News / New parcel sector dynamics eroding the stranglehold of FedEx and UPS

There’s a new breed of parcel carriers that can deliver to US homes at the lowest price, with a simplified pricing structure to boot, according to Satish Jindel, founder and president of ShipMatrix and SJ Consulting Group.

He can see a fundamental and transformational shift in the parcel logistics arena: players that are not parcel carriers in their core business are overtaking the logistics specialists.

“Ten years ago, all parcels were delivered by people in the business of delivering,” explained Mr Jindel. Since then, private delivery networks have been on the ascent, a rise turbo-charged by the explosive growth of e-commerce, to the point where 65% of all US domestic parcels are delivered directly to consumers.

A large portion of this traffic moves in private delivery networks, led by Amazon, which handles over 22 million parcels a day, while Walmart delivers more than 4 million parcels daily from local stores.

Chinese e-commerce giants Temu and Shein are building networks, using predominantly small last-mile delivery firms with lower cost structures than the traditional parcel carriers, said Mr Jindel.

And he predicts this shift will eclipse FedEx and UPS, a duopoly that has dominated the parcel market. By the 2026 peak season, private fleets and local delivery companies will be positioned to deliver more than 40 million parcels a day to residences – more than FedEx and UPS combined.

While they are losing ground to these emerging delivery networks, the traditional parcel carriers are also experiencing a margin erosion. Distances are shrinking, Mr Jindel pointed out. Over the past decade, the percentage of parcels moving less than 300 miles has risen, from 45% to 68%, whereas the share of parcels moved more than 1,400 miles has shrunk, from 17% to 10%.

And as delivery distances have reduced, so has the use of premium carrier services, as consumers embraced deferred offerings, a trend matched and fuelled by improvement in ground delivery times. This latter trend started over 20 years ago, added Mr Jindel.

The impact in the sector is drastic: in the quarter ended 30 June, the US Postal Service saw expedited volumes plummet 40.7% from a year ago; UPS attributed disappointing Q2 results largely to a pronounced shift to deferred ground services; and FedEx has seen contraction in its premium segment, which has prompted a drastic reduction of its aircraft fleet.

Both trends – shorter distances and deferred services – are eroding margins for parcel carriers.

“These are the most difficult times I’ve seen in the parcel industry in 35 years,” said Mr Jindel.

And it’s not only the large integrators that are being challenged. Players that focus on the middle mile will likely have similar experiences, like Pitney Bowes, which bowed out of the e-commerce market last week to cut its losses, he noted.

Nor does he see a promising future for regional carriers striving to establish nationwide networks.

“There is no need for, say, LaserShip to be a national carrier any more,” he said. “Too many carriers are trying to be parcel carriers of the past. The carriers of today are those that can deliver to homes at the lowest price, with simpler pricing. Pricing has got too complicated. It’s starting to turn people away.”

The integrators have created arcane pricing structures, with an array of surcharges that are difficult for shippers to understand,” commented John Haber, chief strategy officer of Transportation Insight.

And Mr Jindel added: “We will see how successful UPS will be with its peak surcharge.”

In late July UPS announced surcharges for the coming peak season that usher in significant increases, and FedEx usually unveils similar surcharges shortly after its rival, as the pair tend to move in lockstep with pricing moves.

“This time there has not been a word from FedEx, so far,” he said, and predicted a lot of resistance from customers.

Mr Haber doubts FedEx will deviate much from UPS in its peak season surcharges, but he expects aggressive pricing from many regional carriers.

Meanwhile, FedEx and UPS have reportedly been discounting aggressively to beef up their parcel volumes, but this does not appear to have induced shippers to whittle down the number of carriers they are using. According to recent research by project44, retailers and direct-to-consumer companies are adhering to a policy of using multiple carriers that began during the pandemic.

The average number of last-mile carriers employed by shippers stood at 6.14 in July, up from 6.06 in the previous three months, project44 found.