Changes over the past month for UPS' SurePost service will lead shippers to explore other options, but shifting volume won't be easy for every customer, parcel delivery experts told Supply Chain Dive.
UPS began making all SurePost deliveries in-house on Jan. 1, rather than relying on the Postal Service for much of that activity, according to a statement on the company's investor relations website. The statement confirmed earlier remarks from the Teamsters union, which said the move brings millions of packages back into UPS' network for final-mile delivery.
SurePost's delivery coverage and transit times appear to have changed as a result of the Postal Service split. UPS no longer lists PO Boxes and addresses outside the contiguous U.S. as an option for SurePost. Transit times are now an estimated two to six days in the contiguous U.S., compared to two to seven days when the Postal Service partnership was active.
UPS' delivery insourcing is just one shift SurePost shippers must navigate this year — the carrier increased rates and delivery area surcharges for the service on Jan. 13. Experts said both developments have caught many shippers off guard, pushing them to assess alternatives.
"People are kind of stuck right now, but I can tell you that we're feverishly working on alternatives for our customers, because our customers certainly didn't expect it," said John Haber, chief strategy officer at Transportation Insight, a logistics services provider.
Hurdles to diversify
Breaking away from SurePost is easier said than done, especially for larger shippers locked into contracts with minimum volume and spending commitments, experts said.
FedEx and UPS have been offering heightened shipping discounts in contracts for more than a year as they try to gain volume in a soft demand environment. While that activity has kept delivery costs down, it could also leave shippers vulnerable to unexpected rate increases if they don't consider contract terms carefully, said Oscar Gladman, senior director of parcel solutions at Kenco Group.
Gladman outlined a scenario in which a customer could be locked into a deal with a multi-million dollar penalty if they don't reach their contract's minimum volume requirements. That would make it more difficult to explore other options.
"Diversification may or may not be realistic," Gladman said.
Shippers will have to consider any contract penalty expenses and if incurring those would be more expensive than absorbing SurePost's recent rate increases, according to Haber.
"In some cases, shippers are going to be handcuffed because of the way their contracts are structured, and we're seeing that," Haber said.
SurePost alternatives abound
There is no shortage of options for shippers determined to find SurePost alternatives, said Nate Skiver, parcel analyst and LPF Spend Management founder.
FedEx's Ground Economy service and the Postal Service's Ground Advantage offering are both candidates to gain business diverted from SurePost, according to Skiver. How much Ground Advantage would retain over the long term will depend on the Postal Service's on-time delivery reliability, he added.
Skiver expects customers that need to ship to military addresses or other destinations not covered by SurePost currently to use the Postal Service directly for that volume, noting it's an approach many retailers have taken before.
"If they didn't use a postal workshare service, then most often, that small volume segment of PO Box and U.S. territories was shipped directly with the Postal Service," Skiver said.
Package consolidators like DHL eCommerce and OSM Worldwide, who sort and hand off parcels to the Postal Service for final-mile delivery, could provide a low-cost alternative for SurePost shippers, Gladman said. SurePost is geared toward parcels weighing less than 10 pounds, and consolidators are pushing to gain more business in that weight category.
"That would be a direct threat to SurePost and Ground Economy," Gladman said.
Even with SurePost's recent changes, the service is still a viable option for parcel shippers, according to Skiver. But how UPS handles pricing arrangements with customers after the recent rate increase remains a major question mark going forward, he added.
For UPS' part, the company said in its statement that SurePost continues to be an important part of its service portfolio.
"By leveraging the strength and flexibility of our integrated network, insourcing will allow us to control the SurePost volume from point-to-point, provide reliable service and meet our customers’ needs more efficiently," UPS said.
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