Regan: Shippers face UPS-FedEx ?duopoly? with DHL’s U.S. market exit

Regan: Shippers face UPS-FedEx ôduopolyö with DHLÆs U.S. market exit An industry veteran said this week that shippers in the parcel market will have to clearly think through their cost strategies in the wake of DHL's pending departure from the U.S. market.
   “With DHL's exit, shippers have lost a major leverage point in their negotiation strategy,” said Mike Regan, chief executive officer of TranzAct Technologies, in his company’s Executive Briefing Thursday. “With this recent announcement, it is essential to note that with the loss of DHL the parcel sector has gone from being highly competitive to a duopoly. And you're kidding yourself if you don't think that FedEx and UPS understand how to take advantage of this condition.
   Regan said all is not lost, however.
   “But shippers do have options,' he said. 'For example, some shippers are exploring the possibility of reducing costs by converting from air express shipments to ground parcel. We have also seen companies evaluate their overall supply chain strategies with an eye to convert to near-source production. Others consider the use of regional distribution centers, instead of centralized distribution. These moves will position inventory closer to consumption in order to support less expensive means of transportation.'
   As for how to keep costs down on parcel shipments in the wake of DHL's departure, Regan said shippers must see the market through carriers' eyes.
   “As you seek to control parcel costs in the new environment, it is important to understand your options and accept that some options have run out,' he said. 'Since your specific distribution and freight characteristics drive your transportation contracts and discounts, it is important to understand how the carriers view your business. If you have not walked in the shoes of the carriers and truly understand their perspective, find someone who has.'
   Finally, he offered a game plan to deal with the increased power of the remaining two giants.
   “Don't accept and use the carriers' announced average rate increase to set your budget for 2009,' he said. 'If you do, you'll be in for a rude awakening. For example, UPS announced an average net increase of 4.9 percent on air express products. However, if you look at the actual weight/zone increases for the Next-Day Air product you will find increases ranging between 2 percent to over 9 percent. Given the above, we suggest you pull a 2008 shipment history and look at what your costs are for this year. Run this same shipment file against the actual 2009 rates to determine what the real cost impact will be on your business. Don't forget about the accessorial charges. Up to 20 percent or more of the total cost of parcel shipping can come from these additional fees. And some common accessorials are going to be increasing by double-digit percentages.'