Dive Brief:
- UPS and FedEx shipping discounts in Q3 led to unexpectedly low ground delivery rates, according to the TD Cowen/AFS Freight Index released Oct. 15.
- The Q3 ground parcel rate per package was 20.3% above the index's January 2018 baseline, the lowest it's been since 2021, as carriers' aggressive discounting activity over the past year persisted.
- AFS Logistics Chief Analytics Officer Mingshu Bates told Supply Chain Dive the rate per package was expected to drop in Q3 but not to the extent that it did. Discounting growth for large-scale customers in the quarter was more pronounced compared to smaller businesses, she added.
Discounts push down ground parcel delivery costs
Dive Insight:
While FedEx and UPS have expanded their array of surcharges this year, that hasn't slowed down discounting activity as carriers compete for volume in a soft market.
The average ground parcel discount increased by 2.4% from Q2 to Q3, per an AFS presentation on the index. These price cuts didn't just apply to base transportation rates — carriers also offered up better terms on fuel surcharges for various shippers. The index reported a 6.8% decrease in the net fuel surcharge per ground package.
"Today, even small customers can get some level of fuel surcharge discount," Bates said. "Granted, it's not going to be as big as the big companies get, but still, just to get a fuel surcharge discount was hard a few years ago."
The index forecasts climbing rates from Q3 to Q4 as peak season surcharges take hold, but conditions are expected to remain more favorable to shippers compared to last year.
"Competitive pricing pressure will continue to dominate the holiday shipping season, with a notable trend of increasing discounts for large customers," per the presentation.
Higher discounts have also spread to express shipments. The express parcel rate per package dropped from 4.5% in Q2 to 1.6% in Q3, according to the index. The rate is expected to decline further to 1.4% in Q4 as carriers struggle to grow expedited shipping volumes in a cost-conscious environment.
