A FedEx truck is parked next to a UPS truck as both drivers make deliveries in downtown San Diego, California March 5, 2013.  REUTERS/Mike Blake

Will FedEx “Me Too” UPS and add Peak Surcharges?

Ever since last week when UPS announced the “Peak Surcharges” they will be applying to various shipment types during the November/December holiday shipping season, many shippers are wondering will FedEx follow suit and add their own peak surcharges.  And, that my friends is a very good question.  Without a crystal ball it’s anyone’s guess but we thought we’d explore this issue to see if we could find any signs that would point to the decision FedEx may or may not ultimately make.

For one thing, FedEx recently reported their fourth quarter earnings and they were spectacular, with a quarterly profit of over $1 Billion; very impressive.  So what drove this huge increase in profits for FedEx; a couple of things.  First and foremost was the reporting of revenues derived from FedEx’ TNT Express acquisition.  This included restructuring charges, and $20 Million in TNT Express intangible asset amortization expenses, as well as $37 Million of integration expenses.  From there FedEx reported increased revenues of 7% on increased package volumes, as well as growth in International Export activity which contributed an additional 5% growth.  FedEx also reported that their higher profits were a direct result of higher base rates.

Higher base rates we believe were achievable through several measures FedEx has taken over the past year or so to shore up its profits, including the reduction in Dimensional Weight Divisors resulting in higher yields per package for dimensional rated parcels.  Also, the elimination of refunds for late delivered packages which had been an integral part of FedEx’ contracts with their shipper customers.  While many shippers still maintain the ability to file claims for refunds for late delivered packages, apparently, many of the new contracts Fedex is implementing contain waivers which prohibit shippers from filing refund claims for these late delivered packages.  Obviously, other cost containment initiatives FedEx has been continually implementing and improving continue to pay off.

So, with these increases in profits, will FedEx opt in on surge pricing, AKA “Peak Surcharges” or will they let UPS be the “bad guys” and try to siphon business from UPS during the peak holiday shipping season?  The reality of the matter in our opinion is that FedEx can ill afford to add significant volumes of packages during the peak holiday season as that would wreak havoc on their operations and potentially jeopardize service to their current large shippers.  In fact we believe that much of the profit FedEx has derived from increased package volume has actually come from the peak holiday periods in late November and December.

So having said that, we believe that FedEx has absolutely nothing to lose by “me tooing” the Peak Surcharges UPS has scheduled to become effective for this coming holiday season.  However, whether they do it or not remains to be seen.  Still waiting for that crystal ball.

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Customer Demand Results in Added Supply

We are all well aware of the theories of supply and demand and its relationship to costs for businesses.  Well customer demand in the package delivery arena has now caused UPS to make a significant service enhancement to their operations by providing Saturday delivery for Ground packages to compete with both the USPS and UPS rival, FedEx Home Delivery.

Retail customers can now receive Ground packages on Saturday and not have to wait until Monday to receive them.  On the other side of the coin, retail shippers can ship packages on Saturday and expect Monday delivery to next day delivery zones.  Another interesting fact is that UPS expects to add 6000 new jobs once this massive change is totally implemented, and that’s great news for the overall economy.

Want more reasons as justification for UPS to make this change; UPS expects that residential deliveries will represent more than half of their delivery business by 2019.  Saturday operations will also allow UPS to flush it’s system over the weekend before the big Monday rush of packages, so overall it’s a good move for UPS.

Expect UPS Saturday Ground delivery to roll out this month in major US cities such as, New York, Chicago and Boston.  This operational change will give on-line shoppers another reason not to go to the mall.  So the only remaining question is, when will we see Sunday deliveries for FedEx and UPS?  We suspect it may not be that far away.

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The Three Biggest Mistakes Parcel Shippers Make!

Several key factors in today’s fast-paced business world are driving the explosive growth of online shopping.  These factors, such as millennials, (and others for that matter),desire to shop on line, rather than in physical stores; the growth of entrepreneurs starting new businesses to sell just about anything online; and manufacturers needing to sell at the wholesale as well as at the retail level.

The net result of these factors and others, is more and more companies are utilizing parcel carriers to deliver their products to the ultimate consumer.  With this growth comes a need and responsibility to clearly and thoroughly understand all of the rules, regulations, rates, shipping options and legal ramifications of dealing with the parcel industry as a whole.  Today, we’d like to explain what we believe are the Three Biggest Mistakes Parcel Shippers Make.

  1. Not Benchmarking Competing Carrier’s Rates and Services– The first mistake we believe parcel shipper’s make is not understanding all of the options available to them from the ever-growing list of parcel carrier service providers.  Time and time again we witness shippers who never step outside their comfort zone to interview, review and analyze various competing carrier services to benchmark whether they have a good deal or not.  The reality is, if a shipper does not continually benchmark their services and rates they are paying, by default, they accept the status quo and oftentimes that means paying much more for transportation services than they really need to.

