UPS and FedEx are battling to win a larger share of the small shipper segment as major customers in-source their deliveries, switch to new providers and grapple with market declines.
Experts told Supply Chain Dive that small- and medium-sized businesses are driving much of the volume growth in the business-to-consumer delivery space and their deliveries are typically more profitable for the carriers than large-scale customers. That makes them a prime target for delivery providers amid a soft demand environment.
"With a large enterprise retailer, you get tens — if not hundreds — of thousands of packages a week, but the profit margins on that business are very small," said Scott Lord, founder of Strategic Growth Advisory LLC and a former UPS marketing director. "You might get 10 enterprise packages for the profit contribution of one SMB package, all things being equal."
Smaller shipper deliveries carry more value
SMBs are likely to weigh different factors when choosing a carrier compared to a large enterprise. Simplicity in integration and an emphasis on reliability over speed are typical priorities for smaller shippers in their relationships with delivery providers, industry observers say.
Cost is a critical factor for SMBs as well, said Jay Kent, managing director of SLB Performance. While larger customers also consider price, they have more resources to keep up with pricing changes and secure more favorable contracts.
"It's a bigger deal for small companies, because all of a sudden, they're going to go, 'Why are my costs going up?'" Kent said. "It's not as easy for them to find that out."
To meet these shippers’ needs, both UPS and FedEx have launched an array of initiatives in recent years they hope will capture a larger share of the valuable customer segment.
UPS pushes to close SMB deals faster
UPS is highlighting its already integrated network, wide mix of services and improving customer service capabilities as top draws against rival FedEx. For example, the company is investing in better visibility processes for more consistent pickup times and using AI-enabled chatbots to provide quick responses to shippers, U.S. President of Sales Felicia Adkins told Supply Chain Dive in an email.
"Although the business may be small, the expectations are not, and flexibility is also key," Adkins said.
While UPS saw a decline in U.S. business-to-consumer volume from smaller shippers last year, it was less pronounced than the volume decline from large customers, the company said in its annual financial report. UPS partly attributed that to its growing Digital Access Program, which connects the carrier to e-commerce platforms to offer rate discounts and other shipper services.
UPS is also leveraging Deal Manager to close shipping deals with SMBs faster. The company's sales team uses the tool for real-time pricing guidance and it's been particularly useful for smaller customer wins — 95% of all deals less than $1 million use Deal Manager, UPS chief commercial and strategy officer Matt Guffey said in March.
"I just think that UPS has been more effective with its marketing to that segment and its ability to retain those customers as they grow."
Nate Skiver
Founder of LPF Spend Management
As UPS advances its SMB-focused initiatives, the share of its deliveries tied to those shippers has grown. SMBs made up 28.6% of UPS' U.S. volume in 2023, up 60 basis points from the year prior. The company aims to eventually grow that figure to 40%, Adkins said.
FedEx’s network overhaul presents SMB upside
Meanwhile, FedEx has highlighted the ongoing merger of its separate Ground and Express networks as a project that will benefit SMBs' interactions with the delivery giant.
The combination will eliminate separate pickup situations, which has long been a key shortcoming in FedEx's ability to compete against UPS. It will also free up time for shippers who must divide their packages for Ground and Express pickups, Randy Scarborough, VP of customer engagement marketing at FedEx, said in an email.
FedEx’s recently announced fdx platform is also expected to help SMBs reach customers easier. The offering brings together a mix of end-to-end solutions for e-commerce merchants while leveraging information from the millions of packages FedEx moves daily.
"For small and medium businesses, visibility into this real-time intelligence will help make it easier to grow demand, increase conversion rates, fulfill orders, and even streamline the returns process — all in one platform," Scarborough said.
Scarborough did not detail specific target goals FedEx has in terms of growing its share of volume and revenue tied to SMB customers.
While FedEx has announced a variety of initiatives to attract SMBs, the value of programs like the fdx platform haven't been articulated clearly to customers and shareholders, according to Nate Skiver, founder of LPF Spend Management. That has given UPS an edge, at least perception-wise, in the battle for volume in that segment.
"I just think that UPS has been more effective with its marketing to that segment and its ability to retain those customers as they grow," Skiver said.
Amazon another challenger for SMB volume
FedEx and UPS don't just have each other to worry about when it comes to attracting SMB shippers. Perhaps the biggest threat in the space is Amazon, which has quickly grown into a parcel delivery giant with its in-house logistics capabilities.
The company offers fulfillment, shipping and supply chain capabilities for the wide array of third-party sellers on its website. U.S. SMBs on Amazon's marketplace grew sales to more than 4.5 billion products in 2023, according to an announcement from the company Thursday.
Other carriers are also competing to attract more shippers in a soft demand environment. The U.S. Postal Service is courting small businesses with its Connect Local delivery service and is seeing more shippers use its Ground Advantage product. Meanwhile, an array of alternative carriers are growing their geographic reach while also adding new services.
"If there's a smaller merchant already shipping on Amazon, but they have their own direct channels, there's volume that may be available for Amazon Shipping to capture that currently could be with UPS or FedEx or USPS," Skiver said.
