Shipping carriers, like UPS and FedEx, have traditionally designed their rates and services with B2B companies in mind. That’s because, until about 10 years ago, end-line customers were still buying almost everything in brick-and-mortar stores. Manufacturers and fulfillment services shipped products to retailers, who got them into the hands of consumers.
Amazon and other e-commerce sales upended that. Today, thousands of companies ship goods with front porches in mind. Carriers are experimenting with bikes, drones and new delivery options to make residential deliveries more efficient. But, in the meantime, B2C shippers are still encountering challenges — and higher prices — than their B2B predecessors did.
Here’s why B2C shipping is so much more expensive than B2B shipping — and what you might be able to do about it.
Residential Delivery Service is Inefficient and Expensive
Carriers want to deliver packages as quickly and with as few stops as possible. Residential deliveries are the opposite. Imagine the UPS truck that frequents your street: The driver has to stop the truck, hand-deliver the package, record the delivery and then move to the next house.
When drivers have to make more stops and deliver fewer packages per stop, carriers collect less revenue per hour worked. That eats into their profits. That’s why many carriers impose a residential package surcharge or additional fees during the holiday season, when residential customers are ordering the most.
Carriers designed their pricing models around business-to-business profiles that counted on drivers delivering many packages per stop. None have revamped their rates to reflect the rise in residential deliveries, although FedEx and Amazon are experimenting with in-store pickup and locker programs. These allow carriers to leave packages in secure, centralized locations and customers to pick them up at their convenience.
These solutions will certainly reduce carrier parcel delivery costs. But it’s not yet clear whether customers will be willing to stop by FedEx Office to pick up their packages when they’ve already gotten used to them arriving at their doors.
“Last-Mile Delivery” is a Key Industry Challenge
Tracking a package that you order to your home can be fascinating. They can leave New Jersey in the morning and reach a sorting facility in California by mid-afternoon. But although they’re only a few dozen miles away from my house, it takes an additional day for the parcel to arrive.
This is the problem of last-mile delivery: getting packages from centralized locations, like warehouses and fulfillment centers, onto customer doorsteps. This part of the shipping supply chain is inefficient and expensive, so it’s ripe for experimentation.
In dense urban cores, it’s getting harder and harder for trucks to drive right up to buildings — many cities have restrictions on truck hours and are starting to plan for pedestrians and bicycles. In response, Amazon is testing drone delivery in urban cities. UPS is replacing package walkers with package bikers.
Low-density areas have a different problem. Carriers often lose money when a driver has to make a handful of deliveries in a rural area. This problem is compounded by theft from front porches or customers who require hand hand-delivery — carriers may have to try these deliveries two or three times before they succeed.
For some shippers, the U.S. Postal Service offers a cost-effective alternative to FedEx and UPS for residential deliveries. Rates are flat, Saturday delivery is guaranteed and trucks drive these routes daily, no matter what. That’s part of why USPS struggles to stay in the black — but from a shipper’s perspective, it’s often a reliable, affordable service.
Data That Can Help You Increase B2C Efficiency
When you review your shipment data, make sure you’re measuring the following metrics:
- Volume levels by mode
- Volume levels by day
- Zone distribution
- Weight distribution
This information will help you understand exactly where your packages go, when they move and how many of them move in those ways. You may find trends you haven’t seen before — for instance, that three of your regular but far-flung rural customers are actually grouped quite close to each other, or that you ship too many packages late in the week and run up against Saturday and Sunday.
Armed with knowledge about your shipping needs and routines, ask your team the following questions:
- How much are we spending on surcharges, and which surcharges have the biggest impact?
- How does our delivery network align with that of our carrier?
- What efficiencies do we offer our carrier?
- What inefficiencies are we burdening them with?
- How do we appropriate our share of that efficiency?
At its core, a contract is an agreement with your carrier to share some of the burdens of shipping: they’ll deliver to your most hard-to-reach customers, but you have to pay for it; or you can promise customers next-day delivery, but again, you have to pay for it.
As you think about what changes you’d like to make in your next contract negotiation, ask yourself: what would be advantageous for both you and your carrier? Position your asks as win-win opportunities.
Could you benefit from an expert opinion about your shipping data and your contract? That’s why Reveel is here. Reach out today to see how we can help you save on shipping.
