Carrier diversification to reduce shipping costs

Ecommerce businesses are recognizing the risks of relying solely on one carrier. By diversifying their carrier bases they not only extend their delivery reach but also unlock significant savings and advantages. This diversification further empowers them to offer and access more competitive shipping rates, enhancing their customer satisfaction.

In fact, rather than relying on a single provider, businesses extend their network with regional and alternative carriers for specific market needs, thus providing a superior and more flexible service. Let’s discover the benefits of this strategy more in detail. 

Table of contents 

• What is Carrier-Mix Diversification
• Disadvantages of limited carrier network
• Advantages of diversifying carriers
• Implementing a diversified carrier-mix strategy
• Monitoring and Measuring Performance
• Case studies and success stories

What is Carrier-Mix Diversification

Carrier-mix diversification is a shipping strategy that consists in dividing shipping responsibilities across different carriers rather than relying on a single dominant shipping provider.

In this sense, businesses partner with multiple national, regional, or alternative carriers based on their specific market needs, thus creating a tailored shipping network. To achieve an efficient carrier diversification, no single carrier should handle more than 50% of a business’ shipping volume.

Therefore, businesses could rely on 3, 5 or even 8 carriers based on their specific objectives.

Disadvantages of limited carrier network

High shipping expenses

Having a limited choice of carriers means having less shipping rate options to choose from. Consequently, this means limiting the shipping choices for customers. For example, if your shipping partner suddenly introduces a surcharge during peak season this will elevate your shipping rates and, ultimately, directly impact the prices you can offer your customers, leading to a potential decrease in sales.

Sudden surcharges can become a real burden for businesses, especially when spread across thousands of shipments. On the contrary, if you collaborate with regional carriers, you will find that they often take on additional costs instead of passing them to their clients.

Capacity constraints

Since most businesses heavily rely on a few major carriers, these providers are inclined to reach their capacity limits very quickly. For example, unpredictable events, like the recent Covid pandemic is an example of the impact of this problem. Everyone remembers how the sudden surge in online shopping and the capacity limits of the carriers led to huge logistical challenges, like higher expenses or delays.

Less flexibility

Ecommerce businesses today need to be flexible and adapt to different market changes. Therefore, it goes without saying that depending on one single carrier means limiting fulfilment flexibility and having less supply chain efficiency. For example, if the one carrier you collaborate with has its distribution centre far from your customer base, deliveries will inevitably take longer and be more expensive. Also, as mentioned above, a sudden peak in demand may overwhelm your shipping partner, leading to disruptions; this will limit your business opportunities and impact your customer satisfaction rate directly. Even when demand drops, it may be challenging to negotiate favourable shipping rates if you collaborate with one provider only.

Limited choices for you and your customers

Relying on a limited carrier network limits your possibilities of accessing competitive shipping rates. While this may initially seem like a minor problem, remember it's also your customers who suffer from this limitation. They will inevitably have less delivery options or have to pay high amounts for their shipping. If this is the case, customers won’t think twice before turning to a competitor who offers more advantageous shipping options.

Advantages of diversifying carriers

Mitigating service disruptions

Using a network of different carriers to ship products offers several advantages, and among these, supply chain efficiency is paramount. Indeed, relying on just one shipping partner can sometimes be convenient in terms of management. However, the approach can be quite limiting for a growing business. In fact, just think of the potential risks of disruptions and delays when you collaborate with just one carrier.

For example, if the company you choose to work with is dealing with operational issues, capacity constraints or bankruptcy, you have no backup plan. This isn’t as uncommon as you may think. Not long ago, in fact, precisely during the first half of 2023, bankruptcy declarations increased by 196%. Additionally, FedEX and UPS, the two giants of the shipping world, had to navigate through labour issues, and FedEx continues to deal with them today.

Therefore, adopting a multi-carrier shipping strategy ensures you always have a proper backup plan. In this way, your shipments will always be on the move, regardless of unforeseen problems. In case of disruptions with one provider, shipments can be promptly divided among other carriers, avoiding delivery delays. 

Reducing costs

Diversifying carriers allows businesses to access more competitive pricing options. The more carriers, the more possibilities to choose the ideal carrier for every shipment. Every carrier has its unique strengths and specialisations, giving you the power to ensure fast, cost-effective, and high-quality delivery based on specific market needs. Also, adding regional carriers to your network will give you access to more advantageous tariffs, compared to national carriers.

Reducing return expenses

Managing returns can significantly impact a business’ bottom line but, at the same time, it is an unavoidable process. In fact, offering hassle-free returns means investing in your customers and in the growth of your business. But how to mitigate these costs and balance consumer and business needs? Diversifying carrier-mix is the most direct and practical way to do so. Having different options can increase chances of finding the most cost-effective method to manage these returns without compromising on the quality of the services you offer.

