Dive Brief:
- Shippers should brace for climbing ground delivery costs as FedEx and UPS become less amenable to discounts and new surcharges take hold, according to the TD Cowen/AFS Freight Index released April 9.
- The ground parcel rate per package is projected to reach 29.3% above the index's January 2018 baseline in Q2, which would mark a slight increase from 28.9% the year before.
- If the forecast holds, it would end the streak of year-over-year declines for the past three quarters amid a stretch of aggressive shipping discounts. The rate per package fell from 31% to 28.8% in Q1.
Ground parcel delivery costs could see year-over-year jump in Q2
Dive Insight:
Fuel surcharge increases and other tweaks to delivery fees are expected to drive up the rate per package despite soft demand. At the same time, carriers' willingness to offer up better discounts for customers appears to have cooled off.
The average ground parcel discount stayed about flat quarter over quarter. Significant increases on that front will be less likely going forward, according to a presentation from AFS Logistics on the Q2 index.
"After significant discounting to compete for falling package volumes last year, UPS and FedEx have deployed accessorial charges as more covert tools to increase yields, with changes to fuel, demand and delivery area surcharges targeted to boost revenue," Tom Nightingale, AFS Logistics CEO, said in the index's news release.
Faster delivery services are also poised to see rates increase. The express parcel rate per package is projected to see a YoY increase in Q2, jumping from 3.8% above the index's January 2018 baseline to 4.1%. That follows a 0.6% YoY decline in Q1, aided by higher average discounts.
The Q2 forecast is "an indication of carriers' desires to move away from the significant discounting they had previously used in the fight for market share," the release said.
