Saturday, December 12, 2009

Purolator USA, Canadian in the US Parcel Market

When DHL exited from its United States domestic business, most commentators suggested that shippers would face only the duopoly of UPS and FedEx. The Postal Service was considered a marginal player that could not meet the service quality needs of business to business customers. More importantly, it rarely was price competitive on shipments over 5 pounds.

In a previous post, I noted that Amazon in its drive to shorten the time from order to delivery is expanding the number of competitors that compete in the parcel delivery market as it uses same-day couriers to delivery parcels that UPS or FedEx would have delivered previously. Amazon can expand the list of potential vendors to include same day and regional parcel carriers because its warehouses are close to the customers that it wants to serve but can only be served by carriers that can operate with more flexibility than the two national carriers.

New competition in the United States does not just come from these regional carriers. Purolator USA, a Canada Post subsidiary, is slowly expanding its domestic United States business as a complement to its cross-border business. By expanding its domestic United States business, it can serve more of the North America needs of its customers, making it easier for it to get a larger share of the business of customers with significant cross-border parcel and express traffic.

The growth of Purolator USA can be seen by looking at its web site and some of the older items that Purolator has not updated. Purolator, operating as a subsidiary of the Canadian courier has been in the United States since 1997, and under the Purolator USA name since 2004. For most of its existence, its focas has been on cross border traffic into Canada where it is the largest parcel and express carrier.

In its brochure describing its cross-b0rder service, Purolator describes four (4) United States based consolidation terminals in Seattle, New York, Buffalo and Chicago. It's website now lists the ten (10) gateways listed below. Clicking on any of the gateways will show the service times that Purolator USA promises to customers served by that gateway. The maps are comparable to service times of UPS and FedEx but somewhat narrower than what is offered by some regional carriers.

(Readers using Internet Explore may have some difficulties with some of these downloads as you have to tell IE that you want to download the file and then try a second time. They all work fine in Firefox. If you have a fix send a comment.)

Buffalo, NY
Dallas-Fort Worth, TX
Itasca, IL
Los Angeles, CA
Melville, NY
Newburgh, NY
Philadelphia, PA
Raleigh-Durham, NC
Seattle, WA
Taylor, MI

The growth in gateways, and the service area of each gateway suggests that Purolator USA is growing its cross boarder business and using that growth to organically grow regional and inter-regional traffic within the United States. This is similar to the strategy that Roadway Package Express used to grow the ground network from scratch that is now FedEx Ground. This contrasts with the failed strategy of DHL to buy US market share by buying Airborne, a company that at best was marginally profitable as an independent firm. Purolator USA's strategy in the United States domestic market has a reasonable chance of success if it can offer domestic US service as good as the cross-border service it offers its customers as well as the service offered by UPS and FedEx.

Given the success of numerous regional carriers, Purolator USA may now be enticed to speed the process by buying profitable regional operators. The DHL experience will likely ensure that any mergers are pursued cautiously and will likely focus on regional operators in areas that it does not now have gateways.

Purolator USA's domestic service unlikely provides more than a fraction of 1% of the total US domestic parcel and express market. However, even niche competitors can have an impact on the pricing strategies of UPS and FedEx as they negotiate with US customers that currently use Purolator for Canadian destined shipments.

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