Smaller shippers pose new threat to UPS, FedEx

Nimble regional-delivery companies are cropping up and working together to steal business from national rivals.

By MSN Money Partner Dec 19, 2013 3:16PM
Image: Moving boxes (© Michael Hitoshi/Getty Images/Getty Images)By Laura Stevens, The Wall Street Journal

You probably have never heard of LaserShip Inc., OnTrac or Eastern Connection Operating Inc. Yet these small regional shippers may well have dropped a package off on your doorstep this holiday season.

These and other small shippers, which handle packages for companies ranging from (AMZN) to Avon Products (AVP) to Walgreen Co. (WAG), are expanding their networks across the U.S., creating a "super regional" threat to the duopoly of United Parcel Service (UPS) and FedEx Corp. (FDX), which are under pressure to build their own ground-delivery businesses in the face of weak demand for express air delivery.

They work like this: A company such as Eastern Connection, which operates in the Northeast, picks up a package in New York City. It hands it off in Harrisburg, Pa., to another shipper, partner Pitt Ohio LLC, which delivers it a total of two days later to a customer in Columbus, Ohio.

By cobbling together networks, the regional shippers are grabbing market share from UPS, FedEx and the U.S. Postal Service as e-retailers look for cheaper, faster delivery options for their online shoppers.

Regional shippers typically can get a package between two points in one region -- from New York to Boston, for example -- faster than their national counterparts, and they are able to price shipments 20% to 40% below the national shippers because of their lower costs. Most regional shippers have ground-only delivery networks that employ contracted drivers who own their own company-branded vans.

"They're going into the area that UPS and FedEx pretty much dominate -- and they can go further faster," said Ivan Hofmann, a former executive at FedEx Ground who now consults with regionals as part of ETC & Associates LLC.

UPS and FedEx "are so much larger, but they have learned a lesson from early years not to ignore smaller competitors," said Satish Jindel, a transportation industry consultant.

He compared the regional companies to RPS, which was acquired by FedEx in the mid-1990s and became FedEx Ground. "Now it's an $11 billion company."

In response, a UPS spokesman said the company "continually monitors and watches the marketplace." A FedEx spokesman declined to comment.

While the regional shippers' total market share is only about 3% -- total estimated revenues are expected to reach $1 billion in 2013, compared with a total ground package market of about $32 billion -- their revenues have more than doubled since 2009, according to SJ Consulting Group, Inc. These companies separately now serve approximately 90% of all U.S. ZIP Codes, buoyed by the increase in parcel volumes from big customers like Amazon.

Many of these companies started as local couriers or express package delivery companies 20 or 30 years ago -- some catering in transporting checks for clearing, movie reels or other largely obsolete business areas. But the companies experienced rapid growth after DHL, considered the low-cost alternative to UPS and FedEx, retrenched in the U.S. market about five years ago. The surge in e-commerce and subsequent increase in small package deliveries also helped.

Because they operate in smaller market areas, the regionals can offer later pickup times for next-day delivery to more areas, compared with national carriers who often have to drive, then fly the packages through complicated hub networks.

"It's not just the pricing, it's the fact that we can get it there the next day," said Ted Kauffman, chairman of Eastern Connection, based in Woburn, Mass.

Amazon has turned to the regionals for many of its Prime two-day deliveries, industry analysts say. Amazon has distribution centers across the country, allowing it to ship more quickly to its customers, and regionals can often take the package directly from the warehouse. Amazon also can negotiate a good price in a zip code with lots of deliveries.

"With Amazon, it's about speed. I think you do see them shipping a lot with regionals because of the speed and flexibility," says Rick Jones, CEO of Dallas-based Lone Star Holdings LLC, known as LSO.

On Wednesday, FedEx CEO Frederick W. Smith acknowledged the regionals' bigger role. "For the vast majority of products moved, it's almost certain that they will…be moved by one of those three large networks and then some of the smaller regional players for as far as the eye can see," he said during an earnings conference call.

More from The Wall Street Journal

Dec 19, 2013 4:36PM
Read OnTrac's terrible reviews on Yelp, and you'll see why they are cheaper, their workforce can barely speak english.... What a joke. Se habla espanol!
Dec 19, 2013 5:03PM
Man, PittOhio has some of the junkiest straight trucks on the road. Used and abused. We used them once to pick up a pallet, and when the driver opened the doors he had upset a pallet on the rear. We had to help him pick up a bunch of boxes, then rewrap. No load bars, no E-straps, nothing to keep tall pallets upright. Ours was shorter and wrapped well, so loaded, and he took off like a jet. Receiver called and said our pallet got tipped over during transit, so made things right and have not used Pitt since......
Dec 19, 2013 5:14PM
Ontrac's lost or damaged everything I've had shipped through them UPS and FedEx can sleep easily and disregard any threat from them.
Dec 19, 2013 4:37PM
Not if those small guys don't clean up their act!
I don't know about the others, but OnTrac is TERRIBLE!!!!
I have lost deliveries because of them. They just ditch deliveries at your doorstep without ever getting anyone to sign for them. DO NOT USE OnTrac!!!

