2024 Parcel Express Roundtable: Lower volumes, pricing shifts, and network changes define the market

To say that parcel delivery and last-mile markets have seen their share of shifts over the past few years is clearly an understatement.

The previous “boom times” we saw coming out of the pandemic in the form of increased consumer spending on physical goods, eventually gave way to a focus on more services-oriented activities and spending—which helped to serve as a driver for lower volumes, which is an ongoing issue for carriers.

That shift has turned the tables from a carriers’ market to a shippers’ market, driven by reduced package demand, which is benefiting shippers of all sizes. In turn, that’s resulted in pricing relief for shippers, as lower demand for services makes it more challenging for carriers to compete on price.

What’s more, the lower demand, coupled with the carriers’ need to keep their networks flowing, has seen the big players start to introduce some significant network changes to counter issues that resulted from excess capacity. But while there are challenges, the pricing environment remains competitive, as always, paced in large part by accessorial charges levied by carriers, requiring shippers, as always to keep a close eye on costs.

In our annual roundtable designed to keep shippers current on this dynamic market, Logistics Management is joined by a trio of leading market analysts to provide some guidance.

This year’s panel includes:

Rick Watson, founder and CEO of New York-based RMW Commerce Consulting;

John Haber, chief strategy officer for transportation and logistics services provider Transportation Insight; 

Josh Taylor, senior director of professional services for Shipware, an audit and parcel consulting services company.

Logistics Management (LM): How would you describe the current state of today’s parcel marketplace?

Josh Taylor: This year is a good time to be a shipper, especially if you’re growing. You have leverage with the carriers that you only dreamed about just two years ago. Discounts that were reserved for enterprise-sized shippers [e.g., fuel surcharge] are bleeding down to SMBs for the first time ever—although some of that is due to how much the carriers have raised their rates.

For the legacy carriers, 2024 has brought a sense of desperation. Demand remains down. Competition remains strong. UPS appears to have lost more business during the threat of the Teamsters strike than they’re willing to acknowledge on their earnings call. FedEx lost the USPS contract it had locked down for decades. And the introduction of USPS Ground Advantage, the service many believed would pull more ground business away from UPS and FedEx, wasn’t enough to make the USPS profitable.

For those carriers not named FedEx, UPS, or USPS, the drop in demand has made it harder to compete on price, as the legacy carriers increase incentives to win and retain business. For shippers, one exciting result is that more regional carriers are partnering up to survive, touting almost nationwide delivery with help from partners on the opposite coast.

Rick Watson: Over the past 12 months, we’ve seen the parcel sector showcase excess capacity with sluggish to stagnant demand. The current supply and demand imbalance will remain relevant for three to four years. The parcel market has a very uncertain future as UPS, FedEx, and the USPS seek to find demand amid Amazon’s continued impact. In 2023, excluding Amazon, the package market in the U.S. decreased by 2.4 million packages a day.

John Haber: I would say it’s somewhat in flux, more than we’ve seen over the last several years. The reason for that is volumes are down significantly from the pandemic. There was a lot of infrastructure built out and a lot of excess capacity, but that’s sort of being phased out. There’s a lot going on with FedEx’s network and USPS’s network. UPS is shutting down facilities and right-sizing its network.

You have a lot of changes that are going on, like with FedEx combining its operating units, USPS consolidating facilities, and UPS really focused heavily on healthcare. We’re just seeing a lot of changes on the network side—especially when revenue and volumes are down—and the way to hit profit targets is through cost reduction—there’s a lot of that going on right now.

You’re also seeing the regionals and smaller couriers continuing to chip away. They’re not taking huge numbers from the large enterprise carriers, but they’re taking huge numbers and growth for themselves. They’re not taking huge percentages, but for especially shorter zone distances, we’re seeing a lot more couriers out delivering parcels in major cities, and at very low rates. You’re seeing competition there, and you’re seeing Amazon continue to grow its volume, although it’s not really a viable third-party competitor yet.

“In the current climate, one would expect UPS, FedEx, and the USPS to offer lower prices to shippers to increase demand. However, a reduction in shipping costs will not increase demand. We’re seeing the exact opposite, with increased costs and carriers using surcharges to manage customer demand.” - Rick Watson, RMW Commerce Consulting

LM: Can you describe the current rate and pricing environment?

