Parcel Shipping: What is it and How is it Useful?

It’s no secret that the last few years have brought significant changes to the way we live. But it’s still incredible to realize the scale of modern parcel shipping. According to Pitney Bowes, the top four US delivery companies deliver approximately 700 parcels across the United States every second.

With Morgan Stanley bullish on e-commerce, forecasting that e-commerce will represent over 30% of retail sales by 2026 (against roughly 16% in 2022), a growing proportion of retailers and parcel carriers are starting to experiment with robotic delivery in the form of self-driving vehicles, drones and autonomous robots in order to keep up with the growing number of small packages and other deliveries.

Technology is the driving force behind change in nearly every industry, and parcel delivery is no different. Parcel carriers around the world are looking to up their game, with UPS strengthening its same-day services in the US, and extended weekend parcel services by Royal Mail in the UK, pointing to an intensified pace of innovation.

Already, retailers have realized that increased e-commerce means an increased need for storage space nearer customers. Customers increasingly demand one-day or even same-day deliveries. As a result parcel shipments must start from a closer physical location to push goods to wherever the end consumer happens to be.

In order to remain competitive in this ever-expanding, digitized market, businesses will need to move fast. Parcel shipping is no exception: parcel and 3PL logistics providers need to focus their resources on optimization across the last mile.

The question is, where to start?

Before launching any optimization process, parcel shipping businesses, like any other business, need to understand where their gaps in efficiency lie, and what changes will impact last mile profitability the most.

What is parcel shipping?

Parcel shipping refers to the process of delivering small packages to medium-sized items as single shipments. This is one of the most common forms of delivery provided by postal systems and couriers, as parcels can be moved by a single unassisted person, and are often light. A typical parcel often comes in the form of a small package with rudimentary packaging such as a bubble wrap envelope, or in a box with some cost effective protective materials.

For this reason, parcel deliveries are not always stackable or generally palletized, but instead best contained in bins, bags, sacks or shelves for distribution. Senders include small businesses, as well as medium and enterprise scale companies, and while many parcels are sent locally or globally, such freight often involves international shipments.

How does parcel shipping work

Parcel shipping begins with the consumer placing an order. A textbook example is the case of an order from an online store. The goods are then located, put in appropriate packaging and auto sorted and shipped depending on the location of the recipient. It is normal for such packages to be transferred a number of times during this process as carriers make use of their networks to get parcels from A to B as efficiently and speedily as possible.

Ultimately, each package reaches a stage in which it is grouped together with other items due for final delivery in roughly the same area, and sent to the recipient’s location.

What’s the difference between parcel shipping and LTL shipping?

There are numerous differences between less than truckload, also known as LTL shipping, and parcel shipping. First and foremost, there is a degree of similarity: LTL shipments don’t utilize all the space available on a given truck, and so the remaining space is often taken up by other shipments. Similarly, parcel shipping involves many small items, which may or may not fill an entire truck. That, however, is where the similarities end.

A big difference in the two methods pertains to storage and weight: LTL shipments often involves larger packages, often making use of pallets or crates. Items are put together and fit on a standard pallet, held together with wide packaging tape, and often have a collective weight sufficient enough to require specialized tools to transport and lift. By comparison, parcels are instead relatively light, loose and can be easily picked up by the average adult.

A final convenient benefit to parcel shipping is that because packages are often routed via a number of different trucks and waystations, there are more opportunities for tracking an item along the way. This serves to reassure the recipient that their order is indeed on the way.

7 steps to parcel shipping optimization

There are seven steps that make up a universal process for these companies, from the moment orders are received to the moment packages are delivered.

1. Input orders and tasks into a centralized system

As with most things, the first step is the most important. While many parcel delivery companies have different processes for how orders enter their system, it’s important that they all end up in a centralized system and those deliveries that are going to be assigned to drivers (as opposed to outsourced to a third party) are clearly marked.

With the right technology, this can be done by uploading a CSV, or using an API.

2. Optimize task dispatch and routes

With the orders and tasks uploaded into the system, it’s critical that the assignment of those tasks takes into account the most optimal routes based on ZIP codes and distance between stops.

With customers expecting shorter drop-off windows, more companies are feeling the increased need for speed. Consequently, retailers are relying on ship from store and the use of on-demand carriers, relying on companies such as DoorDash and Uber to fulfill fast, rather than traditional carriers like UPS and Fedex.

More than ever, it’s critical to have in place an effective delivery hub. The benefits are numerous: First, retailers simply can’t keep up with internal fleets alone. Such a service connects retailers with logistics suppliers and quickly build a network of carriers. Second, it finds those suppliers who can offer a competitive price and real value for money to carry goods to customers or dedicated collection locations for each discrete shipment. Third, this service helps save time by finding the best service available, and reduces the paperwork and contracts involved.

3. Sort out parcels marked for local delivery

Third party logistics companies often have local partners that handle their last mile deliveries, however a portion of those deliveries are performed by the company themselves. These items must be efficiently sorted out from the rest of the packages so that they can be loaded onto the right trucks to go out for delivery and reach their final destination.

This requires special bar codes that can be scanned in order to identify which packages are being delivered locally and which are being assigned externally.

4. Scan all items prior to loading them

Having full supply chain visibility requires that the last mile not be a link in the chain in which you become blind. In order to optimize last mile delivery operations for parcel deliveries, all items need to be scanned prior to going on trucks. This way, a central system can enable tracking exactly which items are on which trucks and where they are on their routes.

5. Customer last mile visibility

It’s been said that the number one driver of logistics innovation today is visibility. In this case, visibility can mean both internal (visibility over the supply chain – as mentioned above) or the tracking visibility a customer has over when their order will be arriving.

In the age of Uber, customers expect a level of tracking visibility that was once not available. The critical aspects of this kind of experience include a real-time map visible via mobile phone that allows the customer to track the driver as they are on their route, all the way from the sender’s address to the recipient’s door, and help the customer know exactly when their order is due to arrive.

6. Ensure customer engagement

Following on from the customers’ need for tracking their order is the increasing need for shippers and companies to ensure open channels of communication with recipients. For that reason, engagement is also key in parcel shipping. Tracking alone is no longer enough.

Now, being able to communicate directly with the driver and leave messages such as “don’t ring the doorbell” can significantly decrease friction. This in turn makes it less likely that a delivery failure will occur, or that a customer will be frustrated in some other way when the package arrives, resulting in loss of business or additional expenses.

7. Have a solid proof of delivery process

With such a high volume of deliveries, it’s important that verifiable records are kept through a proof of delivery system. That includes requiring a driver get a signature and scanning of a bar code prior to leaving the location of the delivery. That information is then sent to a central system and logged. If, at any point, the customer makes a claim that the item was not delivered, the company has proof.

What about returns and parcel shipments?

With the rise in e-commerce over the last few years, consumers have been returning orders, or part of their orders, in higher volumes than ever before. Central to this is the need to transfer countless small and medium-sized parcels from consumers back to warehouses.

This process, historically initiated by the recipient physically taking an item back to a store, now often starts with them ordering a return collection. This requires items to come with a slip or sticker with the sender’s address, so that a representative can arrive at the consumer’s location in order to verify, collect and prepare packages for return. Once collected, it’s often then placed in a truck alongside other items, all to be taken back to a warehouse or sorting center.

Here, too, the principles of parcel shipping are central to a more efficient, swifter and more visible process.

Frequently asked questions