The Importance of Carrier Diversification in Last-Mile Delivery
In today's economy, no company can afford to put all its eggs in one basket. The same principle applies to last-mile delivery services. By diversifying your carrier base, you can protect your business from the risk of a natural disaster, labor strike, or other unforeseen events that could cripple your operations. Carrier diversification also allows you to negotiate better shipping rates and improve your customer service.
In the latest episode of our Unpacking E-Commerce Logistics series, we sat down with Timur Eligulashvili – Founder and President of Logistics Remix – to discuss the importance of carrier diversification in last-mile delivery. With 20 years of experience in the transportation space, he unpacked for us the advantages of carrier diversification as well as what businesses can do to take advantage of this strategy.
#1 Last-Mile Logistics Evolution (3:27 - 5:10)
Along with the rise of e-commerce, logistics has undergone tremendous transformation over the past two decades. Key last-mile players such as USPS and FedEx had to transform their residential delivery services to adapt to market's variations. The USPS, for instance, has emerged as a significant player for both small enterprises and high-volume merchants with its workshare program. Moreover, new logistics technology companies are sprouting up to assist e-commerce businesses in automating their shipping processes.
Several companies, including Walmart and Amazon have entered the delivery market by creating their own services. In addition to dominating the shipping industry, Amazon controls roughly 40% of the e-commerce market. In Timur’s view, the fact that Amazon offers a 2-day delivery guarantee – which is increasingly being pushed to 1 day – truly sets them apart from the rest of the industry. He also believes that the retailer’s remarkable offerings have set a high standard that other players in e-commerce must follow.
#2 Carrier Diversification - Definition & Benefits (9:07 - 13:12)
In recent years, carrier diversification has been a hot topic in the field of e-commerce delivery. A retailer can use this strategy to boost the number of carriers available to ship their merchandise. This, in fact, brings various significant benefits relating to costs, additional capacities or the speed of delivery to businesses.
Usually, a single national supplier, like UPS or FedEx, can serve the entire nation. The network is then expanded with regional and alternative carriers to serve particular markets. Regional carriers are package delivery services that specialize in serving a particular area of the nation, such as the Western United States or a state like California. Alternative carriers are those that can service several geographic areas and combine pickup, middle-mile delivery, and last-mile delivery into one package by partnering with last-mile delivery companies. Timur also highlighted that the number of carriers does not matter. He defined “diverse” as the state in which no one carrier accounts for more than 50% of the volume of a company. As such, a store can include 3, 5, or 8 carriers in the mix, depending on their business objectives.
Timur claimed that capacity, cost, and capability are the three main factors that encourage firms to diversify their carrier mix. With regards to capacity, nobody wants to be in a scenario where they are cut off by one provider and have no other options. When it comes to costs, many alternative and regional carriers do not spend money on additional activities like expensive advertising, in order to keep their operating model lean. Because of this, they are able to charge more aggressively and pass the savings along to retailers. Capability is the last factor. For a retailer, it is important when the carrier offers quicker delivery and greater on-time delivery performance. However, they may not want to be tied to a single carrier since that carrier may be able to exert pressure on them. As such, switching becomes extremely challenging if customers are unsatisfied with the service, and contract renewal negotiations also become tougher.
#3 Tips To Choose Carriers For Businesses (14:00 - 17:10)
Timur emphasized that there are now many businesses on the market that can provide greater performance service, quick delivery, and lower pricing. Hence, there are some considerations businesses should take into account when deciding on a carrier mix.
First and foremost, carrier diversification is not a one-time operation where a store goes out, picks a partner, onboards them, and then sets it and forgets it. It is an all ongoing process where retailers need to find new partners, conduct due diligence on them, onboarding them, and continually looking for ways to improve.
The second recommendation is to choose a specialized market to explore first, such as a country's region. Let's pick, for instance, a market where a retailer's distribution center is situated or a market where the retailer is unsatisfied with the performance of their current carrier.
The third best approach is to make use of the network of other retailers. This can be quite useful when considering onboarding the carriers as well as when making introductions and conducting due diligence on them.
#4 Carrier Mix Pain Points(22:45 - 25:11)
Timur observed that although many stores desire to sign up with new carriers, they are unable to do so for a variety of reasons. First off, one of the major roadblocks to onboarding new carriers is technology integration. For instance, a number of merchants lack the necessary technology, either because their carriers are not integrated or because they are using an inappropriate system. In order to ensure that they have the ability to develop and integrate directly with carriers via API, merchants should collaborate with their internal teams to discuss their business goals.
The worry of losing incentive discounts is the second barrier to business adoption of carrier diversification. They will pay a little bit more to ship with a national carrier if their volume is below a specific level.
Thirdly, there may be additional factors, such as the desire to use a regional carrier in a different region of the country. However, due to the low volume of shipments entering that carrier's market, they must bring the packages to that carrier in order to complete the last-mile delivery, and they are unable to efficiently organize the intermediate mile line hall. Therefore, it is crucial to gain your organization's support for your goals and your chosen course of action.
For the full discussion, check out the recording here. You wouldn’t want to miss it!
About Timur Eligulashvili
Timur Eligulashvili is the Founder and President of Logistics Remix, a carrier representative company. Logistics Remix helps Retailers and 3PLs bring new delivery providers into their network. Timur brings 20 years of experience in logistics and has a unique perspective being on all sides of the table as a shipper, carrier, 3PL and tech provider. His previous experience includes Lone Star Overnight, ShippingEasy, uShip, Echo Global Logistics, CH Robinson and Honda Logistics.
About Unpacking E-Commerce Logistics Series
Unpacking E-Commerce Logistics brings together some of the best experts in the e-commerce logistics and supply chain space to unpack key concepts from a variety of trending topics, ranging the use of Artificial Intelligence in the industry to embracing hyperlocal delivery in the e-commerce world. An integral part of this series are our 30-minute long Fireside Chats where we ask our thought leaders questions about not just the topic at hand, but also their career paths, challenges they have faced, and even their future plans.
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