Dive Brief:
- Shipping discounts from FedEx and UPS are poised to soften the impact of their 2024 rate hikes on ground delivery customers, according to the TD Cowen/AFS Freight Index released Jan. 17.
- The ground parcel rate per package is projected to reach 28.9% above the index's January 2018 baseline in Q1, a decline from 31% the year prior.
- If it holds, that figure would mark the third consecutive quarter of a YoY decline. The Q4 2023 rate per package fell to 24.4%, aided by a 1 percentage point increase in the average discount per package.
Ground parcel delivery costs ease year over year
Dive Insight:
Soft delivery demand is forcing FedEx and UPS to offer discounts to attract more volume into their networks. Although it varies by customer, carriers' initial shipping rate offers tend to be much better than in years past as they try to undercut competitors, said Micheal McDonagh, president of parcel for AFS Logistics, in an interview.
"Now, the best place to get volume is current volume from another carrier, because the organic growth is not really there," McDonagh said. "It seems like they're going after each other's volumes, and the pricing hasn't been like this for a while."
The express parcel rate per package, covering faster delivery services, is also projected to see a YoY decrease in Q1. It is forecasted to fall to 1.8% above the index's January 2018 baseline, down from 4.1% in the first quarter of 2023.
Despite an improving rate environment for shippers, they should still be wary of the impact of carriers' 5.9% average annual rate increases and recent jumps in their fuel surcharges.
"When the dust settled, both carriers had introduced a 1% [fuel surcharge] increase in express, while in ground, FedEx bumped up fuel by 1% and UPS increased it by 1.25%," AFS Logistics said in its press release on the index.
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