Watson: In the current climate, one would expect UPS, FedEx, and the USPS to offer lower prices to shippers to increase demand. However, a reduction in shipping costs will not increase demand. We’re seeing the exact opposite, with increased costs and carriers using surcharges to manage customer demand.

Haber: I’d say that the current rate and pricing environment has changed fairly drastically from where we were a year ago. Over the last several years, there’s been very little ability to negotiate. It was just how much of a cost decrease are you going to take, because there was just not enough capacity.

And parcel volumes spiked so drastically, changing that environment, for the most part, maybe not so much on low-density lightweight residential packages, but certainly commercial packages and also on decent density, heavier, and middle-weight residential packages. The pricing environment has gotten much more competitive. Honestly, it’s a good time to be negotiating right now.

Taylor: Base rates continue to rise at a staggering rate, but shippers are finally seeing some relief in the form of increased discounts and incentives. The carriers are getting trickier at hiding rate increases too, no longer relying on GRIs, changes to the fuel surcharge tables, or introducing new surcharges.

For example, UPS and FedEx have started applying Delivery Area Surcharges to urban and super-urban locations, and UPS is set to announce changes to their zones in June. If they shrink the zones just a little bit, it could raise rates the equivalent of a point or two on the GRI without shippers really being able to tell where it came from.

Both UPS and FedEx have started offering larger discounts to smaller shippers than ever before. It’s not only a higher percentage discount, but they’re also discounting things like fuel surcharge, that were previously reserved for much larger shippers. Interestingly, both carriers have become much stingier with rate caps, and FedEx in particular has been much more aggressive with early termination and minimum commitment clauses in their contracts.

LM: How are market conditions affecting service, and what role is the current state of the U.S. economy playing?

Haber: I would say market conditions are affecting service, but not in the way it was over the last several years, where the volume was up so high that it was causing the costs to escalate so drastically. That’s not going on right now. What’s happening is that volume has dropped considerably, and carriers are looking for ways to reduce costs. FedEx is doing this by working on redesigning its network.

UPS is shutting down facilities and turning on automated facilities, and that’s having a negative impact on service. That said, UPS’s service is still very solid. FedEx’s is still good, but it’s not as good as UPS, though, with the network redesign affecting service on that side.

The theme has been about market conditions that are affecting the service side of things. You would think that the service would be fantastic because volumes are light, but it’s not the case necessarily, due to what’s happening in these networks.

Taylor: UPS and FedEx know that operational redundancies are necessary to keep their networks flowing smoothly and their customers’ packages delivered on time. Unfortunately, for shippers, redundancies aren’t popular with investors, and investors get demanding when volume begins to drop.

Both carriers have cut heavily in this area, empowered by the continued lack of service guarantees for ground and some air/express services. In my anecdotal experience, while both shippers have created delays, it’s been most problematic for Amazon sellers shipping UPS. I’ve seen multiple accounts lose their Prime status—and hundreds of thousands of dollars a day in topline sales—due to UPS service failures at multiple sites across the country.

The drop in demand has also prompted UPS and FedEx to increase incentives to win and retain business. Not only does this reduce their profitability, it also makes it harder for shippers to justify taking a risk on a regional carrier or postal expediter. Many regional carriers are adding value by expanding their delivery footprint, either through acquisition or partnership.

Watson: John and Josh are both spot-on. It’s also worth noting that UPS and FedEx have conducted multiple layoffs in the past 12 months to reduce staff numbers and right-size the businesses. FedEx announced in 2022 DRIVE, a holistic campaign to root out $4 billion in structural and overhead costs by 2026.

Leadership also acknowledged that operating three separate networks for express parcel, deferred parcel, and freight shipments was uneconomical. Integrating people, facilities, and technology across those divisions is underway and expected to deliver $2 billion in additional annual savings.

While UPS has increased the salaries of staff, it mainly was a negotiation tactic with unions to ensure service continuation, but it did lead to layoffs. Service levels have decreased as more work is being done by less staff. Carriers have also largely dropped service guarantees, except for overnight express shipments. Integrated carriers are still offering a deferred three-day express while shipping goods faster.

