In This Article:
In good news for brands as they handle the holiday shipping rush—discounts are holding down parcel delivery costs at UPS and FedEx, even as both logistics giants implement more assorted surcharges.
The markdowns have become more prevalent as the delivery firms endure a weak freight demand ecosystem and seek to attract more package volume and shippers into their networks—particularly small businesses.
More from Sourcing Journal
-
ThredUp CEO: Sourcing Strategy, Pricing Data Drove Q3 Sell-Through
-
UPS Forecasts Softer Peak Despite Strongest Volume Growth Since 2021
According to the quarterly TD Cowen/AFS Freight Index released in October, the ground parcel rate per package in the third quarter was the lowest it had been since Q4 2021. While the Q3 ground parcel rate per package was 20.3 percent above the index’s January 2018 baseline, it was 3.1 percentage points down from the year prior.
In the upcoming fourth quarter, the index is projected to tick up again for the holiday season to 21.5 percent, but that is still 2.3 percentage points below the 2023 quarter.
The rush to bring more shippers into the fold also comes amid pressures of a shorter holiday season, in which there is only 17 shipping days between Black Friday and Christmas—the fewest since 2019.
“In parcel, the holiday shipping season brings more wrinkles to an already convoluted pricing picture, in which low demand has carriers discounting away the effects of their own pricing changes,” said Andy Dyer, CEO of AFS Logistics. The net effect even negates the impact of various surcharge increases in some ways, the TD Cowen/AFS report said.
Persistent low demand has driven discounting to “unprecedented” levels, according to the report, with carriers like FedEx and UPS offering heavier discounts to more types of customers and on more line items.
For UPS, the company has its own dynamic pricing model that it launched in 2023, called its “pricing architecture of tomorrow,” uses modifiers that can automatically change a base price, while better aligning with the firm’s cost to serve a customer.
CEO Carol Tomé said in the company’s earnings call that the modifiers can be used to test pricing elasticity depending on the customer.
While SMBs made up 29.4 percent of total U.S. volume in the third quarter for UPS, the company has a goal to increase that number to 40 percent by 2026.
Tomé said in a first quarter earnings call in April that UPS is using its Digital Access Program (DAP) to help reach this target. According to the parcel delivery company, DAP launched a new platform called FastLane earlier this year which unlocks more flexibility for UPS to adjust rates and offer discounts on a transaction-by-transaction basis.