News / US parcel rates poised for rebound, but shippers can shop around

© Pattanaphong Khuankaew

Parcel shippers finally got a break last month when the US Postal Service signalled lower rates for some of its services.

However, hopes for further reductions as a result of sluggish market conditions will likely be dashed, according to parcel logistics consultants – and they expect carriers to try to push rates up again.

“Price increases will be coming, no doubt,” said John Haber, chief strategy officer of Transportation Insight, adding that he would be shocked if the integrated carriers did not propose rate increases for the coming year.

FedEx and UPS set the tone every year with price hikes announced in the autumn for the upcoming calendar year. Typically, these have been in the neighbourhood of 5%, but last year both raised parcel rates by 6.9%.

Several parcel consultancy executives are expecting to see prices rise between 6% and 10%. But the official rate increases are just the tip of the iceberg, supplemented by surcharges which tend to rise at a steeper angle. Mr Haber said almost all surcharges last year rose in double-digits.

However, there is a broad consensus that, for the immediate future, steep price hikes are unlikely, given the slow market. If anything, there may be some downward pressure.

UPS signalled last month it intended to recover business lost, because of its contract negotiations with the Teamsters Union, once an agreement has been reached. CEO Carol Tomé declared last month UPS would “leverage its new dynamic pricing capabilities”, which points to downward flexibility on rates.

And it is unclear if parcel carriers will raise surcharges for the coming peak season, or extend the period for which they apply. FedEx kicked off peak surcharges last September, a month earlier than usual.

In any case, observers expect higher prices to hit the market at the beginning of next year, pointing to the elevated costs that have impacted parcel carriers’ margins this year. FedEx recently struck a tentative agreement with its pilots’ union for a 30% rise in pay and benefits and, presumably, UPS will be looking to soften the pay rises following the current contract negotiations with higher charges for customers.

Moreover, slower business has reduced volumes the carriers are moving, which is dragging down their network utilisation, Mr Haber noted. He expects them to try to compensate for this with elevated prices.

Obviously the carriers will not be able to leverage an overloaded network this year to justify rate increases. According to most observers, the coming peak season will not generate a massive surge in volumes. Mr Haber anticipates the carriers will deploy complicated mechanisms to compute rate and surcharge levels that will make it difficult to see at a glance how far prices go up.

The carriers will likely meet some stiff resistance from shippers, struggling with elevated costs themselves. Moreover, the decline in volumes means there is capacity in the system.

“Many shippers have more options today than two years ago – they’re not as handcuffed,” Mr Haber noted. “With more capacity in the market, shippers are going to shop around.”