LM: How are the more established carriers adjusting to the ongoing influx of new, last-mile competitors?

Taylor: UPS and FedEx began changing to zone-based published rates a few years ago, with additional handling and oversize/large package surcharges leading the way. It’s also becoming increasingly common for net rate structures to discount more heavily on the closer zones, while making up for the lost revenue through higher prices in the longer zones.

“The theme has been about market conditions that are affecting the service side of things. You would think that the service would be fantastic because volumes are light, but it’s not the case necessarily, due to what’s happening in these networks.” - John Haber, Transportation Insight

For example, the minimum charge for a Zone 2 shipment was usually the same minimum applied to Zones 3 to 8+. In 2024, it’s very common to find the minimum charge climbing with each successive zone.

Watson: Carriers are losing shippers to last-mile competitors who are able to offer lower pricing and faster service due to the use of gig economy staff to deliver goods to the final destination. Specific sectors such as retail and e-commerce are utilizing a combination of established carriers and last-mile providers to enable customers to access their purchases at a time fit for them.

LM: How do you view where Amazon is now for both parcel and last-mile services and where may it be headed next?

Watson: Amazon has remained steady at shipping 4.8 billion parcels annually and has changed to a regional model to ensure goods are closer to consumers, which can enable faster delivery. It will help its sellers ship goods to other platforms to increase the volume of parcels shipped by Amazon.

Amazon has also streamlined operations in the U.S. by prioritizing larger planes and major hubs to enable faster moving of goods between locations. Amazon is also moving up channels to move goods from manufacturers to its warehouses and regional warehouses, which will ship items to consumers.

Haber: Amazon is by far the largest parcel delivery provider, much bigger than UPS and FedEx, but it’s still not a viable competitor to UPS and FedEx in terms of being a third-party, facility, pickup and delivery provider and having a whole host of menu solutions where shipping with Amazon is the same as UPS and FedEx.

Amazon has so much volume internally, and they’re doing their fulfillment. But as far as going out and running a $100 million parcel bid and bringing in Amazon to bid on it against UPS, FedEx, USPS, and DHL, Amazon’s not invited to that bid—they’re just not there yet.

Taylor: As Rick and John mentioned, Amazon is the undisputed king of last-mile services, delivering more packages than either UPS or FedEx. Soon, they may deliver more than both providers combined. As a common carrier however, they are still very small. Amazon reintroduced a cheap two-to-five-day parcel service in 2023, after scrapping its initial trial in 2020.

The delivery territory is large, but the pickup territory is still very limited. If it continues to offer cheap and simple rate structures as it expands its pickup territory, it could become a popular service among smaller shippers, even if it doesn’t meet Amazon Prime requirements.

This is a relatively low-margin business by Amazon’s standards, so while they could expand quickly if they wanted to, I predict a relatively slow expansion of common carrier parcel services.

LM: Do you think the USPS has made strides as a parcel carrier over the last couple of years, based on its 10-year Strategic Plan and the Postal Service Reform Act?

Haber: I do think that USPS has made a lot of progress, and I do think that the network rationalization is necessary. But the question is: How is the execution going? We’re seeing in Houston and Atlanta that it’s not going very well. There are some things that need to be fixed, certainly on the labor side. Postmaster DeJoy has a very difficult job, and I think he’s made a lot of progress, but the execution issues need to get quickly fixed.

Taylor: Yes, I too believe that the USPS is making some very wise decisions. I don’t endorse all of them, but combining services to create Ground Advantage was good branding and a smart way to eliminate unnecessary costs that were not leading to more market share.

Watson: I’ll add that the future of the USPS success relies on increasing package delivery volumes to American households and businesses. Prior to the pandemic, they delivered a record 6.5 billion packages in fiscal year 2019, increasing to 7.9 billion in fiscal year 2021, and 7.6 billion in fiscal year 2022.

The USPS has seen an increase in package delivery speed, with 99.9% of packages delivered in less than three days. This is due to strategic infrastructure investments, including the purchase and installation of 249 new high-speed package sorters between 2020 and 2022.

These machines have increased the daily processing capacity to 60 million, more than 10 million times the peak season volume, and currently exceeds the daily number of packages being shipped across the nation.

