News / Barrage of integrator parcel charge changes 'a masterclass in strategic pricing'

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Parcel shipping in the US is more than ever a slalom around the frequent changes in pricing that are challenging to dissect.

Shippers barely had time to digest the peak season surcharges UPS revealed – uncharacteristically late – before FedEx hit them with the announcement of a general rate increase for next year.

Basically, FedEx is going to raise rates by 5.9% on 5 January. But as usual, this number masks a variety of changes, some up to 6.9%, plus a bevy of surcharges.

“The true financial impact for most businesses is buried in a complex web of targeted rate hikes, escalating surcharges, and rising minimums,” noted Paul Yaussy and Matt Sumowski, heads of strategic solutions at Loop, a provider of AI-based transport spend management solutions.

They urge shippers to either employ in-house expertise or use a freight payment audit provider to analyse the pricing changes, some of which could raise the charge per shipment by as much as $8 or $9, Mr Yaussy pointed out.

On top of this bewildering array of charges and surcharges that move at different rates, FedEx has complicated planning further for customers with the announcement that new cubic volume and weight criteria would be added to assessments of shipments that are oversize or require additional handling, without defining those new criteria.

The bottom line is that the increase for FedEx customers is going to be well above the current rate of inflation, of 2.9%.

Mr Yaussy and Mr Sumowski called it “a masterclass in strategic pricing, where the 5.9% headline serves to mask a far more intricate and impactful reality”.

Some of the more aggressive increases will be heaped on shipments of higher weight travelling long distances, a bracket in which the integrators face little or no competition from regional rivals – which means shippers have practically no alternatives, Mr Sumowski noted.

Overall, regional parcel carriers have been able to peel volumes from FedEx and UPS, said Mr Yaussy. But he added that the big national players had been putting clauses in contracts noting penalties if customers diverted volumes from them, an indication that they are wary of losing ground to smaller rivals.

Using multiple carriers has become the norm in the industry. While there is considerably variation by sector and product type, mid-sized shippers use a minimum of three carriers, typically five, said Mr Yaussy.

Meanwhile, according to UBS, FedEx and UPS surcharges on Asia-US “are between 30% and 45% lower than DHL surcharges”.

“We note a year ago the surcharges were better aligned between the three players, with the exception of Asia-Americas, where UPS was offering lower surcharges relative to peers.”

But it added that DHL’s surcharges were “valid for the duration of the entire peak season” while the others would be subject to change.

UBS explained: “UPS is offering meaningful discounts to US small and medium-sized businesses in a partnership with Amex throughout the peak season for international express imports/exports.

“The meaningfully lower surcharges on some of the tradelanes for UPS and FedEx brings two question marks for DHL, we believe. Firstly, if the stick rate will be comparable with the prior year, or more discounts may be implemented. Secondly, if this will lead to any shifts in market share.

“From our discussions with industry players, shifting the logistics suppliers during Q4 does not happen often in the context of the busy peak season. The risks of market share losses can manifest to a larger extent post-holiday season, when the new contracts are signed for the year ahead.”

Meanwhile, DHL said today its Post & Parcel Germany division would resume postal shipping of goods from Germany to the US for business customers. It said: “After only four weeks, in which Deutsche Post/DHL and many other postal service providers had to suspend this type of shipment of goods to the USA due to new legal regulations, Germany’s largest postal and parcel service will once again offer companies the opportunity to use DHL Parcel International for shipping to the USA in addition to DHL Express on September 25.”

Apart from regional parcel carriers, the large integrators also face increasing competition from private networks like Walmart and – above all – Amazon, which keeps opening up its logistics network to third parties. The ecommerce giant has been very aggressive in its pricing strategy, Mr Sumowski noted.

Shippers are wary of giving their data to Amazon, but the pricing is attractive, as is the lack of complexity, although there are question marks over how long waivers and discounts will remain in place, Mr Yaussy added.

UPS raised eyebrows when it delayed its announcement of peak season surcharges until late August, a move that drew accusations of deliberately leaving little time for shippers to react. Mr Yaussy reckons this wasn’t intentional, but he added that there was no advantage to FedEx in unveiling looming rate hikes early. He advised shippers to expect late announcements from carriers.

The sheer number of price adjustments does not leave a lot of time between them.

“UPS has implemented more than 15 price increases this year alone,” Mr Yaussy said.

Shippers with a firm grasp of pricing and changes can save significant amounts of money, but they stand little chance to avoid the hit from charges on oversize shipments, or parcels that require special handling, one of the brackets with the steepest surcharges. For the most part, regional carriers do not accept such shipments, while Walmart and Target reportedly give them to the integrators.

“For any carrier that can figure out how to handle those efficiently, there’s a huge opportunity to take market share,” Mr Sumowski said.