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UPS Maintains Guarantees For Certain Shipments

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UPS has announced that it will maintain its Money-Back Guarantees for peak-season deliveries of Next-Day Air shipments in domestic and international commerce.

This latest move by UPS is exactly the opposite of the decision by rival FedEx which said they will suspend their money-back guarantees for peak-season deliveries of air express shipments within the U.S. and for export from the US.  The FedEx suspension will be in place for the period from Dec. 13, 2022 to Jan. 2, 2023.

UPS’ Money-Back Guarantees for expedited international deliveries typically depend on the distance and the time zones separating the origin and destination points. For example, a package shipped on the evening of Nov. 29 from UPS’ main global air hub in Louisville, Kentucky, and bound for Cologne, Germany, (the carrier’s European air hub), will be guaranteed if the package arrives on Dec. 1 either by 2 p.m. or by the end of the day, depending on the air service selected.

For decades, FedEx and UPS offered money-back guarantees on late or missed deliveries for most  services , as long as affected shippers could provide sufficient proof of the original service commitments.  However, both carriers suspended all money-back guarantees during the spring of 2020 as pandemic-related changes in buying behavior sent delivery volumes spiking and made it impossible for the carriers to honor all of their guarantees. Both service providers subsequently reinstated their Money-Back Guarantees for Next-Day Air services. However, neither company has reinstated their Ground Service Guarantees.

Because ground deliveries are relatively low margin, the carriers have no financial incentive to restore money-back guarantees for this service,  and risk relinquishing already thin profits.  Over the past several years, both parcel carriers have been placing provisions in their customer contracts to eliminate any Money Back Guarantees.  Many customers have taken exception to those provisions as they feel they will lose sight of the overall service they are receiving.  Many are at least opting for maintaining exceptions for Next-Day Air Services, since these shipments are so much more costly.

Most industry experts don’t expect FedEx or UPS to fully restore service guarantees, partly because there is no overwhelming  pressure from the market to do so. In addition, it can be costly and time-consuming for shippers to scour numerous invoices to unearth the proof the carriers generally require to issue a refund.

The good news is that Third Party Parcel Audit Service Providers (like ICC Logistics!) have the expertise to perform all of these service audits and typically only charge their customers a percentage of the actual refunds received and without any up-front costs.

Therefore, any  shipper that ships a decent amount of volume should surely consider on-boarding an outsourced Parcel Auditing process to recover these lost revenues.  There really is no down side to this!

USPS Announces New Prices for 2023

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A recent announcement from the US Postal Service claims that it offers some of the lowest shipping rates in the mailing industry and is a great value to reach the more than 163 million delivery points they service across America.  To highlight this announcement, the USPS is reporting the following:

  • No price increase for Parcel Select Ground which, coupled with our recently improved service standard to 2-5 days from 2-8 days, offers a reliable and economical option for shippers
  • No price increase for USPS Connect Local, which gives businesses of all sizes the ability to reach local customers at affordable rates
  • Reduced pricing for some Retail Priority Mail Flat-Rate products below the temporary price currently in place
  • Priority Mail Commercial rate to increase by 3.6 percent, well below the rate of inflation

So that’s the good news.

And then there is some mixed news as well.

The U.S. Postal Service has filed notice with the Postal Regulatory Commission (PRC) today of price changes for Shipping Services to take effect Jan. 22, 2023.

These proposed prices were approved by the Postal Service governors. Notably, there is no price increase for Parcel Select Ground, which continues to be a reliable and economical shipping option. The pricing for USPS Connect Local will remain unchanged. This service provides businesses with an affordable same-day and next-day delivery for their local customers.

In addition, some Priority Mail flat-rate retail product prices will be reduced compared with the temporary rate adjustment currently in place, and Priority Mail commercial rates will increase by only 3.6 percent, well below the rate of inflation.

Overall, Priority Mail service prices will increase approximately 5.5 percent, Priority Mail Express service prices will increase by 6.6 percent, and First-Class Package Service prices will increase by 7.8 percent. The PRC will review these price increases before they are scheduled to take effect, but you can expect them to be approved without change.

