How are revenues increasing when parcel volume is decreasing? Retailers are seeing mass layoffs in spite of year-over-year growth in e-commerce and freight volume continues to slide. But these conflicting signs could point to one thing: it might be an optimal time to renegotiate your parcel contracts.
E-commerce Sales Are Up. Why Are There Layoffs?
E-commerce sales were up 6% year over year last year, but that hasn’t stopped companies like Walmart and Amazon from announcing mass layoffs. It seems contradictory, but sales haven’t led to increased profits.
Inflation has been the main culprit. After all, higher prices due to market conditions lead to higher cumulative sales, but it doesn’t mean that companies are selling more products, and, in turn, earning higher profits.
In fact, evidence is pointing to a significant slowdown in e-commerce growth. UPS, for instance, had a 3% y/y decrease in the fourth quarter.
To read more about the e-commerce slowdown, click here.
Freight Volumes Remain Low, but Not for Long
Trucking freight volumes declined again in February, but experts project this is closer to the end of the downcycle than the beginning.
Last month, ACT Research, a transportation research firm, showed its Trucking Volume Index showed contraction for the 8th time in 11 months. Its Pricing Index was in the thirties for just the fourth time since its inception, decreasing to 39.3 in February.
However, because of lower volumes, the trucking market is lowering prices to attract customers and increase demand. Last month, estimated spot rates came in at 16% below fleet operating costs.
Learn more about the state of trucking freight here.
Revenues Up, Volumes Down: Takeaways from Top Shipping Index
In 2022, U.S. parcel volumes declined 2.2% from the previous year, but revenues grew 6.5%. The growth in revenue was driven by inflation and surcharges.
FedEx had the sharpest drop in volume. After the largest jump in 2021 among carriers, it had the steepest decline in 2022. Amazon’s momentum also flatlined after six years of growth.
UPS has ceded the most market share since 2016, but it’s because of a shift in strategy. Where Amazon is looking to acquire as many customers as possible, UPS has prioritized more profitable shipper segments.
Overall, volume is expected to slow at a slower rate in the next five years compared to the previous five years. Declining carrier volume could present an optimal time to renegotiate your carrier contracts to optimize your costs, as carriers are looking to increase their shipping volumes.
Read more here.
Take Advantage of Low Rates. Renegotiate Now
With demand down around the industry, carriers are looking for one thing: volume. If your current parcel contract is dissuading you from shipping, it’s time to renegotiate.
Renegotiating, even if you’re in the middle of a carrier agreement, will help you take advantage of lower rates carriers are offering to increase their own volume.
If you haven’t renegotiated before, you should read “6 Things Carriers Don’t Want You to Know About Parcel Contract Negotiation” by TransImpact’s Executive Vice President of Operations, Brian Byrd to help you know what to expect.