APX Logistics' exit may put pressure on parcel rates

By John D. Schulz -- Logistics Management, 5/1/2006

WASHINGTON—When a $750 million logistics service provider goes out of business, it usually causes a ripple throughout the industry. The demise of parcel consolidator APX Logistics did put up a bit of a wave, but it had little effect on shippers, who were able to quickly find substitute service. The long-term effect on rates, however, may be another story.

APX Logistics, which ranked 37th in Transport Topics' 2005 ranking of the 50 largest logistics service providers, ceased operations in March. The company managed more than 200,000 truckloads and 250 million packages last year, according to its website.

APX specialized in high-volume (more than 500 packages a day) shipments for customers wanting delivery in three to seven business days, and provided savings of some 20 to 40 percent over rates offered by carriers such as DHL, FedEx, and UPS. It enjoyed an estimated 50 to 60 percent share of the U.S. Postal Service's "Postal Select" parcel-consolidation product.

APX didn't fail because of a flawed business model, although it did struggle with the cost of operating service centers in remote areas, said Satish Jindel, principal with SJ Consulting, which follows the parcel market. Rather, APX had trouble integrating business units following a merger with a competitor, he said. Its parent, the private-equity firm Heritage Partners, acquired the small-package division of R.R. Donnelley Logistics in 2004 and combined it with American Package Express to create APX Logistics.

The impact of the shutdown has been muted because only high-volume shippers could benefit from APX's cost advantages. "That number is in the thousands of potential customers, not millions of shippers," said Ted Scherck, president and CEO of market analysts The Colography Group.

There's no shortage of competition, though. DHL and FedEx have deferred home-delivery products. UPS also is a player but is not as big a factor, Jindel said. A dozen smaller companies also offer parcel consolidation services.

The integrated carriers can hold on to former APX customers if they provide service at similar rates, Scherck said. But if they remain substantially more expensive, pricing for all parcel consolidation services will go up. "If some of the better service providers can provide service at the kind of rates that service needs, they could benefit the market by bringing smaller users into the mix," he said. Right now you have to be a huge shipper to see any benefit."

Ultimately, what shippers choose to do in this price-sensitive segment may depend on the U.S. Postal Service. The USPS could lose business if it raises consolidation rates to the point where they're close to what the integrated carriers charge, said Jindel. "This will definitely put a whole new perspective on their pricing and how they maintain their last-mile delivery," he said.