The 2:00 Minute Warning

Last week a really close friend of mine, Karl, who runs a great company out on the East Coast called and asked: "What the heck is going on with UPS?" I have had a whole bunch of calls like this so even though I knew where this conversation was going, I still asked: "What’s going on?"

Like many other shippers throughout the United States, Karl and his team are experiencing life with UPS in a post Teamster contract world. It’s not a pretty world for a lot of shippers. That is why it is so important to understand how the UPS Teamster contract will impact your parcel costs heading into 2024.
 
UPS is a great, well run company that knows how to make money. They employ lots of really smart industrial engineers who are experts at either taking costs out of their system or figuring out how to pass costs along to shippers through a list of accessorial charges too numerous to count.
 
They also pretty much operate, along with FedEx, in a duopolistic marketplace. Even though this recent article in the Wall Street Journal reported that Amazon surpassed UPS and FedEx in terms of package volume, and that the U.S. Postal Service delivers more packages to homes than anybody else, UPS and FedEx dominate the B2B space.
 
Having said all that, UPS has a real challenge in front of them. In August they signed an expensive contract with the Teamsters. Shortly after the contract was signed, FedEx was very shrewd and announced a general rate increase (GRI) of 5.9% for 2024. This move forced UPS to match FedEx’s 5.9% GRI in order to protect their customer base.
 
Now here is the problem. UPS has not broadcast how much this contract has impacted their cost structure, but virtually every parcel expert believes that with a GRI of 5.9%, UPS will have to protect their profitability by increasing/ changing their accessorial charges or, as recently announced, increasing their fuel surcharge by 1/2 of 1%. And that, my friends, is why Karl and many other shippers have called me.
 
As UPS and FedEx strive to improve their margins, customers may see the impact in the form of changing service levels or increased assessorial charges. With a relatively stagnant parcel market, UPS and FedEx are both searching for ways to reduce costs and improve their profitability with existing business. For example, FedEx is in the middle of a campaign to cut $4 billion in permanent costs over two years.
 
Having said all this, if you are a shipper that is going into negotiations with UPS or FedEx, you have two options. You can conduct business as usual, ignore our suggestions/ recommendations and get hammered by FedEx and UPS. Or, you can give TranzAct a call and let us share with you how you and your team can have successful negotiations. Right now, with a parcel market that is, and will likely continue to be soft going into 2024, if you have great data and the right strategy, you'll get the right results. So if you'd like these insights and ideas about the right strategy, or if you want to schedule a demo of our Parcel Toolbox, it's super easy. Just get in touch with us.
 
Before signing off, we also want to address those of you who have called us asking “What’s going on with my LTL carriers?”
 
As we've addressed in some recent Two Minute Warnings, the LTL carriers are getting really good at using Activity Based Costing models to determine your LTL rates. They're issuing rates to reflect how much it costs to serve each and every shipper.
 
If your company has wasteful transportation practices and these practices increase their costs - whether it’s holding them at the dock, bad documentation, or other costly and wasteful practices, your company is going to see higher rates. The LTL carriers are just like Santa and they have a list of shippers on their naughty and nice lists.
 
At TranzAct, we have tons of experience and with our LTL Strategy Assessment, we can help you work collaboratively with your carriers and get on their “Nice List” so that your company has better rates and lower costs. To get started, give us a call at 630-833-0890, send us an email or schedule a time to meet.

BY MIKE REGAN, CO-FOUNDER OF TRANZACT

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