Dive Brief:

• Shippers are using regional carriers to handle increased volume as FedEx, UPS and USPS have experienced constrained capacity due to large upticks in volume, according to logistics experts and Convey data.
• An average of 17% of retail volume went to regional carriers in the first seven months of the year, compared to 3.8% in 2019 and 6.2% in 2018, Convey's numbers show. This has become increasingly common throughout the year, with 24% of volume traveling with regional carriers in July.
• Shippers are not turning away from FedEx, UPS and USPS. Instead, they are using regional carriers to supplement shipping needs, according to Satish Jindel, the president of ShipMatrix.

Dive Insight:

Shippers are making the shift to more regional carriers as services from UPS, FedEx and USPS have become increasingly expensive. All three carriers recently announced surcharges or increased prices.

The USPS was the most recent to announce a price hike for commercial parcels that will take effect from Oct. 18 to Dec. 27, citing "increased expenses and heightened demand" for e-commerce parcel delivery due to the pandemic.

FedEx suggested last month that customers should expect the surcharge environment to continue.

"This is part of the new normal," FedEx Chief Marketing and Communications Officer Brie Carere said on an earnings call last month. "It will not be just for this fiscal year, but I anticipate customers to pay more for pricing in November and December moving forward. And I do think that will be a structural shift in the market."

If shippers are struggling financially as a result of surcharges, they can likely find ways to combine shipments and cut costs, or cut packaging cost, Jindel said.

"Every shipper has the ability to save anywhere from 7% to 12% or even more," he said. "By being a smart shipper."

One strategy could be to split volume between UPS and a regional carrier, because UPS surcharges apply to shippers sending at least 25,000 parcels per week. 

"LSO has also seen big increases in volume due to Covid-19 from e-commerce shippers," Richard M. Metzler, CEO of LSO/Lone Star Overnight, said in a note to customers last week. The regional parcel-delivery company is based in Texas and operates throughout the Southwestern U.S. "We have also seen big increases from FedEx and UPS customers where their volume has been capped or their service reliability has become untenable."

In July, on-time performance fell to 91.6% for FedEx, 94% for UPS and 91.5% for USPS, according to the latest numbers from ShipMatrix.

"Volume approached peak like levels with May and June, significantly above April," UPS CFO Brian Newman said on an earnings call last month. "The surge created some network constraints and some regional dips in service levels."

Right now, all eyes are on the USPS as it is in the center of a political debate involving mail-in voting and a new Postmaster General. But the agency's on-time performance has improved in the first two weeks of August at 93.8%, Jindel said.

"When you get a huge increase in volume and you have to adapt and make changes and get that in your system, once you start doing it for one month, two months, three months, it becomes more the norm and you adapt to it," he said. "I think similarly, UPS and FedEx will probably have an improvement."