How Shippers Can Fight Back Against Budget-Breaking Carrier Rates

In my last article, I detailed the need to consider add-on or accessorial carrier fees, not just base rates, to control shipping costs without sacrificing service. Still, downplaying the importance of keeping regular tabs on those base rates can wreak havoc on a shipper’s costs; they remain an incredibly important part of the equation.

As they struggle to control their shipping costs and retain razor-thin margins, many retailers today feel like they’re at the mercy of carriers, which are commanding record-high rates for their services.

Carriers have been able to escalate their rates to all-time highs for two main reasons: one, the ongoing, severe shortage of qualified drivers in the global shipping industry and, two, the exploding popularity of e-commerce among consumers across the world.

According to the American Trucking Association, the U.S. trucking industry has a shortage of 51,000 drivers today — and will likely lack 200,000 drivers over the next decade. Meanwhile, Europe is also experiencing a shortfall of drivers. For example, the Netherlands reported a shortage of 7,000 drivers at the end of 2017 (a 36 percent increase since 2016), and in Germany, a driver deficit of 150,000 is anticipated over the next 10 years to 15 years.

Compounding the labor issue is the increasing consumer demand for e-commerce. Between 2015 and 2017, global packaging grew by 48 percent — and it's expected to accelerate in the future. As FedEx Corp. Chairman and Founder Fred Smith recently predicted, worldwide e-commerce will climb to $4.2 trillion by 2021.

To make things even more complex, same-day delivery is catching on like wildfire among consumers. In fact, in 2017, 15 percent of global retailers offered same-day delivery service to their customers. The same-day delivery market is poised to grow exponentially in the years ahead.

The bottom line? The demand for shipping is exceeding — and will continue to surpass — the supply of available drivers, enabling carriers to demand budget-draining rates. For example, over the last year:

• Two major U.S.-based carriers have increased their published rate tariffs by a minimum of 4.9 percent per year since 2010.
• A European carrier employed a similar strategy in raising its rates by nearly 4 percent in Germany in 2017.
• The U.S. Postal Service reacted to e-commerce activity in general — and the increase in last-mile e-commerce fulfillment and Sunday delivery demand in particular — by increasing rates an average of 3.9 percent in 2018.

For many retailers, these seemingly out-of-control carrier rates are throwing a knockout punch on their margins. So how can they stay in the ring? The answer begins with choosing the right carrier, at the right time and at the right place.

The next step? Negotiate. To do this successfully, retailers should collect and analyze data from all available carriers, then use that information to pit carriers against one another to negotiate the best rates for the job.

Though all of this is easier said than done, multicarrier technology can help. Leveraging a blended carrier strategy and advanced parcel shipping management technology, retailers can quickly and easily compare carriers — and their corresponding services and rates — to get the most time- and cost-efficient solution for the job. The technology can automatically determine the most efficient shipping option based on delivery deadlines, package destination, carrier rates, performance and other mission-critical factors. It also provides data analytics and key performance indicator reports that empower shippers, instead of carriers, to establish what the shipping rates should be if the carrier expects to win the business.

Ken Fleming is president and chief sales officer at Logistyx Technologies, the leader in transportation management for parcels.