Blog Posts Parcel Shipping Outlook
If you are responsible for a high volume of parcel shipments, you understand the importance of keeping up on the changing parcel landscape. That can be a challenge, given frequent changes in rates and surcharges, evolving consumer expectations, and now the possibility of a UPS strike.
We sat down with Megan Rudolph, Saddle Creek’s senior director of strategic parcel operations, to talk about what she’s seeing in the marketplace today and what’s on the horizon.
How would you describe the current state of the parcel industry?
After nearly a three-year rollercoaster ride, parcel volumes are finally normalizing, reaching pre-pandemic performance trends.
Unfortunately, the ride is not over yet for parcel rates and surcharges. During the 2022 holiday season, peak charges increased an average of 14% per package in November and 30% in December. And for 2023, FedEx and UPS both instituted a record annual general rate increase of 6.9%.
In reality, the actual cost impact is much higher. The published GRI is misleading because it does not include surcharges – fuel, delivery area, residential, etc. When you take these factors into account, most retailers and brands will see a true cost impact of 12 to 14%.
The good news is that – with slowing ecommerce demand and more regional and local competitors entering the market – carriers’ pricing power is diminishing.
Is fast, free shipping still the gold standard?
Demand for fast shipping has slowed somewhat. In the wake of the pandemic and supply chain issues, consumers have become more accustomed to waiting for online orders. They may need same-day service on occasion, but not for every order. Likewise, overnight and two-day service is desirable for some shipments but not all. In general, 3- to 4-day or even 5- to 7-day delivery is acceptable for most orders.
Free shipping is another story. Consumers do expect free deliveries – maybe not for every order, but they expect to have the option. In today’s uncertain economy, they are likely to abandon their shopping cart if free, or very inexpensive, delivery is not offered at a certain threshold (i.e., $50 minimum purchase or slowest service level).
Expectations are still evolving, however. For many shoppers, the need to know when a shipment will arrive is becoming just as important as free shipping. Estimated delivery windows and, even, specific-day deliveries are increasing in popularity.
Certainly, every business is different. Your real goal should be to offer shipping options that meet your customers’ delivery expectations at the lowest possible cost.
For many shoppers, the need to know when a shipment will arrive is becoming just as important as free shipping.”
~ Megan Rudolph, Senior Director of Strategic Parcel Operations, Saddle Creek Logistics Services
Can any shipper provide specific-day deliveries?
Theoretically, yes. In practice, it can be challenging to manage a high volume of specific-day orders, unless you have good visibility into parcel data associated with costs and service performance. You need robust analytics tools, the expertise to accurately interpret that data, and a shipping system that supports rate/date shopping.
What can shippers do to help control shipping costs?
There are a number of ways to help offset the burden of shipping costs. Perhaps the most beneficial is carrier diversification. With a multi-carrier parcel strategy, you can take advantage of rate-shopping and find the lowest available rate and/or the shortest transit time. You can also mitigate risk (more on this below).
Capturing accurate data for package weights and dimensions and optimizing packaging can also help to reduce costs. Increasing average order value through product bundling or other marketing strategies can help to improve margins.
Another option is to reevaluate your distribution network configuration. With two or more DCs in strategic locations, it is possible to provide two-day service to most locations in the U.S. via ground.
How would a potential strike by UPS workers impact the industry?
The potential for a strike always generates buzz during a UPS labor negotiation year, but concerns are the highest they’ve been in over a quarter century.
If the 340,000 Teamsters members go on strike when their current contract expires July 31, the impact would be significant. UPS moves about 6% of the domestic GDP, and there is simply not enough capacity in the market to absorb that volume.
Negotiations will begin next month. While the two sides may reach an amicable agreement before the July deadline, it is critical to be prepared for the alternative.
What can shippers do to prepare for a strike?
Shippers that use UPS as their primary or only carrier are the highest at risk. If you have not already done so, reach out to other carriers and secure volume with them now. Even if a strike does not occur, you will still have strengthened your parcel strategy by expanding partnerships and diversifying your carrier mix.
