While LTL shipping may have been the gold standard for shippers in the past, more shippers are starting to turn to a combination of parcel and less-than-truckload (LTL) shipping to cut costs and drive profits. However, the age-old rule of packages of less than 150 pounds being designated as small package or parcels is evolving. Today, packages more than 150, provided the packages adhere to size requirements, may qualify for parcel services. Meanwhile, the pricing models for small package and LTL shipping are changing, and the density of a package is becoming the newfound best practice for shippers. As a result, the only way to determine the best option between LTL and parcel shipping is to understand the basic criteria, the drawbacks and the benefits of each option.
Parcel shipping historically focused on packages that could reasonably be lifted without assistance by an average person. In other words, packages of less than 150 pounds incurred lower shipping charges due to maneuverability. Yet, pricing models for parcel are evolving to help small package carriers maintain a competitive advantage, and software-as-a-service providers are continuing to create a parcel-dominated industry.
In general, several criteria can be identified for when to at least consider parcel shipping, asserts Tom Stanton of Parcel MEDIA, which include the following:
The key to reaping the most significant return from using parcel shipping depends on each package, but if you can compare the drawbacks to the benefits, such as faster delivery schedules or reduced costs, you can identify if parcel shipping is more cost efficient than LTL shipping.
In shipping, it is best to have the worst case scenarios up front, so let’s start with the drawbacks. Parcel shipments carry a higher risk than LTL shipments. They can become lost, damaged or delayed more quickly. This is because there are more individualized movements in small packages. The package is loaded onto pallets, sent to a localized facility and distributed further into smaller and smaller trucks, landing in a single-driver delivery van, if not rerouted to USPS to decrease costs even more.
Ironically, the benefits of parcel shipping are dependent on the package’s risk. For example, smaller packages mean more individualized care in ensuring each package arrives at the appropriate destination. Moreover, an increased number of checkpoints by the carrier for processing of small packages means the package is more likely to be identified if off-track of the delivery schedule sooner. Unlike LTL shipping, parcels are easy to detect and reassign to another truck or carrier, which opens up many more doors to getting a competitive, if not discounted, rate on the overall cost of the package.
The sheer volume of small packages, which amount for more than 25 million daily parcels, explains Satish Jindel, also help to contribute to a cost advantage for parcel carriers. In other words, more packages give parcel-specific lines of transit a reason to maintain equipment and sorting facilities to a higher degree than LTL shipping. As a result, the level of technology deployed in parcel shipping involves more scans and applications.
The benefits of parcel shipping don’t mean LTL shipping is outdated and useless. Instead, it means LTL shipping, although effective, may cost more than parcels. According to Inbound Logistics, shippers who use LTL services exclusively may be overspending on shipping to the tune of 15 to 20 percent. With the slowdown in the shipping industry imminent, not considering the current capacity crunch, it is evident a greater understanding of LTL shipping is needed.
LTL shipping is designed for big packages. Once, packages between 200 and 600 pounds were automatically given the go-ahead for LTL shipping. In today’s world, these same packages may qualify for parcel shipping if the overall size of the package is small enough, especially if the package has a high dimensional weight. Unfortunately, the drawbacks to LTL shipping are due to the package’s unusual sizes and requirements for transit.
For example, furniture can be oddly shaped, include multiple pieces and have limitations on what items, if any, can be placed on top of it. Obviously, furniture customers will not be happy if a huge shipment damages the freight due to being put on top of it, meaning furniture renders above storage space unfilled.
Also, the fuel surcharges for LTL shipping are typically higher than parcel shipping. In 2009, LTL carriers had a published fuel surcharge of 12.5 percent, but parcel carriers were sitting at 2.5 percent.
The benefits of LTL shipping have always been clear. Combine bulky, large and heavy packages to fit into the tightest, non-damaging space possible and get palletized shipments to a common delivery area, if not within a small radius of a given shipment. While shipping was booming 2014, LTL was doing fine, and rates were becoming more competitive with a near record-breaking capacity crunch. However, the industry did not experience the same growth over 2015, and although current capacity is stretched, it is not full by any means. Ultimately, the benefit of LTL shipping is only realized if the shipment cannot be reclassified as parcel.
Part of the demand for LTL shipping was born out of the digital age, reports Penny Guyer of Parcel MEDIA. LTL carriers were among the first to use technology to increase responsiveness and visibility by providing automated reporting of services and auditing of shipments. However, the parcel industry has poured endless resources into increasing services, further blurring the line between parcel and LTL shipping. In modern shipping, both practices are gaining in efficiency and increasing the number of services available to shippers. However, parcel shipping appears to be replacing LTL shipping as the mode of choice, and the only way to survive the changes in the shipping industry is to understand the costs and benefits of using one over the other in all of your shipping decisions.
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