The window remains open for parcel shippers to secure lower rates in 2025, although shifting carrier strategies and growing surcharges could limit the potential for savings, experts told Supply Chain Dive.
FedEx, UPS and other carriers have deployed aggressive shipping discounts for more than a year to secure volume in a soft demand environment. Even recent price increases haven't fully countered that behavior, with ground delivery costs projected to fall slightly year over year in Q1, according to the TD Cowen/AFS Freight Index.
UPS started the widespread discounting push in 2023 to lure back shippers who, fearing a strike at the delivery giant, had diverted their packages to other carriers, said Thomas Andersen, partner and EVP of supply chain services at LJM Group.
"What we saw was maybe a 15% jump in pricing flexibility a year and a half ago," Andersen said. "The pullback might only be 2, 3, 4, 5%. It's definitely not back at the level that it was before then."
While pricing flexibility for shippers remains strong, Andersen and other experts don't expect 2025 prices to be as alluring as last year. For one thing, packages on both ends of the weight spectrum are experiencing pricing pressure.
For example, changes to sub-pound rates at the U.S. Postal Service are cascading into higher costs for services that have historically relied on the agency for final-mile delivery. This means the era of generous rates for lightweight e-commerce packages "is coming to an end," said Steven Bergan, president of parcel carrier GLS US.
"If you're shipping sub-one pound, or even sub-three pounds, you know you're probably taking increases this year because that floor just came up too far," Bergan said. "So it's going to create a different world."
Shippers with packages weighing between five and 10 pounds are more likely to find highly competitive rates this year, according to Bergan, as carriers seek more profitable deliveries in a period of low demand. Package consolidators DHL eCommerce and OSM Worldwide have expressed interest in handling packages up to 10 pounds this year, a shift from their typical lightweight focus, due to Postal Service changes.
"What we saw was maybe a 15% jump in pricing flexibility a year and a half ago."
Thomas Andersen
Partner and EVP of supply chain services, LJM Group
Packages in heavier weight classes tend to have more limited delivery options — and larger fees attached to them. FedEx and UPS continue to institute sharp fee increases for bulky shipments that are difficult to move efficiently through their networks. In some cases, added fees can exceed spending on base rates for heavy package shippers, said Kenneth Moyer, partner and VP of supply chain strategies at LJM Group.
Large item surcharges have added to a growing roster of fees for shippers in recent years while increasing per-package revenues for carriers like FedEx and UPS.
FedEx is being "disciplined in getting the surcharges" such as peak season and bulky package fees amid the competitive pricing environment, EVP and Chief Customer Officer Brie Carere said on a December earnings call. The company is also benefiting from surcharges for deliveries made in rural areas, even if shippers can use other carriers in those scenarios.
"The last 3% or 4% of their volume, they don't want to have to use a different provider, and so we're really being disciplined on getting those surcharges," Carere said. "They are contributing, but the base rate is really pressured because of the economy."
UPS executives could provide further insight into the parcel pricing environment on the company’s earnings call Thursday. The delivery giant's approach on pricing influences how FedEx and other carriers handle rate negotiations, experts told Supply Chain Dive.
If the company's Q4 results show continued growth, Moyer foresees a tougher pricing environment for shippers in the near term. On the other hand, if UPS posts underwhelming results, Moyer expects aggressive discounting to persist.
Amid the uncertain environment, companies should keep an eye on how their package shipping needs evolve over time — such as when selling heavier products or items that need to be delivered quickly — and negotiate terms that are most favorable for their particular portfolios, Moyer said.
Mark Kolde, VP of logistics engineering at logistics software provider Sifted, echoed that sentiment. He noted that with more than 150 negotiable elements in any given contract, shippers need to be "very surgical" in how they approach contract negotiations with carriers.
"You've got to really know your data and the impact, so you know where to hit, and then be able to know how far you can push," Kolde said.
