News / US parcel delivery needs a revamp – but integrators are in the driving seat

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The US parcel delivery sector may be ripe for an overhaul, says industry consultant Satish Jindel, president of SJ Consulting, who argues that it’s time to replace some long-standing practices.

Some have been around for 40 years or more, he explained, and notwithstanding far-reaching changes in the business, like the rise of e-commerce and shorter transit time on the ground, service offerings, operational networks and technology have remained largely unchanged.

He pointed to the zone concept, first developed by the US Postal Service (USPS), and transit time commitments, which may no longer be in line with customer expectations.

Among the three national carriers – FedEx, UPS and the USPS – the latter has been the only one to realign its parcel service offering, when it combined its first class, parcel select ground and retail ground last year into the Ground Advantage offering with $100 of insurance.

“The result has been that its two-to-five-day commitment has been well received, and ShipMatrix data on millions of parcels shows it now has on-time performance approaching the 90% mark normally reserved for FedEx and UPS,” added Mr Jindel.

The integrated carriers are still offering a deferred three-day express product, although their ground service is now faster in many lanes, and at a considerably lower cost, he noted.

Mr Jindel also criticised the disappearance of service guarantees, dropped in response to the surge in parcel volumes during the pandemic which have not been restored, except for overnight express shipments – even though networks are no longer congested, he pointed out.

“Service guarantees have gone backward,” agreed John Haber, chief strategy officer of Transportation Insight.

He concurred that a lot of shippers should not be using a three-day deferred express service, but added that a viable three-day ground option was not available in all traffic lanes.

The zonal concept still makes sense to shippers, and the zones are not static, nor is pricing between postal codes. Moreover, the picture is complicated by the proliferation of surcharges, some of which are not applied universally, Mr Haber said.

“Delivery surcharges didn’t exist 40 years ago. There’s been a massive number of surcharges that have been brought in,” he added.

As for transit time windows, he argued that there was already a variety of delivery time options.

“If there is a need for different service, the carriers will do it,” he added.

The USPS had to change its service, as its first class business is dying and, while the realigned offering is more competitive, the postal agency does not have flexibility on pricing, which puts it at a considerable disadvantage, said Mr Haber.

Despite the changes at the USPS and the emergence of Amazon, today the largest parcel carrier in the US, the sector is still a marketplace in need of more competition, he explained. Whereas thousands of truckers compete for road freight, UPS and FedEx still have a stranglehold on parcel delivery. Emerging rivals, like regional players trying to set up national networks, are facing huge hurdles.

“Barriers to entry in the parcel market are high; the incumbent carriers have such a head start, and they’re good at stifling competition,” noted Mr Haber. UPS and FedEx have added penalty clauses to their contracts with shippers that, effectively, make it impossible for clients to go ‘rate shopping’, he added.

And the shift to residential deliveries has made it even harder for new players to succeed, given the higher costs associated with them, he added.

This suggests that significant change in the US parcel landscape is not likely to happen in the near term – unless FedEx and UPS see a need for it.