The Parcel Market is Hot! Large Volume Parcel Shippers Prepare for Upcoming Surcharges from UPS and FedEx
Sep 3, 2020
As we look at the parcel and ground markets, it reminds us of the adage: “All good things must come to an end.” For shippers, it has almost become axiomatic that more volume will result in lower rates. And then, things changed!
As we noted in a previous Two Minute Warning, UPS and FedEx initiated surcharges targeting large volume shippers. And now we are learning that some large volume shippers are, in their words, being “fired” because they either have excessive volume, too many residential deliveries, oversize shipments, or shipments that require additional handling. What the heck is happening? We reached out to parcel expert Jerry Hempstead and you can hear his insights in a new interview where he explains the current environment and alternatives to explore.
Practically speaking, for UPS and FedEx Christmas has come early as a result of pandemic induced surges in online shopping and the potential for a blockbuster holiday season that may have started early. Their networks are full, service delays are becoming more common, and there is genuine concern about whether they can handle the volume they will see during the holidays. Add it all up and you have a have a very strong “sellers market” where UPS and FedEx have the leverage to be very aggressive on the pricing front and look to improve on the “revenue per piece” which is a very important metric.
What's ahead for large volume shippers?
UPS will apply surcharges as much as $4 per package for shippers with volumes over 25,000 parcels per week. The amount of the surcharge will be based on the percentage increase of shipments from the time period preceding the pandemic. This surcharge will take effect November 15 and end January 16.
FedEx followed suit with a surcharge for shippers with volumes over 35,000 parcels per week, which will similarly take effect from November 2 to January 17 and amount to as much as an extra $5 per package.
For large shippers who had negotiated great rates, they’re basically saying that if your volume exceeds a certain threshold, and you're likely to have much heavier holiday traffic, you’re going to pay more. Through pricing and other maneuvers, they may, as noted above, in essence “fire” some of their shippers to make room for more profitable business.
If you are interested in how your operations and budgets will be affected by what is going on in the parcel and ground markets right now, what is likely to be occurring over the next three to six months (Hint: It gets worse!), then you need to listen to this interview with Jerry Hempstead.
Whether your company is getting hit with these surcharges or not, this is a great time to evaluate your parcel spend and explore your options. In particular, if you are a small to midsize shipper and have “friendly freight” or freight that's more evenly distributed throughout the year, you may have some great options to consider.
One way to assess these options is by taking advantage of a great resource, our Parcel Toolbox. This resource has proven to be tremendously effective in enabling shippers to analyze their current parcel spend and gauge the impact of upcoming or potential changes. We’d love to give you a brief demo highlighting the power of the Parcel Toolbox.