Shipping Services price adjustments will vary by product. Although Mailing Services price increases are based on the consumer price index, Shipping Services prices are primarily adjusted according to market conditions. The Postal Service governors evaluate shipping rates and fees and adjust them when needed, as part of the Postal Service’s 10-year “Delivering For America plan” which is designed to reverse a projected $160 billion in operating losses over the next 10 years.

The Postal Service’s often heard “public service announcement” states the following:

“The USPS has some of the lowest letter mail postage rates in the industrialized world and also continues to offer a great value in shipping. Unlike some other shippers, (the proper description is Carriers and not Shippers, btw), the Postal Service has upfront pricing and does not add surcharges for residential delivery or regular Saturday delivery.  The Postal Service generally receives no tax dollars for operating expenses and relies on the sale of postage, products, and services to fund its operations.”

Here are the proposed domestic Priority Mail Flat Rate retail price changes for 2023:

ProductCurrentPlanned Change
Small flat-rate box$10.40$10.20
Medium flat-rate box$17.05$17.10
Large flat-rate box$22.45$22.80
APO/FPO large flat-rate box$20.95$21.20
Regular flat-rate envelope$9.90$9.65
Legal flat-rate envelope$10.20$9.95
Padded flat-rate envelope$10.60$10.40

The complete Postal Service price filings with prices for all products can be found on the PRC website under the Daily Listings section at prc.gov/dockets/daily. For the Shipping Services filing, see Docket No. CP2023-42. The Postal Service provides additional resources to assist customers regarding the price changes. These tools include price lists, downloadable price files and Federal Register Notices. This information will be available on the Postal Service’s Postal Explorer website at pe.usps.com/PriceChange/Index on Wednesday November 16, 2022.

Supply Chain Disruptions to Continue

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Why Preparation is Key and 6 Tips to Help You Navigate What’s Next

In a recent blog post we addressed FedEx and their financial and delivery woes.  Today, we dive deeper into the Supply Chain to give us a glimpse into the future.  In an October 27, 2022 article, CSCMP, (Council of Supply Chain Management Professionals), quoted an SAP survey stating 52% of US-based senior business decision makers said their supply chains still needed “much improvement” and 49% expected these issues to last until the summer of 2023.

We certainly agree; between the political unrest in the world, a shortage of raw materials and rising fuel costs, supply chain disruptions will continue to be a major issue for companies and consumers.  Take the auto industry for example.  Without computer chips, they cannot deliver cars.  Combine that with the rising cost of pre-owned cars, prices are soaring and delivery times are lengthening.

Covid-19 created an absolute explosion of Business to Consumer shipments which UPS obviously capitalized on.

Another example is the housing market.  With limited inventory for sale, prices climbed 20-30% during the pandemic.  Buyers were paying as much as $100,000 over asking, with a line of buyers right behind them willing to meet the price.  You would think, with the limited inventory, new construction would be up, but the cost of raw materials and the availability of getting them has slowed the new housing market.  A friend recently ordered a new refrigerator and was told 10-12 week’s minimum before delivery.

And the supply chain shortages aren’t just about products, it’s people too.  With the “Great Resignation,” we continue to face a major labor shortage. Unemployment is low with more jobs than people and yet companies can’t find the right people for the jobs they are seeking to fill. This puts pressure on wages to rise and prices to increase, resulting in inflation, lower profits and ultimately workforce reductions.  Specifically add to these the shortage of drivers and we are living the perfect storm and a vicious cycle.

During this election cycle, the economy was the #1 concern for voters. The SAP survey highlighted a big concern for increased prices leading shoppers to reduce their planned holiday spending. But this might be what economists were aiming for, a slowing down of the economy with the aim of avoiding a recession.

What can Supply Chain Executives do?

