 months to reduce parcel costs. They’ve been renegotiating their rates. They’ve been passing rate increases along to customers. They’ve been making greater use of the postal service and regional parcel carriers. They see regionals as a way to control cost, but they have reservations.
Shipware did a survey of Parcel Magazine readers that should give regionals both pause as well as hope. While only 30 percent of these shippers said they currently use regional carriers, more than 60 percent said they’d be open to exploring them as an option to the Duopoly. Overall, those shippers that use regionals have a favorable impression. They see them as a way to save money while delivering good service to their customers. Those less familiar with regionals expressed concerns including long term financial viability, service parity, driver image, and loss of potential discounts with the Big Two. A shipper’s perception is his reality, and therefore regional carriers need to demonstrate that you offer a professional, cost effective alternative to the big guys.
My company surveyed shippers about the use of regional carriers. Most important were service, cost, image, convenience and ease of use. But when we asked regional carriers what they thought was important to shippers, they only got some of that right and overemphasized flexibility and customized delivery. So the first lesson for regionals is to get a better understanding of what’s important to shippers and market around that.
Question: You mentioned that shippers are feeling like they don’t have alternatives. Talk about that.
Martinez: Shippers feel it’s harder than ever to negotiate with the big, national providers. They hate the lack of competition. In 1985, there were at least nine domestic, private parcel carriers servicing the U.S. Now there are only two: FedEx and UPS. That means that shippers today have fewer choices and limited ways to control costs than ever before. Shippers are hungry for alternatives. Regional carriers can be the beneficiaries of that need.
Question: Recent announcements regarding revenue enhancement by the Big Two have garnered headlines. How can CLDA members talk about these developments when they deal with shippers?
Martinez: You’re referring to the announcement that FedEx and UPS will eliminate the three cubic foot exception before they apply dimensional weight to packages. Yes, the mother of all rate increases, effective 2015.
But it’s not just the volume based pricing changes. The annual rate increases of four to eight percent year-over-year have sent parcel pricing skyrocketing. Some packages have experienced double-digit annual rate increases for certain weights and zones. The impact of ground minimum charges has been huge for shippers. And surcharges on certain shipments can actually be higher than the freight costs.
Shippers do appreciate that regionals have fewer accessorial charges, but your customers need to know you’re taking a sacrifice by not charging them. Many accessorial charges imposed by the Big Two are also subject to fuel surcharges. For the most part, regional carriers aren’t imposing such additional fuel surcharges on accessorial fees. When you sell to these shippers, you should point that out. Conduct fully landed side-by-side cost evaluations with all these additional charges baked into the comparisons.
And then there are Dimensional Weight charges. The Big Two use 166 domestic dimensional divisors, while many regional carriers use more favorable divisors. As I was describing earlier, both FedEx and UPS will eliminate the three cubic foot dimensional exception in 2015, which amounts to one of the largest rate increases in history. Twenty-two of the 25 most popular box configurations sold in this country will be subject to higher dimensional costs. You need to educate the market about these cost challenges, AND let your customers know how you’re different.
Question: How else can regionals differentiate themselves?
Martinez: Pricing agreements with the Big Two are more complex and conditional than I’ve seen in my 25 years in the parcel business. They are loaded with what I call “gotchas”. And most shippers don’t really understand how numerous terms within their carrier agreements can have an adverse impact on their costs. Shippers know what they are up against and how you are different. Talk to them about:
- Your discount structure, volume & revenue commitments, and flexible terms;
- Accessorial charges, and how regional carriers carry very few versus the dozens of the Big Two that now account for as much as 30% the total cost of service for many shippers;
- Your minimum charges and dimensional rules, if any;
- Your simple contracts compared to the numerous “gotchas” and exclusions in the contracts with the big carriers.
- Your willingness to work with third party market experts like our firm. The Big Two won’t allow their customers to use third party market experts to negotiate contracts for shippers. That limits their ability to get the best rates they can.
Question: What benefits should regional carrier underscore when they talk to shippers?
Martinez: Sell the cost savings. Our research shows that shippers could realize as much up to 40 percent cost savings by using regionals. Underscore that you have fewer assessorial charges. Remind them how much easier it is to negotiate contracts with regionals. But equally important is service. Show customers how you offer a higher level of service, earlier deliveries, later pickups, and a wider Zone 2 footprint for next day delivery.
Question: You told our members that they could be limiting themselves by not taking a page from the Big Two book. Talk about that.
Martinez: Yes, in my opinion the regionals are giving too much away. Many regional players are challenged with regards to revenue growth and margin. Charging for accessorial charges like residential delivery or delivery area surcharges – or minimum shipment charges and dimensional pricing practices – can generate much needed revenue and still allow the regionals to be cost competitive with the Big Two. We asked shippers what kind of cost saving they would require to consider switching part of their volume to regional carriers. Most said somewhere between five and 15 percent. Yet some of your members are offering savings of 30, 40 and even 50 percent savings over the Big Guys. You can still be competitive and not leave quite so much revenue on the table.
Question: You’ve said there are some negative perceptions about the shortcomings of regional carriers. How do we head off those objections?
Martinez: Anticipate, understand and address their concerns head on. When they worry about your limited delivery area coverage, you can counter that your geographic concentration is actually a benefit that will result in faster delivery service to a larger area than the zonal designations assigned by FedEx and UPS. And that you can offer more flexible operations and later pickups.
When they say, “You’re too small”, turn the objection on its head by countering “They’re too big!” I commonly hear shippers complain that the Big Two don’t treat them like the customer. They raise rates every year. They make contracts complex, with service guide changes that hit shipper’s bottom line. They employ high pressure negotiation techniques, force shippers into early termination penalties, and don’t allow shippers to hire outside market experts to help negotiate. Assure shippers that your size and underdog position offers tangible advantages, and that you will try harder to earn and keep their business. To counter concerns that you can’t handle their business, give them peace of mind by sharing case studies and offer customer references. Show statistics on your growth and market acceptance and adoption. As an example, inform shippers that Amazon is shifting from deliveries handled predominantly by the Big Two to the use of regionals in 60 of the largest U.S. markets. Remind shippers of the 2013 Christmas delivery problems they experienced with FedEx and UPS, and the constraints of a central-hub based system. Finally, convince shippers that choice and competition in the market place is a good thing for shippers!
Question: The issue of image seems to come up frequently as something that keeps shippers from making more use of regional carriers. How important is that?
Martinez: It’s critical. Carriers need to understand that they are the connection between a merchant and his customer, an essential part of the customer experience. A bad delivery experience and the seller might lose a customer for life. A good experience on the other hand leads to reorders, positive promotion and higher customer lifetime value. Shippers need to be assured that vehicles and drivers portray a professional image. Regional carriers need to ensure that your vehicles are well-branded, clean and well-maintained. And your drivers must be uniformed, well-groomed and professional.
But more than that – regionals must build a professional brand image. You are competing against FedEx and UPS, two of the most admired brands, ever. Your marketing has to look professional and contemporary. That includes your website, social media, marketing materials, sales staff, and customer service team. The big guys have this stuff down pat. You need to do the same if you want to compete.
Question: So what you’re saying is that shippers want to work with regionals as much as regionals want to work with shippers. Can you sum up what that means?
Martinez: Most shippers recognize the advantages of having alternatives in the market place. In fact, two-thirds of all shippers surveyed told us they are open to exploring the use of regional carriers. Regionals need to tailor their message to reflect the needs of shippers: Cost, image, service, convenience and ease of use. Regional players have a tremendous opportunity to grow their business. The market is wide open, and shippers want to hear from you. It’s up to you to take advantage of it!