Yes, we thoroughly understand that switching volumes of business from a long time preferred parcel carrier may come with some implementation pain.  However, if a parcel shipper does not test the competitive waters they may be boxing themselves into paying higher rates year after year.  Another key point to take into consideration is service level comparisons.  Oftentimes, regional parcel carriers can deliver products faster in certain lanes compared to some national carriers.  What about USPS as an alternative?  This is not your father’s Post Office any longer.

Some additional food for thought; do cable companies, home alarm companies, mobile phone service providers, and other service companies charge their longtime customers more for services than they charge their new customers?  You bet they do and unless a parcel shipper analyzes all of the options available to them on an on-going basis, they will probably pay more year after year as well.  If a parcel carrier feels they have a “lock” on a shippers business, (primarily because the shipper has never utilized a bid process to evaluate the benefits of competing carriers), what incentive would that carrier have to publish lower rates?  That’s correct, absolutely none.  The fact is the incumbent carrier may turn out to be the best choice for a particular shipper, but unless that shipper benchmarks services and rates of competing carriers, they will never ever really be sure.

  1. Read The Fine Print, and More– Most parcel carriers provide their shipper customers with a pricing agreement or contract which outlines the various services to be provided and the associated rates and charges they have agreed to assess for those services.  Warning to parcel shippers!  Don’t just sign the agreement without reading it thoroughly to make sure all of the terms and conditions are EXACTLY as you and the carrier agreed to.  Here are several questions we would ask every parcel shipper who has recently negotiated a new pricing agreement or re-negotiated a contract with a parcel carrier.
  • Did you agree to a Guaranteed Service Refund Waiver with your parcel carrier sales representative?  No, then why is it now in your contract?
  • What Dimensional Weight Divisor did you and the parcel carrier agree would be published?  Is that the Divisor that is now published in your new contract?
  • Do you understand that many parcel carriers make their contracts subject to provisions of a service guide that is not a physical part of the transportation contract you are signing?
  • Do you know the parcel carriers can change the provisions of those service guides at will and do not need to specifically notify each and every one of the customers when they do?
  • Parcel carriers typically provide differing pricing incentives for various service levels, are you sure all of the discounts and incentives have in fact been published exactly as you and the parcel carrier agreed to in your negotiation sessions

Why ask these questions?  Precisely because for some parcel shippers these exact issues have arisen and many of these companies never identified them until it was too late; so our advice to all parcel and freight shippers for that matter is; Caveat Emptor, let the buyer beware!

And, one final point, a very important point; we strongly recommend that each and every parcel carrier contract, or any transportation or logistics services contract for that matter, should be reviewed by a                 qualified Transportation Attorney, before any of those contracts are signed.

  1. Continually Audit Parcel Carrier Invoices– Once the contract has been signed, all parcel shippers should ensure they have a qualified third party audit firm auditing each and every invoice to make sure the rates being charged are the rates the shipper agreed to in its pricing agreement or contract.  The auditors will also be able to file for refunds for Guaranteed Late Delivered packages, as long as the shipper has not waived their right to file such claims.

Parcel Audit firms also provide on-line access to their client’s pertinent shipping data and can even report results based on specific Key Performance Indicators (KPI’s) their shipper customers agree to.  They also provide continuous and meaningful reports on a variety of different metrics so the parcel shipper always has their finger on the pulse of what’s going on with their parcel shipping expenses.  We’ve all heard the statement, “you can’t manage what you can’t measure” and unless your firm has the technical expertise to generate this critical shipping data in-house, outsourced parcel audit firms have all the reporting power a parcel shipper would ever need.

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FedEx SmartPost Rates Will Go Up Another 8.3% In April

According to parcelindustry(dot)com, “SmartPost rates will receive a cost increase on April 27, 2015.” This will be the second increase in 2015. A General rate Increase was already implemented earlier this year. Now, an increase of another 8.3% is expected. Some shippers who have negotiated a GRI cap will be spared the full 8.3%; however they will still pay some increase.

Will UPS follow in FedEx’s footsteps?

Source: http://bit.ly/1BEHL2t

FedEx Wins Teamsters Battle At Louisville KY Terminal

Photo Credit: John Sommers II for TT

Photo Credit: John Sommers II for TT

Fed Ex wins latest battle against teamsters at its Louisville KY terminal. For more on this story, see the latest article from Transport Topics:

 

http://www.ttnews.com/articles/basetemplate.aspx?storyid=36714

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