Adapting to Change: How Parcel Carriers Navigate a Shifting Landscape Amid Declining Demand

Major parcel delivery services like United Parcel Service (UPS), FedEx, and the U.S. Postal Service are bucking their usual trend of raising prices during peak seasons. In a surprising move, these carriers are offering various discounts and other cost-saving measures to their customers, as indicated by businesses who have had discussions with sales representatives from these companies.

This comes ahead of what experts predict will be a weak holiday shipping season, signifying a larger slowdown in demand for goods that affects every part of the global supply chain.

According to ShipMatrix, a company specializing in analyzing parcel-shipping data, this downturn in demand isn’t trivial. Satish Jindel, the president of ShipMatrix, stated, “It’s not going to be a good peak. People are spending money on things that we don’t transport.” The firm estimates that carriers will deliver around 82 million parcels a day during the forthcoming peak holiday season, which is markedly less than last year’s average of 90 million parcels a day.

This declining demand isn’t just restricted to the parcel delivery industry. Businesses in the sectors of clothing, electronics, and other consumer goods have also reported cooling demand.

The shipping rates for containers crossing the Pacific or heading from Asia to Europe have similarly fallen, reflecting a comprehensive slowdown in the movement of goods.

The current landscape sharply contrasts with conditions from just a year ago. Previously, UPS and FedEx wielded greater pricing power and prioritized higher-margin parcels over sheer volume. Contributing factors like a shortage of truck drivers and high demand for overnight plane deliveries have now receded.

Adding complexity to the market, there are now more options for businesses needing shipping services. With the logistical constraints of previous years, companies have been more willing to consider other carriers like DHL, OnTrac, and the recently re-entered Amazon Shipping.

These competitors have been tempting businesses with more attractive rates and fewer surcharges, resulting in greater competition and customer choice.

One specific example of this shift in loyalty is Olio2go, a food-products distributor. Luanne O’Loughlin, the manager at Olio2go, mentioned that her company has increasingly used the Postal Service’s ground-shipping option instead of UPS due to the cost advantages, which have ranged between 10% and 40%.

This resulted in USPS handling 35% of Olio2go’s parcels, a significant increase from the prior 10%.

The U.S. Postal Service has also decided not to impose any holiday surcharge this year. This surprised many in the industry, especially when compared to last year when the surcharge ranged from 25 cents to $6.50 per parcel.

FedEx and UPS, while maintaining some form of demand surcharge, are still reducing those fees compared to last year. ShipMatrix estimates that only 1.75 million packages a day will incur these surcharges during the peak season, which is about half as many as last year.

This move toward customer-friendly pricing isn’t solely about capturing more of the market. Glenn Zaccara, a UPS spokesman, clarified that while they do offer sales teams the latitude to negotiate prices, they aren’t specifically using discounts to win back volume. He stated, “We are pricing according to demand and capacity in the market.”

In the midst of this, UPS and FedEx have announced that their general rates will increase by 5.9% next year, which is actually a decrease compared to this year’s record 6.9% hike.