Dive Brief:
- Ground delivery costs are projected to drop slightly year over year in Q1 despite recent rate increases from FedEx, UPS and other carriers, according to the TD Cowen/AFS Freight Index released Jan. 14.
- The index forecasts per-package ground delivery rates are estimated to reach 28.2% above the index's January 2018 baseline for the quarter. That's down from 28.8% in Q1 2024, due to persistent shipping discounts from carriers over the past year.
- AFS Logistics summed up the overall parcel market as "one of low demand, intense competition and persistent discounting activity” in the release.
Discounts curb ground shipping costs
Dive Insight:
Shippers appear to still have leverage to negotiate more favorable delivery rates in 2025. But how long discounting activity will continue is a major question facing the parcel market this year, Mingshu Bates, AFS' chief analytics officer and president of parcel, said in the release.
"Carriers are continuing to communicate an emphasis on revenue quality, which would indicate tighter pricing control as the year progresses and continued pricing changes throughout the year," Bates said.
For now, aggressive discounting activity is lowering both ground and express shipping costs. The express parcel rate per package fell in Q4 to 0.5% above the January 2018 baseline. Annual price increases are projected to bring the number up to 4.1% in Q1, although that would still equate to a year over year decline from Q1 2024’s 4.5%.
"The Express parcel market is expected to stay highly competitive, driven by continued pressure from regional carriers, Amazon and the USPS, with aggressive discounting expected to persist into 2025," according to an AFS presentation on the index.
Even with heightened discounts, expanded surcharges from FedEx and UPS have taken a bite out of shippers' savings, particularly during the holiday shipping rush.
The Q4 ground parcel rate per package was 24.4%, which surpassed projections and marked an increase from 23.8% the year prior. Added fees levied during the holidays resulted in the average accessorial charge per ground package climbing 16.4% from Q3 to Q4, according to AFS.
That increase likely benefited carriers — in mid-December, FedEx projected that peak season demand surcharge revenue would grow year over year, EVP and Chief Customer Officer Brie Carere said on an earnings call.
