Small Package-Delivery Companies Grow as Businesses Seek Alternatives to Bigger Companies

During the pandemic, smaller parcel carriers made big gains by handling packages that the larger players couldn't deliver. Some of these carriers now want to get bigger.

Regional shipping companies are expanding their operations to take advantage of the labor uncertainty at United Parcel Service Inc. and the higher rates charged by UPS.

UPS and FedEx are two of the biggest names in shipping and logistics. Both companies have a long history of providing reliable service and have a strong reputation for delivering packages on time.

There is a growing reluctance among merchants to rely on a single carrier. This is because they are increasingly aware of the potential risks and problems that can arise from doing so. They are also aware of the benefits of using multiple carriers, which include greater flexibility and choice, and the ability to find the best possible rates.

As the e-commerce boom that fueled carriers' growth begins to fade and shoppers become inflation-weary, some small carriers see an opportunity to build on the gains they made during the height of the Covid-19 pandemic.

LaserShip/OnTrac, the largest regional carrier, is expanding its delivery network into Texas this year. Lone Star Overnight (LSO), a Plano, Texas-based carrier with a network in Texas, Arkansas, Oklahoma, Kansas and Missouri, plans to open a major sorting facility in Chicago next year. LSO is also working with local delivery companies in cities such as Minneapolis, Milwaukee and Atlanta this year, following requests by its customers to expand its delivery network.

Kendra Jackson, vice president of sales and marketing at LSO, said the company is seeing an uptick in business from shippers who are trying to avoid potential disruptions at UPS due to labor contract negotiations. A strike could occur as early as August if an agreement is not reached.

Some UPS customers have been in touch with FedEx to discuss their business continuity plans in case of any disruptions, according to people familiar with the situation. FedEx is reportedly trying to get these customers to sign longer contracts.

"It's not unusual for our competitors to make exaggerated claims in an attempt to scare our customers, especially during contract negotiations," said Glenn Zaccara, a spokesman for UPS. He added that UPS is currently working to reach an agreement on a new labor contract.

In the past, retailers typically gave all their packages to one carrier in order to get the best discounts. However, this is changing as more retailers are starting to use multiple carriers in order to get the best possible rates.

"A multi-carrier strategy is the new norm for different types of packages and locations," said Krish Iyer, vice president of strategic partnerships at Auctane, a shipping and software solutions company.

Before the pandemic, regional and other carriers that sometimes rely on the Postal Service for last-mile deliveries made up a small but significant portion of the parcel market, according to data from ShipMatrix Inc., a parcel analytics firm. Now, as carriers say they picked up substantial volumes from shippers who told them UPS and FedEx had insufficient capacity during the pandemic, that market share has increased to around 8% to 9%, according to ShipMatrix. Each percentage point gain in market share for a smaller carrier equates to a more than 15% jump in volumes, ShipMatrix says.

Many shippers say they don’t want to be beholden to any one carrier, even as capacity constraints have eased. They want to have the flexibility to choose the carrier that best meets their needs at any given time.

Some retailers have set up distribution centers in multiple cities to reduce the burden of higher shipping rates and surcharges from FedEx and UPS, according to Joshua Taylor, senior director of professional services at Shipware, a parcel consultant. This gives these shippers access to more local carriers, which can shorten the distances parcels have to travel.

"No one can ship in the United States without having a relationship with FedEx or UPS," said Andreas Andrea, former director of logistics at FabFitFun. "But the question is how much do you depend on them? And how much ability do you have to move volume around?"

At the beginning of the pandemic, Mr. Andrea was faced with the challenge of finding alternative shipping options when his national carrier said it would only take 50% of his company's parcels. By early 2022, FabFitFun had engaged six carriers, up from just one at the start of 2020. This increase in carriers allowed them to keep up with the demand for their products and continue to provide excellent service to their customers.

According to FedEx, it has competitive advantages over other carriers in terms of on-time performance rates and services such as Picture Proof of Delivery. In some areas, FedEx also operates on a seven-day basis.

UPS has stated that it is more focused on delivering parcels that are more profitable, rather than those that come in higher volumes.

Some companies may still be resistant to using multiple carriers. One reason for this is that it can be complicated for a business to keep track of which packages go with which carrier, according to Mr. Taylor, the consultant.

Using multiple carriers could make customers more vulnerable to inconsistent performance. Having multiple carriers can mean that one carrier might not be able to provide the same level of service as another, which could lead to inconsistency for customers.

"At the height of the pandemic, it was either the person in a tank top and flip-flops in a 1985 car, or no one," said Mr. Andrea, adding that he ignored such complaints at that time. "Businesses need to evaluate the sensitivity of their own brand to such risks," he said.