Three factors parcel shippers must contend with in 2024

The fundamentals of the parcel market are called that for good reason. The big picture doesn’t change a whole lot, but the devil in the details always bears watching.

In the coming year, FedEx and UPS will continue their competition for volume. Both carriers had pricing power during the COVID-19 era, but the pendulum is now swinging towards the shipper. Additionally, the Q1:2024 TD Cowen/AFS Freight Index indicates that soft volume is pushing carriers to offer discounts to dull the impact of annual rate increases and growing fuel surcharges.

^{The TD Cowen/AFS Express Parcel Freight Index will reach 1.8% in Q1:2024, reflecting a 1.6% quarter-over-quarter (QOQ) increase and a 2.2% year-over-year (YOY) decrease.}

^{The TD Cowen/AFS Ground Parcel Freight Index will reach 28.9% in Q1:2024, with a 3.7% increase QOQ but a 1.6% decline YOY.}

Shippers should remain vigilant and contain parcel costs where possible. Here are three things every parcel shipper should prepare for in the new year.

1. Disruption and change
The parcel industry’s recent patterns of change and disruption will continue in 2024. The COVID-19 pandemic caused significant shifts and increased costs in 2020 and 2021. Then — as things were returning to normal in the post-pandemic era — the possibility of a UPS strike loomed over the industry for the entire first half of 2023.

UPS hasn’t been alone when it comes to discussions with unions. FedEx currently is negotiating with the Air Line Pilots Association (ALPA), which represents its aircrews. The Memphis-based carrier has reduced flights and, along with UPS, both are looking into ways to cut costs amid lower volumes. Currently, UPS picks up packages in one truck, regardless of whether it is an Express or Ground package, but FedEx continues to use separate trucks. However, by June 2024, FedEx plans to have single-vehicle Express and Ground package pickup as part of its ongoing consolidation of operating companies.

In the meantime, both carriers changed their fuel index so that the percentage paid for fuel is higher, even as fuel prices decrease. You should be prepared for continuing fuel rate adjustments across their various services.

2. The two-carrier model: compare rates to maximize discounts
With the current industry dynamic, shippers need to have a two-carrier transportation model. It's crucial to compare carriers, especially if you ship larger packages. FedEx and UPS typically mirror each other regarding rate increases and surcharges. The 2024 general rate increase (GRI) for both companies is 5.9%, compared to 6.9% the previous year. This has been a consistent trend in the last few years. Surcharges do tend to follow a similar pattern. However, early this year, FedEx reduced demand surcharges for a few weeks. When UPS didn’t follow suit to compete, FedEx hiked rates back up.

It's highly unusual for FedEx and UPS surcharges to be the same, so it’s important to keep track of which services are cheaper at which one. Consider shifting some of your volume to qualify for new discounted tiers. However, make sure that won’t affect your existing discounts at the original carrier. If you exceed your revenue tier commitments with one carrier, consider transferring that volume to the other. You’ll receive better discounts as you reach higher tiers.

Also, expensive international services will move you into even higher discounted tiers as international rates, of course, outstrip domestic ones.

3. Contending with FedEx and UPS late-payment fees
The payment policies of FedEx and UPS have changed significantly in recent years. Both companies previously allowed a 30-day payment window and didn't consistently enforce late fees. However, each is now charging additional costs if you don’t make timely payments. UPS has followed this policy since 2003, while FedEx only began applying late fees in 2021. Today’s payment terms for both carriers have reduced the payment window to 15 days (or less). Late-payment fees have risen to 8%, a substantial jump from the 6% late fees of 2022.

It’s crucial to keep track of when you receive invoices — and pay them promptly — if you’re to avoid these costs. UPS sends invoices on Saturdays. Since they include weekends in the payment terms, that means Sunday is the first day of the payment period. However, FedEx issues invoices on any day of the week, so your due date can be somewhat of a moving target.

The ebb and flow of the parcel market will continue. Shippers must adapt to the parcel challenges 2024 will bring. By comparing carrier pricing and policies and managing payment terms, you can maintain your service levels and keep a lid on costs. Careful planning and strategic decision-making will help you handle the vagaries of the market and achieve your goals for the coming year.

Contact us and find out how NTT DATA and AFS Logistics can optimize your parcel shipping relationships to improve service, control costs, maintain service levels and satisfy customers. Our top supply chain talent, enabled by proven, leading-edge digital assets — tools, methods and content — deliver actionable insights and measurable outcomes to some of today’s largest and most complex supply chains.