This week in parcel UPS and FedEx begin their Demand Surcharges, shippers gain the competitive advantage, and freight’s rebound is within sight.
Demand Surcharges are here
UPS and FedEx have announced their Demand (a.k.a. Peak) Surcharges that will extend into January 2024. As expected, the two carriers have raised prices on all demand surcharges. However, there are surprises within the increases.
Both carriers have higher rates for shippers who have the lowest surges during peak season. Additionally, one carrier’s Additional Handling and Oversized surcharges see extreme increases from last year.
You can read our analysis on FedEx’s 2023 Demand Surcharges here, and our analysis on UPS’s 2023 Demand Surcharges here.
Customers hold the upper hand in negotiations with UPS and FedEx
After four years of carriers holding the upper hand in negotiations, the tides have turned. FedEx and UPS are now fighting for what was endless volume just last year, giving shippers the power in negotiations.
The swing in supply and demand is the biggest imbalance in the last thirty years. Carriers, including UPS, FedEx, the USPS, and Amazon, can deliver 110 million parcels daily, but shippers are only sending out roughly 70 million.
To attract demand, delivery prices dropped below 2022 levels in the second quarter and are projected to be down for the entire third quarter, which would be a first since the TD Cowen/AFS Ground Parcel Freight Index started in January 2019.
Our take: These findings confirm what we’ve been saying throughout 2023. There’s never been a better time to renegotiate your small parcel contracts.
Read more here.
Transportation prices are still declining, but an increase could be within sight
Freight prices continue to fall, but the rate of decline is lessening. Year over year, freight costs are only down one percentage point.
Capacity expanded for the second month in a row, further suggesting growth in the industry. With the fourth quarter already here, it’s unlikely that freight would regress unless there were a major work stoppage or a government shutdown.
Inventory levels declined slightly in September, but the rate of contraction was lower for the fifth consecutive month. On the other hand, warehouse prices rose to the highest level since February.
Our take: It’s been a buyer’s market for freight for a while now with rates in constant decline. With the downward trend slowing, shippers should be on the lookout for rates to creep up again.
Read more here.