Dealbreakers for Partnering with Brokers
There are thousands of registered transport companies in the Benelux, but only a handful are contracted by brokers. To be precise, you can only find discounted shipping rates of the biggest Express carriers on Shipping Platforms With Discounted Shipping Rates. Why is this so?
To answer this question, I sat with Ronald Migo, implementation analyst at ShipitSmarter. Before joining our team, Ronald worked for GLS, an international Parcel, Freight, and Express carrier and logistics services provider. He was there in the 2010s when shipping platforms/brokerage firms were popping up like pimples on a hormonal teenager.
At the time, GLS was offered a carrier integration to an up-and-coming platform, but with the caveat that it would also sell shipping rates to Shipping Platforms With Discounted Shipping Rates. The integration was attractive because GLS’s customers could use the platform as a shipment management tool integrated with various e-commerce platforms. All GLS had to do was accept some additional shipments via the shipping platform/broker.
You might think: more business, that’s good, right? GLS thought differently. Although it was interested in the integration into the shipment management platform, it declined the offer. GLS didn’t (and still doesn’t) want to sell shipping rates to a broker. And for good reason! Here’s what I learned from Ronald about the carrier’s perspective on partnering with brokers.
Broker Contracts Lead to a Fragmentation of Transportation
Brokers instruct carriers regarding pick-ups. Because the shipments come from several shippers, carriers will be asked to visit multiple pick-up points with a modest number of shipments, say, on average, five packages a day. This leads to a fragmentation of transportation.
- If you look at SendCloud’s carrier rates from April 2023, you’ll see that you can request pick-ups from DPD and DHL from 100 packages per month. If you ship five days a week, and your shipments are evenly distributed throughout the week, this comes down to a daily average of 5 packages.
- You can request pick-ups from PostNL from 500 packages a month, possibly because PostNL has a more fine-grained network of parcel shops, so dropping off packages is easier.
Stopping at a high number of pick-up points with a few packages to collect naturally costs a carrier more than stopping at a few pick-up points with many packages to collect. How much more depends on the carrier’s drop density.
Additional Pick-Up Points Cost Small Carriers More
The bigger the market share of an Express carrier is, the higher its drop density. With a fine-grained network, an additional pick-up is more likely to be an extra stop instead of a detour to include another pick-up location. Because of this, the biggest Express carriers can still make a reasonable margin from selling shipping rates to brokers.
On the other hand, smaller carriers would pay a much higher price for this fragmentation of transport. So much so it’s commercially unattractive for smaller carriers to sell shipping rates to brokers, at least compared to their alternatives.
Cherry Picking Clients Makes Smaller Carriers Profitable
So, carriers earn less on parcels through a broker while more operations are involved. Meanwhile, demand has exceeded supply in the transportation market for years. This gives carriers scarcity power. They can hand-pick the most profitable customers and packages (packages with a high margin or that can be sorted by machine).
When dealing with brokers, however, carriers don’t get to choose. Then it’s soon more profitable to send out sales agents for customers with a lot to pick up at one location, of sizes and types of packages that can be sorted by machine.
Market Leaders Don’t Cherry Pick
The cards are shuffled differently for market leaders. If you’re the number one (or two or three) e-commerce carrier in the Netherlands, you’re expected to be available on every e-commerce platform and shipping platform on the market. You have to be accessible to stay big. And since the costs of extra pick-ups are limited for the biggest Express carriers, less profitable orders that may come in through brokers aren’t as objectionable.
So there you have it; the tale of carrier-broker relationships is about scarcity power and economies of scale. Nothing mysterious about it. But it’s good to remember that it works both ways: shippers are business savvy. They work with smaller (Express) carriers because it’s a better deal than working with the giants in Express shipping for them. They get better rates, more tailored service, or both.
If want to learn more about diversifying your carrier portfolio and the benefits of contracting carriers directly, you might enjoy Carrier Strategies Explained.