Zone Inefficiencies

How far is Detroit from Boston? 700 Miles

How far is Jacksonville from Boston? 1,150 Miles

Well, if you’re sending parcels to both locations, the cost is the same. Say it costs $10 to ship a 2lb package to both cities - you’re paying $0.0087/mile to go to Jacksonville and $0.0143 to go to Detroit. That’s 164% more per mile!!

This is the problem with traditional static rate cards. Carriers assign prices to zones, and zones cover thousands of square miles. You’re paying to ship to Jacksonville every time, whether it’s the closest point in the zone or the furthest. The shortest distance items are subsidizing the furthest distance items.

It’s effectively the insurance model of pricing. You pay a literal premium (they have the gall to straight up call it that) so that when something goes wrong, you’re covered. In parcel, it’s more of a hidden cost - you pay for shipping at the highest zone rate to cover the high cost of far or remote destinations, when you might be within the shortest distance in the zone.

The reality is that carriers have to do this to manage their costs and keep negotiations possible without over complicating them. This is a shipper disadvantage, but a carrier requirement in a static rate card system.

The other reality is that if a carrier can subsidize their routes by maximizing their truck capacity and minimizing their route stops, they would happily take packages well below the zone rates. If they have a truck already going to a building or a pickup or dropoff is on an existing route, the cost of that package is negligible for the carrier, so a low parcel rate ends up benefiting them greatly.

How can I take advantage of this inefficiency, you ask? Well, the answer is dynamic parcel pricing, my friend. It allows carriers to subsidize volume and efficiency rather than distance and inefficiency. Carriers can literally price every piece based on its value to their network, and shippers can name their price as high or low as they need. When there’s a match: magic happens and the parcel is shipped at a rate lower than a static price.

Carriers win. Shippers win. Customers get the same service they were expecting.