“The carriers don’t have the power they had just two years ago. Don’t be afraid to ask for more. Get competing bids. And don’t hesitate to switch if one carrier offers far better rates than the other. It doesn’t matter that you just negotiated a year ago, negotiate again now.” - Josh Taylor, Shipware

LM: How are parcel carriers and service providers viewing the need for increased investment in things such as automation, digital technology, and AI in order to drive operational throughput and productivity, as well as from a service perspective?

Watson: We’re seeing the beginning of carriers and service providers increasing the investment in automation, robotics and artificial intelligence as currently the bottom-line financial impact is unknown. Carriers and service providers generate data daily such as delivery attempts, loss frequency, and returns which can be used to lessen the impact of theft or shipment loss.

They operate in environments that also are described via data, such as weather, that can be utilized to provide better and improved services to consumers. This same technology can be utilized to match lesser demand with supply, but also move parcels to more automated facilities to drive
better unit economics.

Haber: We are absolutely seeing investment in automation. That is the future of parcel, and is what scares labor and the Teamsters, because there are a lot of new facilities that are much more highly automated. There is now AI in warehouses and on trucks and in delivery and on assets. Carriers are pouncing on it and betting on it to drive the shareholder return that is expected.

Taylor: Traditionally, employees have been the most expensive recurring cost in every network. Technology is viewed as the answer to the rising costs of a human workforce. Carriers are investing billions of dollars to reduce the number of times a human touches a package between pickup and delivery, relying instead on automation and AI to do the job more cheaply and accurately.

The value of small efficiencies adds up quickly, with tens of millions of boxes surging through these networks on a daily basis. Investors expect to hear about new and creative ways carriers are applying AI, and I’m sure they won’t disappoint.

UPS retains a very expensive union workforce, and regardless of what anyone thinks about the value the Teamsters bring, the fact remains that UPS will pay a premium for its human workforce compared to FedEx and Amazon. As FedEx merges its Express and Ground networks, it will be interesting to see if a grassroots push for unionization emerges, or even another attempt by UPS to get FedEx reclassified under the National Labor Relations Act.

LM: What advice do you have for parcel shippers in 2024?

Haber: Take a very close look at your costs and analyze how much your costs have risen over the last five years. You need to build a business case and really look at how it [costs] affected your business. The opportunity to renegotiate and recoup some of those costs is out there.

Shippers should also capitalize on the overall marketplace right now and also be looking at risk management strategies, in terms of how they should be diversifying things like carrier pay. Examining costs, looking for opportunities to save, and continuing to diversify the portfolio of providers you have access to helps to lessen the risk, especially for larger shippers.

Taylor: We all know people—maybe you’re one of them—who had enough free cash flow during the housing crisis to buy up a number of distressed properties. Many of them still enjoy passive income from these timely purchases. Similarly, we may look back on 2024 as the year when shippers that were well positioned for growth negotiated the best pricing seen in over a decade.

The carriers don’t have the power they had just two years ago. Don’t be afraid to ask for more. Get competing bids. And don’t hesitate to switch if one carrier offers far better rates than the other. It doesn’t matter that you just negotiated a year ago, negotiate again now.

Also, don’t rely on your carrier rep to understand the differences between carriers. For example, measure delivery time in calendar days. UPS often uses business days, while most others use calendar days.

This can lead to UPS promising to deliver a package in three days, and the package being delivered “on time” five days later. It’s not a valid comparison—and it’s just one of the reasons why “on-time delivery percentage” doesn’t actually tell you which carrier is faster or more reliable.

Watson: Parcel shippers should continue to ensure that they have redundancy in order to counter surcharges from specific carriers. Amazon sellers should kick the tires or investigate the opportunity to utilize Amazon logistics services to ship goods for other platforms fulfillment.

Finally, shippers need to prepare for an environment where fixed rate contracts are not the norm. UPS has already promised and is starting to experiment with dynamic pricing.

This will be table stakes at all carriers and shippers going forward. Amazon has historically offered consumers credits and incentives to ship on your “Amazon Day” to increase both parcel and route density.

While the other carriers don’t have access to consumer incentives, merchant incentives and penalties will exist for merchants to pass along savings to consumers, or for the shippers to pocket margin gains.