Dive Brief:
- Ground parcel rates experienced their first year-over-year decline since 2019 in the third quarter, according to the TD Cowen/AFS Freight Index released Oct. 17.
- In Q3, the ground parcel rate per package was 23.2% above the January 2018 baseline, down from 26.9% the year prior. Larger pricing discounts, along with reductions in added fees and fuel surcharges, helped drive the index down.
- “After strict pricing discipline by carriers over the past two years, negotiating power is swinging back to shippers,” says Micheal McDonagh, president of parcel at AFS Logistics, in a statement.
Ground parcel delivery costs falling
Dive Insight:
Parcel carriers like FedEx and UPS are courting customers more aggressively through reduced rates as delivery demand remains weaker compared to its pandemic-driven heights. The average discount per package increased 1 percentage point quarter-over-quarter, the largest increase year to date, according to the index.
"With the softness of parcel demand, along with increasing competition from regional carriers and USPS, pricing has been leveraged more frequently as a lever to retain and grow volume," according to the index.
Shippers are taking advantage of market conditions shifting in their favor. UPS customers Macy's and Rent the Runway recently secured more favorable delivery contracts that led to reduced expenses, as the delivery giant looks to rebound from volume losses it faced during union negotiations.
A softer pricing environment for ground parcel deliveries is expected to persist for the remainder of the year. The Q4 rate per package is projected to decline YoY due to "a more muted peak season than previous years," said a news release accompanying the report, although shippers still need to be wary of peak season surcharges.
The Q3 rate per package for express parcel volume, meanwhile, increased YoY to 1.4% above the January 2018 baseline. However, that marked a decline from 3.8% in the previous quarter, as average billed package weights fell and discounts increased.