For example, if your ecommerce marketing strategy includes offering free returns, it is essential to find the most economical return shipping solution. Moreover, the ideal carrier for your product deliveries might not be the same one you use for managing your returns. In fact, customers can tolerate a few transit days for returns because these are not as urgent as standard deliveries. Therefore, it will be easier to find a more cost-effective solution in this sense, striking the right balance between affordability and quality. Having your own tailored carrier mix ensures you offer high-quality customer experience without straining your profit margins.

Providing superior delivery experience

Nowadays, consumers have high expectations when it comes to deliveries; they want them to be as fast, transparent, and convenient as possible. Carrier diversification allows businesses to cater to these demands by providing a range of more personalised delivery options and faster shipping times. This is essential for companies who want to earn a competitive edge in the market and repeat business.

Expanding your carrier options is therefore crucial to offer an enhanced customer experience. For example, customers often prefer to have precise delivery windows, but not every carrier offers this option. Therefore, when selecting your carrier-mix, consider the diverse needs of your customers, in order to offer them the widest possible range of solutions for their deliveries.

Implementing a diversified carrier-mix strategy

Implementing a diversified carrier-mix strategy is undoubtedly beneficial for your business. However, without proper planning it can be a time-consuming process that could even damage your brand’s reputation. Firstly, many businesses lack adequate technology. In fact, some may be still relying on outdated systems that are unable to integrate multiple carriers or may face problems related to inefficient rate comparisons and tracking issues. All these result in disruptions, delayed deliveries and contribute to building a negative business image.

Fortunately, tools like ShippyPro are designed to make this transition simple and seamless. With the ShippyPro platform, you can effortlessly streamline your operations, gaining access to the largest carrier integration library and easily find the most advantageous tariffs from leading carriers worldwide, thanks to the advanced rate comparison technology.

But the advantages don’t end here. ShippyPro’s automation features enable you to automatically print the correct label for every carrier and product, eliminating the hassle of juggling multiple websites and the potential inefficiencies connected to managing different delivery partners at the same time.

ShippyPro not only streamlines your shipping operations but also enriches your customer experience, leading to long-term money and time saving.

Monitoring and Measuring Performance

Tracking logistics KPIs is essential for businesses to achieve growth. This is because they can base their logistical strategies on concrete data, monitor their objectives and intervene promptly when required. Such proactiveness can be achieved by establishing logistics KPIs to monitor, leading to increased operational efficiency and superior business management.

Establishing Key Performance Indicators (KPIs)

Specific carrier performance metrics can serve as a guiding light once you implement a carrier diversification strategy. Monitoring these KPIs will ensure that your approach is effective, thus achieving the desired objectives in terms of cost, efficiency, and customer satisfaction. Here are some transport KPIs that are useful to monitor your carrier activity and achieve better logistics cost management:

• Number of Shipments: KPI to understand the volume of shipments to manage.
• Shipping times: KPI to identify problems and/or delays in order fulfilment management.
• Punctuality Rate: the number of complete and punctual deliveries out of the total number of deliveries made, to evaluate the efficiency of transport activities.
• Cost per km: the cost of transport in relation to the distance covered in kilometres.
• Fleet Utilisation Rate: the transport capacity used compared to the total fleet capacity.

Informed decision making 

KPIs are quantifiable metrics that support businesses in their decision making. Knowing precisely how each carrier performs will help you choose which carrier to select for specific shipping requirements. 

Monitoring performance

Tracking KPIs is essential to monitor your carrier network performance over time, making sure they meet your customers’ needs and understand areas that need improvement. 

Better logistics cost management

Monitoring KPIs regularly means identifying cost-saving opportunities and addressing problems proactively, ensuring that the different carriers are bringing real benefits to the business. Also, monitoring their performance can help in adapting the carrier mix to meet demand effectively.

Customer satisfaction

Monitoring KPIs related to delivery times, or error rates can help gain specific insights in the impact of a carrier’s performance on customer satisfaction, allowing businesses to understand if they need to enhance or reduce their collaboration with certain shipping partners. If one carrier consistently underperforms, it will be easier to adjust the strategy before bigger issues, like damages or delays, arise.

Case studies and success stories

For ecommerce businesses who want to increase their online operations, taking a page out of Amazon’s book is always a guarantee.

Numerous elements have positioned Amazon at the forefront of the ecommerce landscape. Central to these is, undoubtedly, its advanced supply chain model, reinforced by a multi-carrier fleet. This strategy is at the basis of Amazon’s ability to deliver products efficiently, an aspect that highlights how seamless logistics can drive customer satisfaction and brand loyalty in today's extremely competitive market. 

As mentioned, Amazon notably leverages multiple carriers to optimise deliveries. In fact, alongside its partnerships with UPS, FedEx, and other third-party carriers, Amazon has integrated its own shipping alternatives, like drones and lockers for more expedited delivery. All these options, which are founded on the idea of offering customers tailored and convenient options to choose from, continue to drive Amazon’s leading position in the market.

Carrier diversification: conclusion

Broadening your carrier selection beyond the big four is key to access competitive pricing, faster delivery, and enhanced flexibility. This shipping strategy mitigates transportation expenses and helps businesses achieve the right agility to navigate today’s dynamic market.