  1. Build strong(er) relationships with your current suppliers
  2. Increase and Capitalize on your Spend Influence
  3. Modernize your procurement process (digital transformation)
  4. Improve your analytical and reporting capabilities
  5. Be agile and willing to change where needed (have contingency plans)
  6. Minimize Risk and Show Stability

As people shift further and further to online shopping, things like speed of delivery, product availability and price reductions will weigh heavily on their minds.  Shoppers see the only solution is to buy early so companies need to plan ahead.  Once the model of most companies, “Just in Time” is rapidly changing to “Just in Case.”  The fact is, those with inventory will ultimately get the sale.

In the end, we believe “Inventory will be King”. Shore up each segment of your supply chain and be prepared for a rough ride.  We realize our message is at odds with itself, increasing inventory while reducing costs is hard to do. It might be too late for this holiday season, so start building inventory now to prepare for future near-term sales tomorrow and through 2023.

The need to continually focus on the Big Picture is critical for success.  Plan properly; Execute flawlessly, validate continually, Modify when necessary.

Need help with your Big Picture?  Our Supply Chain and Logistics Executives are here to help your company achieve all of its goals.

FedEx Truck Drivers Furloughed!!??

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For years now we have heard about a truck driver shortage, so to hear from FreightWaves that FedEx Freight, the less-than-truckload arm of FedEx Corp. and the nation’s largest LTL carrier, is reporting it will furlough an undetermined number of drivers starting in early December, is a staggering commentary.

So if anyone has any doubts about an impending business slow down, AKA recession, here is all the proof you will need.   

According to FedEx, the furloughs are scheduled to last about 90 days, during which time affected workers will continue to receive health benefits and will be allowed to file for unemployment benefits in their respective states of residence. Some eligible employees will be offered permanent transfer opportunities to other markets that have hiring needs, the unit said in a statement.

The furloughs are expected to affect a small number of drivers, and not all facilities will be targeted, said Miranda Yarbro, a FedEx Freight spokesperson. The furloughs will be voluntary, Yarbro added.

“Because of our previous experience with furlough and with the incentives we are offering, we are expecting employees to volunteer to meet the business need,” Yarbro said in an email.

The unit employs about 45,000 people. It was not immediately clear how many drivers it employs.

The action was taken in response to slowing macroeconomic conditions that have impacted LTL demand in recent weeks, the unit said. The LTL segment, which has shown very strong growth coming out of the pandemic, has seen volumes level off recently due to economic uncertainty caused by high inflation and recession concerns.

FedEx Freight has been the best performer of FedEx’s (NYSE: FDX) three transport business units. Its two larger units, FedEx Express and FedEx Ground, have been hurt by high costs and slower-than-expected demand. FedEx Freight, by contrast, has focused on profitable growth and has been willing to shed unprofitable tonnage to achieve that goal.

In its fiscal 2023 first quarter, which ended Aug. 31, FedEx Freight’s operating income increased 67%. The gains were driven by actions to improve shipment yields, as well as the positive impact of higher fuel surcharges, the parent reported.

So if the freight division, FedEx’s best performing division is having financial difficulties, just think of the impact it could have on FedEx’s overall operating revenues.

Need help navigating what’s to come? Don’t hesitate to reach out to us. We’re here for you every step of the way.

New COVID-19 Outbreaks in China

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The following China regions, Qingdao City, Shandong Province and Henan Province, are experiencing new Covid 19 outbreaks and have resulted in corresponding shutdowns.  These recent shutdowns have resulted in the following:

  • Factories in the regions are locked down and inactive
  • Outbound freight from those affected factories is currently halted
  • Bookings meant for those outbound goods have obviously been cancelled

While no one can anticipate how long these lockdowns will last, shippers need to remember that China’s Zero COVID policy is still active and sudden disruptions will continue to unexpectedly occur as long as that policy remains in place.

Therefore, it is possible that these current shutdowns or later shutdowns could result in longer than average ocean freight delays, which could compound the current situation on U.S. railways. Additionally, since a labor agreement has not yet been reached, it is also possible that the ILWU leverages these shutdowns or future shutdowns, which could result in severe backlogs and/or a shortage of carrier space and equipment.

