In the supply chain, change is the only constant. Economic concerns are pressuring carriers of all types, causing them to rethink their products and services. Small-package carriers, however, see a bright spot that eludes the carriers for larger freight. Globally, eCommerce is growing and e-tailers (retailers that sell electronically via Internet) are looking to small-package carriers to provide fast, reliable services to consumers, one box at a time. If there’s any doubt about the pace of change, or the openness to change, recall how seriously Amazon.com Inc. was taken after announcing delivery drones (see “Skynet’s Next Step,” World Trade 100, January 2014).
As a result, small-package carriers are expanding into new geographies and new product niches, offering streamlined international deliveries and developing new product categories that did not exist even one year ago. With this entrepreneurial attitude, small-package carriers report growth. Even within the small-package category, some of the smallest companies are competing successfully with their larger rivals, claiming business based on increased personal attention.
“The freight transport market is changing,” says David Emerson, group sales and marketing director, Seko Logistics. “The volatility being experienced in terms of shipment volumes and modal shift may remain for some time. Even as the economic picture improves, the lessons and experiences for customers over the past couple of years almost certainly means their thinking has changed and they will expect more innovation and capability from their suppliers from now on. There will certainly be more opportunities for companies that rise to that challenge.
“The challenge is for the freight industry to anticipate and move with the market,” Emerson continues. “At Seko Logistics when we talk to customers, it’s about what we can do to make their lives easier and improve their entire end-to-end supply chain, because that offers much greater potential than only focusing on freight rate.”
Systems integration between shippers’ and carriers’ data management systems is one of the key challenges, Emerson says. Tight integration immediately increases supply chain options and provides measurable savings and efficiencies.
For example, according to Brandon Fried, executive director, Airforwarders Association, “Large freight carriers are being called on to ensure that cargo is positioned quickly, so inventory management comes into play.” For those carriers, strategies to increase the efficiency and lower the costs of last mile delivery are a concern.
“There’s also less reliance on actual air cargo and more on other modes,” Fried says. Shippers are rethinking their strategies, realizing that a bit of advance planning can help them save money in shipping. Often, they are concluding that they can access certain services less expensively and with higher levels of responsiveness from smaller carriers. Consequently, he says. “Small companies are taking market share from the big guys.”
The gains small carriers are creating are a function of the economy, Fried points out. “Economics are the biggest issue for our members. It’s been a long, deep recession that we’re not blasting out of as easily as in the past.”
“Airfreight is growing about 3 percent per year, with significant regional fluctuations,” adds Larry Lewis, supply chain expert with global logistics management company Kewill. While volume is growing, however, overall airfreight capacity is declining, he says. Therefore, “Shippers increasingly need to plan ahead and enter into longer-term partnerships with their airfreight partners or they will struggle to find capacity — particularly at short notice or peak periods — and may find their costs soar when factors such as high-consumer demand, production delays for a new product launch or adverse weather makes air freight a necessary last-minute option.”
As Emerson notes, “Airlines in particular are in a difficult position because they have less influence over the choices shippers are making.”
While airfreight traditionally has been used because of its speed, customers say costs and predictable delivery are becoming more important. “Customers want predictability to plan the movement of their goods in the smartest possible way,” Emerson says. “An efficient supply chain that gives predictability and, just as importantly, information and visibility will open up more options for customers.”
To do that, Seko recently launched its Omni-Channel Logistics division “to help ‘bricks and mortar’ retailers fast track their way into the $1 trillion global eCommerce market by giving them a single source for global fulfilment, delivery management, returns solutions and eCommerce development and design,” Emerson adds.
eCommerce has changed small-package shipping irrevocably, according to Srini Vasan, CEO of eShipGlobal Inc. “Globally, e-tailers are looking for the best carriers for same-day, next-day or one- to three-day delivery. Costs, efficiency and time are all issues. International specialists like DHL Express, FedEx and UPS dominate the market. The picture looks bright in terms of international businesses trying to buy from American manufacturers. Market demand is high for American products and, with small-packaging shipping, businesses can reach anywhere in the world.”
