Optimize Your Parcel Shipping

Exploring the Impact of UPS and FedEx Financial Challenges and Unveiling New Avenues for Shippers

Back in October, we released a blog which described why conditions in the Parcel market made it attractive for shippers to renegotiate their Parcel agreements. At that time, both UPS and FedEx were pushing to increase volumes in their networks in advance of peak season. Based on our long term experience and unique insight, we felt that this battle for packages would drive deeper incentives for shippers, and from what we can tell, it did. 

Some shippers have informed us that during the fourth Quarter of 2023, they received offers from the carriers that included discounts and incentives that were significantly higher than offers they had received in the recent past. Some of these offers resulted in shippers moving volume away from their incumbent carrier. So, it did appear that the time was ripe to try to reduce costs. 

But in a few short months it appears that things could be changing. Earnings announcements by FedEx and UPS were quite negative, and have led to stock price declines for both. Last month FedEx announced earnings and revenue results that fell short of expectations. Last week, UPS also announced bad results. They outlined plans to reduce 12,000 jobs to help offset their declining revenues. 

So what does this mean for the Parcel Industry? Could the window of opportunity to reduce Parcel shipping costs be closing so quickly? What should shippers do to keep the window open? We will answer all of these questions for you today.

Impact of UPS and FedEx Challenges

Our opinion is that the bad financial results reported by the major carriers will result in a pullback in discounting by the major carriers. Prior to peak, the big carriers needed to “buy volume” to help fill their networks. This resulted in more aggressive pricing and discounting. Both carriers were willing to reward shippers for onboarding volume quickly before peak, even offering signing bonuses to some to encourage fast conversion. 

For the coming months, we anticipate that there will be a more conservative approach to pricing by the big guys. Both carriers are in cut back modes, so they will be attempting to improve profit margins through cost reduction including the announced layoffs, moth balling planes and other equipment, along with adjustments to operational plans. We feel that this could be coupled with less of an appetite to offer aggressive discounts/ rates along with less flexibility with customer agreements. 

What options do shippers have?

In the past, when the big carriers pulled back on discounting, there were not many options for shippers. The ability to reduce costs was often limited. Shippers that attempted to renegotiate their agreements when carriers were in “margin protection” mode, were not likely to experience major pricing improvements. Incumbent carriers might have offered to lock in rates, or extend rate caps for future years. Shippers were sometimes offered increased or new discounts on services/accessorials that they did not use that often. 

Well the good news is that there have been major changes in the Parcel market landscape in recent years. We have seen many new players enter the Parcel arena within the last five years. We have seen Regional Carriers expand and merge creating viable competitors for the two Parcel giants. 

Many new First Mile, Middle Mile, and Final Mile delivery companies have emerged. Many of these companies have developed solid on-time performance, improved time in transit and continue to expand their serviceable zip codes at a rapid pace. We also feel that strategic mergers in this space could create even more full scale competitors for the big guys. 

Next Steps

So, now that you understand the lay of the land as well as potential options, the million-dollar question is what do you do? Here are some of the questions that you might be asking yourself;

1. Should I attempt to engage with one of the now well established Regionals and or one of the other newer startups in the market? 
2. If yes which ones?
3. How do I know which start-ups have the best capabilities?  
4. How will I know how to split up my volume between the large integrated carriers, Regionals, and smaller First/ Middle/ Final Mile carriers to drive maximum savings?
5. What impact will this have on service to my customers? 
6. Will my existing shipping/ label creation processes be able to support these new carriers? 
7. Will I need to continue to use UPS or FedEx for a portion of my volume? 
8. If yes, how much and where?
9. Do I really need to consider the use of other carriers, or would it be possible to reduce my cost and stay with my incumbent carrier?

For some shippers the challenge and complexity of answering these questions will discourage them from making any changes. Many shippers are faced with the reality that they do not have the time to do the research, or resources to perform the analysis associated with trying to reduce costs, or make carrier changes. Let’s face it making carrier changes can be a risky proposition. Making the wrong decisions could cost a company a lot of money, or cost someone their job!

The unfortunate result of this is that many shippers and individuals will chose to accept the status quo. They may just try to figure out a way to absorb the never ending carrier rate increases. This might involve raising prices of their products, or increasing shipping costs for customers. Some might even choose to take a hit on their profit margins! But do any of these approaches really make sense? All of these could result in lost customers, lost revenues, and even worse… LOST PROFITS!

The bottom line is that accepting the status quo should be the last thing that you are doing. There is no need to feel overwhelmed by the challenges associated with assessing your Parcel carrier options. There are companies that have the resources and capabilities that can simplify the process of driving cost control and cost reduction. A lot of the heavy lifting associated with answering the questions above has already been completed. 

Ready to seize the opportunities and overcome challenges in the dynamic Parcel Market? Connect with us today to explore tailored strategies for optimizing your shipping costs, navigating carrier options, and ensuring your company emerges as a hero, not just in the face of change, but as a pioneer of increased profits. Let’s embark on this journey together—because the status quo is the last thing your business deserves. Contact us now to revolutionize your Parcel strategy!