3 tips for navigating the world of parcel shipping in 2023

  • February 14, 2023
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In a volatile market of macroeconomic factors, record-high general rate increases, fuel price hikes and extended peak seasons, it’s easy to feel powerless against sky-rocketing transportation costs.

We’ve been down the road to rising transportation costs before

Over the last few years, it’s been the same old song and dance. Every year sets new records. And to absolutely no one’s surprise, 2023 will too.

The Cowen/AFS Freight Index provides a predictive analysis of freight pricing. The latest ground parcel rate per package index is expected to increase to nearly 34.9% this quarter (compared to the January 2018 baseline). It’s a significant jump from the 27.7% at the end of 2022. We’ve accessorial charges, higher fuel surcharges and a record-breaking general rate increase (GRI) to thank for that. The express parcel rate per package index will see a more moderate increase of 2.7% (compared to the January 2018 baseline), up 1% from Q4.

Cowen/AFS Freight Index provides a predictive analysis of freight pricing

Cowen/AFS Freight Index provides a predictive analysis of freight pricing

To compound the impact, words like “inflation” and “strike” have entered the discussion. Carriers aren't immune to macroeconomic conditions, and when or if an organization threatens to go on strike, it creates a domino effect that bleeds into other modes and industries.

Shippers shouldn't expect this upward trend to slow down any time soon

Although we can’t control these factors, we can control how we react to them. We don’t have to accept the status quo.

Start by taking a hard look at your specific shipping profile and customer base. You likely have a large amount of this data. But it’s easy to get bogged down in the numbers, so all the information seems useless — unless you know what to do with it. Turn that data into a tool that works for you, not against you. Identify the key performance indicators that matter most to you, then create actionable strategies with it. Because the best decisions are made from strong data.

Not sure what kind of insights your data should be telling you? Here are the top three things you can learn from it and how to use it to your advantage.

1. Use data to optimize your service mix. Did you know that fuel accounts for nearly 20% of total parcel spend? In mid-2021, it only accounted for about 8%. Then in 2022, multiple fuel cost increases were introduced, and now here we are. When a surcharge is applied, most of the time, it’s because a specific package qualifies for it — for example, residential or oversize. That’s not the case for fuel. Fuel applies to every single package you ship. So, if you usually use more expensive services like express and fuel accounts for 20% of your total cost, that’s going to pack a punch. If your business depends on quick delivery, here’s a challenge for you: ship packages via ground and express to customers in zones two and three, then compare the delivery times. You’ll be surprised at how quickly a package can ship via ground. And it’s much less expensive to do so.

#2: Use data to adjust your internal practices. You can do this while evaluating your service mix, as mentioned above. Let’s say that after you’ve gone through your data, you realize your company is a more frequent user of overnight express than you thought. Have your team adjust its process, prepping packages a few days in advance instead of the day before. It’ll allow you to use ground without compromising the delivery date. Of course, if you do this, be sure everyone agrees to the change and the logic behind it. Data is the key, but communication is critical.

#3: Use data to create a plan B. While most companies have historically used a single-carrier model, the last few years have seen a surge in the multi-carrier model due to capacity shortages. FedEx and UPS aren't your only options. Don’t forget about regional carriers, and don’t wait until the last minute to engage them. Make these carriers part of your regular strategy and carrier mix. The best practice is to always have a minimum of two carriers in your system. It allows you to shift gears at a moment’s notice. If you wait to contact an alternative carrier until the day of, you’re setting yourself up for failure — and probably not inspiring the carrier to which you’re reaching out. As with testing out less expensive service options, try shipping some of your packages with various regional carriers. Use the shipment data to evaluate each carrier’s performance to make sure they meet both your and your customer’s needs. These small-volume practice runs will help build the relationship with any regional carriers you’re considering. It’ll also make transitioning to a larger volume much smoother if your primary carrier sees a disruption in service.

— By Micheal McDonagh, President of Parcel Services at AFS Logistics, an NTT DATA partner

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