Parcel rates are going through the roof: 4-7% increase in 2022

The general rate increase (GRI) for parcel and express shipments in Europe will this year be between 4% and 7% (4-6% domestic; 5-7 cross border). That is one of the results of the 6th edition of the Transport Monitor of BCI Global.

As the parcel revenue growth is forecasted to double in the next 5 years parcel and express shipments are one of the hottest growth markets in the logistics industry. “It is exactly this market growth fueled by e-commerce, in combination with increasing costs for fuel, drivers and accessorial cost which results in this unprecedented high cost increase”, explains Carlo Peters, Principal Consultant at BCI Global. BCI Global is a leading supply chain and location consultancy, advising manufacturers, brand owners, (online) retail chains, logistics services providers and express carriers. BCI has offices in Europe, US, China and Singapore. The increase mentioned is based on a panel survey, in which 50 supply chain and logistics leaders from logistics services providers and electronics, healthcare and industrial products companies across Europe regularly participate.

Market structure

“The European market is dominated by six pan-European players: UPS, DHL, Fedex TNT, DPD, Geodis and GLS, with Amazon as fast runner-up with its second place already in the UK. Traditionally ‘local heroes’ like Royal Mail in the UK and La Poste in France have in their home markets high market shares of respectively 34% and 48%”, adds Robert Wieggers, senior consultant.

Tactics

But there are no reasons just to wait and see how costs increase. BCI Global identified 5 tac-tics to mitigate and reduce the parcel spend.

Tactic 1: Service strategy – reduce the need for speed

Align with the business on the need for speed. Is a ‘Guaranteed next day’ or a ‘pre-noon’ service really required, or does a ‘Standard 24-48hr’ or even an economy ground parcel service suffice? The price difference between a (very) fast and a regular parcel can easily be factor 3 to 6 in favor of the ‘Standard’ service.

Tactic 2: Change the company’s distribution network set up by having an in local market distribution presence

Significant savings often can be found in the basics of the design of a company’s supply chain e.g. by moving shipping points closer to, or even into local markets. Recent studies for BCI clients show 25+% reduction of freight cost and more than 10% reduction on total logistics costs. Opportunities can be identified through an integral distribution network design study. Also in the basic design of packaging companies can consider how to prevent ‘to ship air’ or use envelopes or polybags in order to create freight savings.

Tactic 3: Multi-carrier set up instead of a single provider

Selecting one global parcel carrier that serves all markets with cross-border solutions is the easy way of setting up a parcel freight solution. Depending on volumes, profiles and requirements companies can reduce cost and often also increase service by considering a multi-carrier strategy and the use of local partners combined with a direct local network infeed model. Such models are more complex to manage but can reduce the parcel bill significantly.

Tactic 4: Better procurement and negotiate a better deal, not just the rate

Important question is whether to run a tender process with Requests For Proposals or just to negotiate with the incumbent(s). Rate benchmarking can provide good insights to make that decision. If companies decide to run an RFQ they need to understand the different ways of pricing of the carriers (e.g. per parcel, per kgs, dimensional weight) as well as the detailed cost drivers that build up the parcel price, including the impact of shipment characteristics on the base rate, the surcharges and other accessorial costs. Incomplete insights, or false assumptions can lead to selecting the wrong provider and too high freight bills. Tactic

Tactic 5: Have access to data to enable the tactics mentioned

The base for the determination of the four tactics mentioned lies in the availability of the correct and the right level of detail of data. An advanced carrier agnostic Transport Management Systems (TMS) with options such as dynamic carrier allocation and freight auditing are a prerequisite to manage the parcel freight bill on day to day basis, and can provide the data to improve on a ongoing basis.

Interested in BCI’s Parcel Freight Management Framework? Download below the slides with an overview of 25 countermeasures.