In a notable shift within the shipping industry, ground parcel delivery costs are on the decline as parcel carriers like FedEx and UPS vie for customers by slashing rates. This price adjustment comes as delivery demand experiences a drop from the pandemic-driven highs, creating a favorable pricing environment for shippers. According to the TD Cowen/AFS Freight Index, the average discount per package has increased by 1 percentage point quarter-over-quarter, marking the most substantial increase in discounts this year.
The index attributes this change to the softening of parcel demand, coupled with heightened competition from regional carriers and the United States Postal Service (USPS). In response to these dynamics, carriers are increasingly leveraging pricing as a tool to both retain and expand their shipment volumes.
Shippers, eager to capitalize on these shifting market conditions, have been quick to negotiate more favorable delivery contracts. Notably, customers of UPS, such as Macy’s and Rent the Runway, have secured advantageous agreements that translate into reduced expenses. For UPS, these agreements represent a strategic move to recover from volume losses incurred during union negotiations.
The outlook for ground parcel deliveries suggests that this softer pricing environment will persist for the remainder of the year. The report accompanying the index states that the fourth-quarter rate per package is projected to decline year-over-year due to expectations of a less robust peak season compared to previous years. However, shippers are advised to remain cautious, as peak season surcharges may still apply.
In contrast, the third-quarter rate per package for express parcel volume increased year-over-year, rising by 1.4% above the January 2018 baseline. Nevertheless, this uptick marked a decline from the 3.8% growth observed in the previous quarter. The decrease in growth can be attributed to a reduction in average billed package weights and an increase in discounts offered by carriers.
As the shipping landscape continues to evolve, with carriers adjusting their pricing strategies in response to changing demand, shippers stand to benefit from reduced costs in ground parcel deliveries. However, maintaining vigilance, especially during peak seasons, remains essential to navigate the complex pricing dynamics in the industry.
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