Dec 19, 2013 5:36PM
UPS has a ground network, the best in the business.  It will be a while before any of those smaller companies can be considered competition much less a threat.  Bad info obviously was given by to the author.  UPS and FedEx use technology way ahead of it's so called competitors.
Dec 19, 2013 6:05PM
I like UPS and FedEx, so I would not sell them short, others have tried and failed.
Dec 19, 2013 6:52PM
Dec 19, 2013 5:13PM
There is an entire strata of local and regional delivery services and they have been around forever, especially in large metro areas. What is wrong with a little competition? There is little danger of denting FedEx or UPS interests if you consider their global presence. A mountain is made of a mole hill.
Dec 19, 2013 10:11PM

I've used the USPS for over 30 years - never a problem - priority packages have consistently been delivered in 2 to 3 days from Idaho to small towns that my family live in Virginia, West Virginia and western Maryland - never broken or lost. The flat rate boxes the USPS have available now make shipping to my family even easier. As far as the problem with a package being left on porch the USPS has "signature confirmation", which requires a signature or the package cannot be left. 

The problem I encounter from companies when ordering their products is they don't use the USPS as their shipping choice - we as customers should have the choice of the USPS. UPS uses the USPS through "Parcel Select" for delivery of some of their packages.

As far as I am concerned the USPS is still the best value for the money spent, and your letter carrier already comes six days a week without any surcharges for Saturday delivery or where you may live - especially rural America.

Support the USPS - they do not receive any tax payer dollars - use the USPS and find out for yourself - just go to to educate yourself on the USPS and their awesome network - delivery to every address in the USA and overseas.

Dec 19, 2013 8:45PM

Your article gives an example of a package picked up in NY city and delivered to Columbus Ohio taking 2 days. Sorry but that is the same as UPS,not faster.Mcdonald's is cheaper than 5 Guy's, not better,you get what you pay for.


Dec 19, 2013 7:19PM
Fedex does the same thing drop it at the door and leave they did it to me today, 
Dec 19, 2013 5:24PM
UPS has screwed up hard core this year. First they claimed it was weather, but package made it to home city one day late and now three days later they have handed my package over to the USPS because they can't seem to make a simple delivery. Package is now 8 days late and there is no way for me to track it with the postal service. 
I worked the loading docks for a regional carrier while I was in college. The goal was to load and unload the trucks within a specified amount of time. Damage wasn't important.
Dec 19, 2013 6:01PM
A lot of truth in this article.  Smaller "local" carriers can deliver a lot faster and with a lot less hassle.  One I worked for was even wanting to hire me back, (now retired, so not interested,) to do a routine run for FedEx across our northern border, dropping off local packages. FedEx was going to pay them to do it, as it was easier than having to bring another vehicle/crew on in the area, similar to what the feds are doing with our military, sub contracting.
United Parcel Service started by uniting local parcel delivery services across the nation.  So, this is just a copycat attempt to enter the package delivery market.
Dec 19, 2013 7:47PM
10 dollars to ship a 17 dollar item is definitely going to catch up to the big guys ! Many items this season I changed my mind on purchasing because of shipping costs ! Screw it !
Dec 19, 2013 5:27PM

UPS and Fedx have been doing the same thing to the post office for years. karma is a bitch


Dec 19, 2013 8:15PM
     brown  does  it  better   and  they  sponser   a  car  that's  built  in  the  GOOD  OLD  U S A. now fedx  they  sponser  one  of  those   off  shore  pieces   of  crap.  ha  I  am  62  retired  U A W  member 32 years,  BUY  AMERICAN                  P.S.  never  hade a  problem  with   ups  or  fedx  I  get  all  my  drugs  from  both.  THANK  YOU  U P S  AND  FEDX  AND  U S P S.
Dec 19, 2013 9:42PM
I find USPS Priority to be cheaper and quicker than either UPS or FedEx for the size packages most often delivered here. But USPS uses FedEx partially and vice versa these days. Never intentionally used the "fly by nights" this article is about.
Dec 19, 2013 9:28PM
OnTrac is here in Las Vegas, can you say illegal aliens? And they drop the package, sometime late at night(after9PM), and never knock or ring the bell like the other carriers.
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