As Karsten Aufgebauer, senior VP and general manager, northeast area, DHL Express, emphasizes, “Internet retailers are one of the most innovative and thriving sectors of the economy and will continue to evolve. We believe small-package shipping will continue to grow.”
DHL Express is positioned to know. It is focused 100 percent on international import and export package delivery, providing the tools and resources to help small- to mid-sized businesses expand into the global marketplace. It partners with the U.S. Commercial Service to help provide importing and exporting expertise.
“e-Tailers abroad, especially in the key countries of Australia, South Korea, the UK and Canada, are reinventing themselves to compete with e-tailers in the U.S.” Aufgebauer says. “These e-tailers are becoming more innovative in representing their products online, thus driving business. But, the international demand for American-made products also is strong.”
That boost in eCommerce is triggering a paradigm shift for the parcel industry. “Before, shippers made buying decisions. Now, international consumers are empowered and are making the decisions regarding carriers, value-added services,” Aufgebauer says.
DHL Express addresses this new paradigm with a suite of scalable services that include full landed-cost visibility, tracking and, through DHL on Demand, multiple delivery options and other value-added services. Landed-cost visibility is a key benefit for e-tailers and their customers. Seeing the cost of the product, insurance, transportation, duties and taxes upfront, when the order is placed, reduces sticker shock and ultimately makes happier customers.
“We launched paperless clearance capabilities in 2010,” Aufgebauer adds. This allows customers to use electronic invoices and certificates of origin and, therefore, clear shipments while they are in transit, thus speeding packages through customs clearance. “Our core business is international express,” Aufgebauer reiterates.
DHL Express also deploys technology to help customers interact with them on their own terms. “We are investing in apps and capabilities to engage customers through their smart phones, tablets and other mobile devices,” Aufgebauer says. “The key thing for us is to embrace the consumer by supplying more options that add simplicity and convenience.”
To compete with larger firms like Purolator Inc., some of the smaller package carriers are expanding into new niches. For example, Fried says, “We have a lot of members expanding into home and white glove deliveries. They’re also expanding into the cold chain.”
Products that need environmental controls are a key growth area for airfreight, Lewis agrees. This includes temperature, humidity, and air pressure control, and includes a growing range of products. “Life science shipments often are relatively small but carry a premium and, therefore, generate better margins,” Lewis elaborates. “The pharmaceutical industry presents a large opportunity for growth in air freight.” The life sciences industry is a prime example of customers needing environmentally controlled shipping, but many foods, chemicals, adhesives and delicate instrumentation also require environmental controls.
In response to that growing need, Lewis continues, “Aggregators, increasingly, are specializing to suit these more lucrative niches. DHL, for example, is rolling out 60 certified, temperature-controlled cargo-handling stations for the life sciences and healthcare industries.”
“Revenue per pound is generous. Shippers are willing to pay more to ensure the cold chain is maintained because, if the cold chain isn’t handled right, it can cost a lot of money,” Fried says. “Large carriers (including DHL, Fed Ex and UPS) have established substantial departments that focus on the cold chain.”
Environmentally-controlled shipping is just one niche attracting competition. While eShipGlobal is working with a partner to develop its network of cold chain services, it also has entered the hazmat transportation market. This small-package carrier has developed the expertise to ship pharmaceutical and hospital products, chemicals, lithium batteries and other hazardous materials that are shipped in small packages. “HazMat shipping requires a different kind of service,” says Vasan. “It needs different packaging and additional paperwork, as well as a carrier that is DOT and IATA compliant to pick up and deliver the packages.”
As an international carrier, eShipGlobal last summer (2013) began offering export compliance screening against the denied party list to customers who requested that service. In early 2014, Vasan says he plans to roll out that service, along with country screening, to all of its export customers on a routine basis.
