Across the board of transportation service providers, parcel rates are increasing. In 2020, Todd Benge of Talking Logistics noted how "COVID-19 created an entirely new small package shipping environment, especially when it comes to the hidden costs that come with annual increases in parcel rates. Not long ago parcel carriers were transporting 20-25% of their deliveries to residential addresses. By 2019, that number increased to about 50%. This year, 70% of all parcel carrier movements involve a residential address. The shift is largely driven by a consumer who is shopping from home either by choice, necessity or both." The increased strain has led to price increase after price increase and, in fact, all major parcel carriers have implemented some form of peak season surcharge well ahead of the traditional holiday shopping season. With that in mind, it is possible to retake control and reduce parcel shipping costs by leveraging zone-skipping. Let's take a look at what is zone skipping, how zone-skipping works and why it involves data-driven strategies to achieve optimal results.
In logistics, the best strategy for lowering transportation spend comes down to understanding when the planned mode of transportation isn't the most cost-effective. Yes, in the world of e-commerce, speed is everything. However, there are times when going by ground may arrive at the same destination at the same time as loading, shipping, and unloading by air. It's in this space where zone-skipping exists. Now, Parcel magazine defines zone-skipping as "a logistics technique whereby a shipper consolidates many individual packages or orders. These individual packages are held and aggregated until the quantity reaches a full truckload (in some cases LTL works, too). These packages are sent in mass from one area, like the East Coast, to another area, like the West Coast. Upon arrival at a sorting facility, the packages complete their journey to the final destination. For example, Atlanta is in Zone 2. Los Angeles is in Zone 8. Shipping directly from Zone 2 to Zone 8 via consolidated truckload is considered Zone Skipping." Further, zone-skipping effectively lowers the per-package price for shipping. This is due to the lower cost of ground transport compared to air cargo. However, it's all subject to whether the shipment will still arrive at the destination on time.
Zone-skipping is only as effective as the cost reductions it can create. In e-commerce, this implies a direct need to ensure the customer experience isn't impacted. Why? If the delivery is late, the risk of a return increases, effectively rendering any gains in savings for shipping spend useless. Even worse, if the experience does result in a return, the shipper incurs a higher cost than it would have experienced by not using zone-skipping in the first place.
The secret to success rests in knowing which locations are best suited for the use of zone-skipping. This relies on real-time data and analytics to constantly measure when shipments are actually arriving on a per zip code basis and not solely make decisions based on when the carrier says it should arrive. Having this granularity of data allows shippers to implement more tailored, cost-effective zone skipping strategies than ever before. Additionally, shippers must remain vigilant regarding package aggregation and the total landed costs of shipping by ground to fully leverage the benefit of zone-skipping. This is especially true when considering the added surcharges and costs associated with peak season and other disruptions. After all, accessorials and other surcharges could easily outweigh the benefits of zone-skipping if left unattended. Yet, tracking total costs and knowing exactly when to leverage zone-skipping will maximize savings and reduce the risk of impacting the customer experience. In turn, it's the culmination of data-driven insights into all activities and costs that powers zone-skipping.
The value of data is not limited to zone-skipping. Following the ingestion, normalization, analysis and application of actionable insights, shipping data can help shippers identify when to leverage other potential modes and strategies for lowering parcel spend. This includes increasing the parcel carrier mix to leverage more regional parcel carriers rather than nationals, taking advantage of hub-injection, and when to reconsider existing contracts or initiating new RFP processes. It all depends on the data and having a single source of truth for complete transportation spend. Data will go a long way toward helping shippers identify the best strategies for lowering parcel spend, even in the face of constant disruption.
Cost increases are nothing new. Over time, the cost of shipping will increase as e-commerce continues to gain momentum. Unfortunately, customers will also expect fast, free shipping—and fast shipping is anything but free. It's a complex issue, but shippers that turn to data-driven insights will be best equipped to leverage new fulfillment strategies that can create efficiencies in the parcel market and keep total shipping spend under control. Learn more about how your team can leverage zone-skipping and apply data to reduce shipping spend by connecting with Intelligent Audit today.
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