This post was written by Shawn Compton, VP or Transportation at DCL Logistics. It was originally published on LinkedIn.
As we enter a new year, it’s a time that brands take stock and strategize for the year ahead. No ecommerce strategy would be complete without a thorough analysis of their freight spend and carrier relationships.
To understand the current state of domestic direct-to-consumer shipping, we have to look at the past few years. The world of direct-to-consumer shipping has changed so dramatically in such a short period of time. Luckily for ecommerce shippers the 2024 outlook is positive in their favor, as it appears the shipping industry is shifting back to a shipper’s market.
How We Got Here: The Burdens of 2020 Buried Carriers
So much of the current state of shipping and transportation was shaped by the 2020 pandemic and subsequent ecommerce boom. Although a trend toward online ordering and home delivery was well established leading into 2020, it would have been difficult to predict the rapid acceleration that was just around the corner. With the world on lockdown, many commerce sectors (namely brick-and-mortar establishments) were shuttered leading to an exponential increase in online shopping as home delivery was designated as an essential function by the government. This alone created seismic shifts in the parcel shipping business.
Amid this volume increase, UPS and FedEx started restricting shipper volume, at best, or severing agreements outright if they were perceived by the carrier to be lower margin. Carrier focus was very much on revenue quality, as opposed to quantity. And there was a massive quantity that then overflowed to other carriers.
Much of the overflow went to the United States Postal Service, but this created the perfect storm for failure. As it turned out it was a presidential election year, and the pandemic had also created record amounts of mail-in ballots that clogged the network. Dealing with this, and the incredible parcel volume, broke the network. Peak of 2020 was a bit of a disaster.
Where We’ve Been: The Stronghold of a Carrier Market
With the demand exceeding capacity, however, the balance shifted to a “carrier’s market” which has been the case for the last few years. This meant carriers held the power, in the form of increased costs and limited capacity. A long list of new surcharges was born or extended for elongated periods of time. Where peak surcharges in Q4 were familiar to most shippers, they were rebranded as demand surcharges and were levied indiscriminately for months on end.
Regional carriers, such as LaserShip on the east coast and Ontrac out west, also picked up volume share. This increase would allow them to grow to the point that they would become one entity, simply known as Ontrac. Other new carriers came to prominence as well, due to the unique moment that history had created.
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The Current State: Shifting Back to a Shippers Market
Most of us are tired of hearing about the pandemic, and hopefully we are feeling the last ripples of its effects. While COVID variants are still popping up, the days of shutdowns are now a fleeting memory. All the things that we took for granted and lost, like restaurant dining, vacations, and toilet paper are fully restored. As a result, society is making up for lost time.
The only damper on this rebirth has been the economy. With inflation and costs up, discretionary spending has become very selective. This coupled with the following carrier changes signify a great reset.
- Significant enhancements in existing carrier networks
- A plethora of new carriers
- Growth of technology to support carrier diversification with ease
- Unification of the aforementioned regional carriers whose recent opening of the Texas market has them reaching nearly 80% of US households.
Capacity is higher, once again, and the shift back to a “shipper’s market” is in motion. How far it will go, until the pendulum swings again, is anyone’s guess. But for shippers willing to step forward and adapt to the changes in the carrier and technology landscape, there is a valid reason to be optimistic about what is to come in 2024.
Tags: Expert Advice & Tips, freight