Jose Li, CEO of 71lbs Inc., looked at the small-package landscape, identified an unmet need and, in 2012, formed a company around it. As he explains, typically, large carriers guarantee delivery by a certain time, with a refund for late deliveries — even when the package is only 60 seconds late. Li, himself a former FedEx executive, says, “Most customers didn’t know they were leaving money on the table, but shippers leave $2 billion unclaimed every year.” While large companies have the staff to monitor on-time delivery, small shippers often lack the time and resources, or are unaware of this guarantee or how to claim their funds.
For these firms, 71lbs. acts as the tracking and claims department, automatically tracking package delivery times and automatically filing claims when packages are late. “Give us the details of the shipment (the tracking number and delivery time). Our software monitors your shipment and, each Friday, sends ‘happy emails’ detailing which shipments were late,” Li says. If shipments are all on time, the shipper pays nothing for the service. If a shipment is late, 71lbs. splits the reimbursement with the shipper.
UPS Capital is also concerned about on-time delivery and recently launched UPS Proactive Response Secure. The program combines UPS’s package tracking technology with a rapid response team and insurance. As Mark Robinson, VP, says, under this program, “UPS has visibility into packages labeled with the Proactive Response Secure service code. If an exception is likely, it alerts the response team, even in the middle of the night.” Proactive Response Secure automatically issues alerts, and has standard operating procedures to get the package moving and delivered within the timeframe guaranteed. Also, “If a package can’t be delivered as scheduled, the response team initiates recovery procedures, based on customers’ pre-defined instructions,” Robinson adds.
Healthcare and cold-chain shipments are a growing and critical market for UPS. In that product niche, Robinson says, “Some companies maintain expensive pharmaceutical stocks at forward locations to serve customers. “Their networks sometimes have temperature-controlled medications on hand as a precaution.” UPS Proactive Response Secure enables them to pull that stock back to a single, central location, reduce total stock.” It also causes less stock to be destroyed because of product expirations, he adds.
The insurance part of the service allows reimbursement up to a shipment’s retail value and also may protect shippers from the cost of expediting packages, refrigerating shipments or replenishing dry ice en route, as well as upgrading shipments to next flight or same day delivery or rerouting to alternative addresses.
Purolator International launched PuroPost last autumn to streamline shipping between the U.S. companies and Canadian residences. “Our customs and regulatory expertise ensures that shipments are fully compliant with all mandates and regulations. We ensure that all duties, taxes and fees are paid up front, so customers will not be surprised with an unexpected bill at delivery. And, because we have ‘trusted trade partner’ status with both the U.S. and Canadian governments, shipments generally arrive at the border pre-cleared,” Jon Routledge, VP of sales and marketing, said in a statement.
Under this service, PuroPost partners with Canada Post (the nation’s mail delivery service) to ship to all Canadian postal codes, reaching 34 million Canadians. PuroPost guarantees arrival within two to eight days.
With services like these, small-package shippers generally report slight increases in volume. For example, reporting 2013 third quarter results, UPS announced an international volume increase of 6.5 percent, with U.S. export shipments up 6.7 percent and European exports up nearly 10 percent. Asian growth was flat. UPS also experienced a 2.3 percent increase in the volume of domestic packages compared to the same quarter of 2012.
FedEx Express also reports increased package volume. The most recent available reporting quarter, which ended August 31, 2013, notes international export average volumes up 4 percent. FedEx International Economy grew 15 percent while FedEx International Priority slightly declined, following the trend from the previous quarter. Domestic daily package volume increased 1 percent.
While small-package carriers face many of the same economic conditions that challenge large freight shippers, they are benefitting noticeably from eCommerce. With this strong market segment as a foundation, they are thinking entrepreneurially, creating new products and services appropriate to their markets, and expanding their capabilities into additional niches and geographic markets.