As a result, we are advising all companies affected by these continuing shutdowns to be prepared to make adjustments to ensure the fluidity of their supply chain, including adjusting supply chains to address both short-and-long-term needs.  Supply Chain disruptions, as we all know now are part and parcel of the “new norm.”

Reach out to us for more information.

GLOBAL SHIPPERS’ FACE ROUGH WATERS AHEAD

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What do global shippers have to look forward to during the last quarter of 2022?

And, what’s in store for them in 2023?

First and foremost is a real threat of a recession. 

The fact is that some financial experts have claimed we are already in a full blown recession.  The 4th quarter of 2022 also promises continued high inflation, including rising fuel prices, as well as rising interest rates which will surely continue into 2023.  When you add all of these financial woes together, you can see why global shippers are really concerned, not only about the fourth quarter of 2022, but what this means for their businesses in 2023 as well.  

Some interesting facts that have added to this concern is the operational and financial troubles at FedEx impacting the global shipping market. With major service and labor issues as well as declining revenues, FedEx is significantly increasing costs for their customers. Their 2023 General Rate Increase, as well as their Peak shipping season surcharges will certainly have a negative financial impact on their customers.

 

With all of this “noise” out there, we are constantly looking at the trends to best advise our clients in preparing for the future.  Much has been written about FedEx’s problems.  In a recent Bloomberg article (Thomas Black, Sept 16, 2022), the headline reads “FedEx’s Problems Are About FedEx, Not the World”.  But let’s face it, that headline in our estimation is very misleading.  The fact is that FedEx’s problems do affect the “world” FedEx plays in and obviously their problems will have a significant impact on their global shipping community.  

One major issue with FedEx is their 2 separate operating units; FedEx Ground and FedEx Express. Ground primarily hires independent contractors to handle packages from sorting facilities to final destination, what we call the Final Mile. This unit struggles with operational inefficiencies and has seen profit margins decline for years.  The recent worker shortages, continued pressure from the government, both federal and state to change employment status from independent contractor to employee have only exacerbated the problem.  On the other hand, the Express unit or overnight deliveries has never been very profitable.  Some have suggested combining these units would improve efficiencies and should reduce costs, but that remains to be seen, even if FedEx would entertain such a decision.

UPS recently announced its 2023 General Rate Increases and we had estimated they would be an average of 6.9%, just as the GRI FedEx will be implementing.  We were right.

And, let’s not forget there is a real threat of a strike at UPS sometime in mid-2023 as the Teamsters Union continues to point to taking a hard line on bargaining with “Big Brown.” How will UPS’ “Better not Bigger” strategy hold up during those negotiations is anyone’s guess.  

To start, the union is obviously well aware of the excellent financial position of UPS, especially over the past several years under their new CEO Carol Tome.  With significant growth in UPS’ bottom line, the Teamsters will definitely attempt to use this unprecedented growth to their advantage in their upcoming contract negotiations.

Other issues affecting global shippers for the past three years is China’s policy to end Covid-19 outbreaks by shutting down city after city after even a minor Covid breakout.  This will continue to cause production and shipping nightmares for global shippers.   

Global shippers that single source their business, especially with FedEx or UPS for that matter, might consider looking into other competitive service providers to protect themselves against these real potential service disruptions.     

In our opinion, it’s a foregone conclusion that both FedEx and UPS shippers are nervous and will be tempted to look at other shipping alternatives available to them. 

However, do they really have good alternative shipping options available? We think not. 

Certainly the upcoming peak shipping season will make it virtually impossible to move large volumes of business seamlessly as has been the case over the past several years.  

All of this leads to the inevitable; increased shipping costs, and the potential for unexpected service interruptions.  So global shippers will just have to lash themselves to a tree and ride out the storm. But it’s not all bad news.  Having a trusted advisor by your side during tough times is critical. 

As always, ICC is here to assist you in navigating these muddy waters.  Contact us today to learn how we can help you navigate and be in the best possible position for these unprecented times. 

Looking to negotiate better rates?  Make sure you read our latest white paper, the 7 Critical Mistakes Shippers Make and learn how to avoid common pitfalls and take back your negotiating power.