Today, more than the past, there seems to be frequent dialogue and expertise surrounding the topic of pricing in the parcel delivery industry. Although strides have been made in the competitive marketplace, most shippers are still held hostage by their lack of knowledge, carrier diversity, and negotiating fortitude. Hint: The key is increasing all 3.
This article is part 1 of a 3-part series and will focus on the start, by Increasing your knowledge, specifically regarding a carrier’s pricing format. Most are familiar with only one standard style.
Format: Is the pricing per package, per order, or per route? Before exploring the differences, let’s look at the concept of pieces per endpoint and delivery density.
Pieces Per Endpoint refers to how many parcels there are in a customer order. 1 parcel going to your house, is 1 PPE. Whereas, 5 boxes of paper going to your workplace is 5 PPE.
Delivery Density can be complex. Let’s set some generic parameters for the sake of this article, let’s use 1,000 individual parcels shipped out per day or fewer to mean low density, 5,000 parcels per day as medium, and 10,000+ per day means high density.
Per package pricing will generally offer the lowest overall price for low density shippers. Think about 1,000 parcels tendered per day Nation-wide to a Carrier like: UPS, FedEx, or USPS. If your per parcel rate was $7 total, it would cost $7,000 total. You need pool distribution (per package) pricing to logistically make 1,000 deliveries over a large geographic area. Makes sense.
Per order pricing will generally offer the lowest overall price for high Pieces Per Endpoint shippers. Think about 5,000 parcels of office supplies shipped out per day from 1 Regional Distribution Center. Perhaps 5 PPE. That’s 1,000 orders. If your per order delivery price is $15 total, it would cost $15,000 total. Even a highly discounted per piece rate would yield a higher total than the per order pricing format ($3 per piece). Per order pricing is a format traditionally used by courier companies and makes sense for both parties, because of the multiple pieces per endpoint (and this type of shipper normally has medium delivery density also).
Per route pricing will generally offer the lowest overall price for high density shippers. High concentration of deliveries—especially in major market delivery areas—allows for great scale. Think about 10,000 parcels in a major metro area split into 50 routes (200 parcels per route). If the per route price is $350, it would cost $17,500 total. The overall cost is unparalleled. There is no National Carrier that could / would match this on a per piece basis ($1.75 per piece).
Per route pricing format is viable for many medium density shippers and should be considered a must for high density shippers. This option is normally offered by companies that specialize in a dedicated delivery service model and offers several other advantages including: simple and secure chain of custody, customer branding, and customization. Knowing about this pricing format and these companies provides you the advantage of more carriers to choose from.