Focus: UPS and FedEx customers regain upper hand in delivery price battle
03/10/2023 11:00
By Lisa Baertlein
LOS ANGELES, Oct 3 (Reuters) - U.S. retailers and other
delivery customers for the first time in more than four years
are easily winning discounts from United Parcel Service and
FedEx, according to industry data and interviews with seven
professionals who advise shippers in price negotiations.
That's a sharp reversal from 2021 and the first half of
2022, when UPS UPS.N and FedEx FDX.N - awash with volume
from the early pandemic's online shopping surge - rebuffed
discount requests and cherry-picked the most profitable
customers. Now, those same companies are fighting to fill trucks
as demand shrinks.
Excluding the U.S. Postal Service (USPS) and Amazon.com
AMZN.O , UPS and FedEx dominate the U.S. doorstep delivery
sector with a share of almost 50% and combined annual revenue of
$191 billion. They have pushed through annual general rate
increases of more than 30% from 2019 to 2024, and are often
nearly lock step on pricing.
"They have to fight for every package right now, it's great
for shippers," said LJM Consultants partner Kenneth Moyer, a
former UPS pricing negotiator who now works with delivery
customers.
That's because soft demand created an environment that is
"very juicy" with opportunities for customers to squeeze out
savings, said Deyman Doolittle, co-founder of data-driven
consulting firm ShipSigma, which helps them cut shipping costs.
The consultants declined to identify their clients.
Rates for ground delivery services favored by online
retailers dipped below 2022 levels during the second quarter
and are forecast to be down for the entire third quarter,
according to the TD Cowen/AFS Ground Parcel Freight Index. If
that full-quarter drop materializes, it would be the first since
the index started collecting year-over-year data in January
2019.
FedEx in a statement said it strategically manages rates
with customers based on factors, including volume level,
business segment and shipment type.
UPS in a statement said it is not using discounts as the
sole way to win back business lost during its contentious
Teamster contract talks this summer. The world's biggest parcel
delivery firm added it is using price negotiations to encourage
attractive high-margin or high-volume customers, while
discouraging high-cost deliveries.
The new carrier stance has helped some online retailers
reduce costs, which can then in turn lower prices for shoppers.
Department store Macy's M.N and designer fashion leasing
company Rent the Runway RENT.O - both UPS customers - told
Wall Street they were reaping savings thanks to recently
negotiated delivery deals, including a 50 basis point reduction
in the second quarter at Macy's. Both declined to comment for
this story.
The swing in power dynamics has been unusually swift, said
Moyer, who said his firm recently won savings worth $6.8 million
for a UPS customer. Earlier this year that same customer saw a
request for a $500,000 discount dismissed, Moyer added, without
specifying the client.
While deals vary widely between customers, shippers
generally are reaping savings of around 8%-12% off list prices,
said Mark Taylor, senior director of transportation consulting
at Korber Supply Chain. Those discounts are similar to what
companies saw pre-pandemic.
While those savings are far from offsetting years of price
hikes, a return to past discount levels "feels like a windfall,"
said Taylor, a former FedEx Ground project manager.
THREE-DECADE MISMATCH
A yawning supply-demand mismatch is threatening to
exacerbate carrier profit pressures.
UPS, FedEx, USPS and Amazon combined have capacity to
deliver more than 110 million parcels per day while their
customers are only sending about 70 million daily packages for
delivery - the biggest imbalance in at least three decades, said
Satish Jindel, president of delivery consultancy ShipMatrix.
Third quarter ground delivery rates are forecast to fall
0.55% per package versus a the year earlier period, according to
the TD Cowen/AFS Ground Pacrel Freight Index.
While such a move may not be significant for small
companies, it can result in meaningful savings for large
customers, said Micheal McDonagh, president of parcel services
at AFS Logistics.
Discounts also are increasing for air-based express package
delivery rates, which are expected to decline 1.5% from the
second quarter but rise 1.9% from a year ago, he added.
The demand downturn hit FedEx earlier and harder than at
UPS, pricing advisers said, prompting it to begin discounting
sooner and more aggressively than UPS.
But UPS was also shoring up business ahead of the July 31
expiration of its contract with about 340,000 workers
represented by the International Brotherhood of Teamsters.
UPS added to the pressure with its fight to win back the 1.2
million packages per day that customers redirected to FedEx,
USPS and regional rivals this summer ahead of a threatened
Teamsters strike, pricing consultants said.
FedEx has said it can keep the roughly 400,000 packages per
day it added during the UPS talks without lowering prices.
But experts are skeptical, particularly as UPS offers to
cover early termination fees for customers that switched to
FedEx.
"Due to UPS's aggressiveness, FedEx is not shy about doing
what it takes to win business either," Jey Yokeley, vice
president of sales for negotiating advisory firm TransImpact.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Package delivery in the US to get cheaper Package delivery in
the US to get cheaper https://tmsnrt.rs/46xrBOz
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Lisa Baertlein in Los Angeles; Editing by Ben
Klayman and Aurora Ellis)
((lisa.baertlein@thomsonreuters.com; +1 310-491-7241; Reuters
Messaging: lisa.baertlein.thomsonreuters.com@reuters.net))