UPS and FedEx customers regain upper hand in delivery price battle
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[October 03, 2023] By
Lisa Baertlein
LOS ANGELES (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
and FedEx - 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, 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.
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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 and designer fashion leasing company Rent the
Runway - 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.
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![](../images/100323PIX/busine77.jpg)
A worker clears debris so delivery vehicles can exit a FedEx Ground
distribution center in this aerial photograph taken over Carson,
California, U.S., September 16, 2022. REUTERS/Bing Guan/File Photo
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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.
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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.
(Reporting by Lisa Baertlein in Los Angeles; Editing by Ben Klayman
and Aurora Ellis)
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