What shippers are doing with carriers in order to own their capacity and amplify distribution.
Capacity. Capacity has been the hot buzz word in the parcel shipping world since the beginning of the pandemic, and there are no signs of it being derailed from its throne with how the upcoming peak season is shaping up.
While some shippers continued to wait to take action until throughput slowed down (aka, those that are feeling the most pain right now), others decided to take matters into their own hands. This came in the form of onboarding additional carriers in order to diversify the carrier mix with regionals, snatching up real estate and building additional distribution locations and implementing upgraded technology to help with omnichannel fulfillment strategies, such as ship-from-store.
However, some retailers and manufacturers took it a step further by “purchasing” their own capacity, meaning gobbling up carriers to call their own. Our experts took a look at this trend and discussed some pros and cons of the initiative.
What are the pros of owning a carrier?
Before UPS and FedEx, all regional deliveries were made by a company’s fleet drivers. This gave them control over capacity, but often limited them to a small geographic area. With the rise of national carriers, retailers were able to reach a national audience for the first time. Many retailers found it cheaper and less complicated to outsource the delivery process; however, that meant that they lost a personal touch with consumers and were limited only to the options that the national or regional carriers could offer them. Eventually this model replaced nearly all company-owned fleet deliveries.
But by owning part or all of a carrier, retailers can gain back those advantages. They still have a national reach, a lower cost model (as the fleet cost is offset by many other shippers), yet they have much more influence over the delivery process than they would while outsourcing to a national carrier.
What are the cons of owning a carrier?
A big con we see is the increased risk of one business affecting the other. The operational missteps a carrier may have can directly affect the way a customer looks at the retailer as a whole, and vice versa, the failure of the retailer could drag down the carrier along with it.
As we mentioned, one of the advantages is having more control over the delivery process. The delivery process will look and feel the way the major retailer wants, but they need other retailers to use that carrier as well to ensure that they can receive economies of scale. Though that delivery process may be just what the major retailer wants, it could push other retailers away, but without other retail shippers, most retail/carrier partnerships will not be able to survive.
Who has purchased carriers already & will we be seeing more of this?
- Target purchases Shipt in 2019 [View]
- Target purchases Grand Junction in 2017 [View]
- Staples acquires HiTouch in 2018 [View]
- Target acquires Deliv in 2020 [View]
- Walmart launches GoLocal in 2021 [View]
- The Home Depot enters partnership with GoLocal in 2021 [View]
- American Eagle purchases AirTerra in 2021 [View]
Will we be seeing more of this? Yes. With capacity constraints, retailers and investors are going to keep looking for new carrier solutions to invest in. Anchoring a carrier with a major retailer is one of the safest ways to start a new carrier.
“If I were to start a new carrier, I would want an anchor customer that could provide predictable demand, the potential for shared assets [warehouses], and help secure operating funds. Being wholly or partially owned by a major retailer would provide me with all of these, allowing me to focus on controlled growth by bringing on new shippers in a controlled manner.”Justin Cramer, Co-Founder of ProShip, Inc.
What happens when national carrier capacity exceeds demand?
Though we are sure to see that some of these partnerships will fail, we can be assured that the proliferation of new carriers (retailer owned or not) has spelled the end of the two-carrier oligarchy of the past for North America. If we’ve said it once, we’ve said it 1,000 times: The single-carrier strategies of yesteryear will not survive the future. What is important is choosing the right technology within your Enterprise Software Stack (ESS) that allows you the capability to quickly onboard new carriers, to balance them, and to turn them on and turn off according to capacity needs.