Last-Mile Delivery

Parcel shippers may opt to use fewer delivery providers in 2024, countering the push for carrier diversification that became prevalent amid pandemic-related challenges.

Smaller, regional delivery providers — those outside the FedEx, UPS and U.S. Postal Service realm — are particularly vulnerable to potential reductions, experts told Supply Chain Dive. Major carriers are offering shipping discounts to counteract volume declines, and customers may find it harder to justify splitting shipments among a wide array of carriers in an uncertain demand environment.

“There probably will be some consolidation this next year,” said Andy Whiting, co-founder and CEO of the parcel carrier Better Trucks. “For us, it just means we want to make sure that we have this really solid distribution-to-doorstep network that's very valuable for customers. They're evaluating us against FedEx and UPS.”

Carrier consolidation is already happening. The number of carriers shippers used jumped in the summer as companies made preparations to mitigate disruptions from a potential UPS strike. But with strike concerns alleviated, diversification is dipping like it did at the start of 2023.

The number of carriers per company account declined for three consecutive months, dropping to 5.74 in December, according to data project44 shared with Supply Chain Dive.

"At some point, there's not enough [volume] to go around for five carriers — there just isn't," said Josh Dinneen, chief commercial officer of the parcel carrier OnTrac, in an interview last year.

FedEx, UPS take share with discounts

Capacity is no longer a concern as delivery demand has softened, meaning carriers have to compete more aggressively to draw additional volume and revenue into their networks. Enter discounts from the likes of FedEx and UPS to grab more market share and attract cost-conscious customers.

In a LinkedIn post, Dean Maciuba, managing partner, United States, for Crossroads Parcel Consulting, said FedEx offered discounts to businesses with little or no shipping revenue tied to their accounts. The offer claimed eligible shippers could tap into the savings via FedEx's small business discount program.

Meanwhile, UPS is fighting to regain volume that it lost during contentious contract negotiations with the International Brotherhood of Teamsters in the summer. Rent the Runway was among the customers that capitalized by locking in more favorable rates, in exchange for UPS handling most of the company’s shipping needs.

"We've had a couple of clients that were strong UPS clients that jumped ship and now UPS is eager to get that business back," said Stephanie Martin, CEO of Navigo Consulting Group, a transportation spend consultancy.

Of the 1.5 million packages per day that shippers diverted to FedEx, the U.S. Postal Service and other carriers due to the negotiations, UPS regained roughly 40% of that volume as of October. Half of that recapture came from FedEx, CEO Carol Tomé said in an earnings call.

However, FedEx Chief Customer Officer Brie Carere maintained in December that the company is still holding onto the 400,000 packages it gained from UPS during the uncertainty, meaning the volume UPS took back would have to come from the Postal Service or smaller providers.

Regardless, both delivery giants reaped the benefits of their efforts to grab more packages during the busy shipping week of Black Friday. Over that period, they took a larger share of volume from regional delivery providers than the year prior, according to Shipium data.

Alternative carriers still offer upside

While FedEx and UPS' discounting efforts pose a challenge for smaller delivery providers looking to gain share in the market, shippers wouldn't abandon alternative carriers entirely, experts said.

After all, it has become easier for shippers to diversify their carrier base thanks to the emergence of third-party tools in recent years. Additionally, regional carriers have expanded their own service offerings while adapting to UPS and FedEx's pricing strategies.

"We've seen very, very competitive rates from the regional carriers, and we see service improvements with the regional carriers as well," Martin said.

Delivery needs and carrier preferences vary on a client-by-client basis, meaning there is no magic number of carriers a company should have, Martin said. However, business-to-consumer retailers tend to embrace a multi-carrier model moreso than shippers in other industries, she added.

"They want the flexibility of being able to shift volume and use different carriers," Martin said.

For shippers looking to diversify, service reliability is a top concern, along with ease of use and implementation. They want a delivery service that looks and feels like what they expect from UPS and FedEx without the complexities that often come with adding more carriers, Better Trucks’ Whiting said.

"They don't want to have to have a huge logistics team internally to think about how we divvy up all this volume and how do we optimize our spend," he said. "They basically want to have the easy button."

How FedEx, UPS competitors are adjusting

Executives at smaller parcel carriers told Supply Chain Dive they're focused on maintaining high service levels in existing markets to keep current customers happy. Expansion in 2024 will happen in a more careful manner compared to years' past.

If shippers end up reducing their carrier mix this year, smaller delivery providers may pivot into specialty shipping services and expand their offerings when the demand environment improves, GLS US President Steven Bergan said.

One tactic to fuel growth has been to collaborate with other regional carriers. GLS and Better Trucks launched a partnership last year allowing customers of each company to access the coverage area of the other carrier for deliveries. GLS' network focuses on markets in the western U.S., while Better Trucks delivers in a mix of regions including the Midwest and much of Texas.

The collaboration aids both companies' efforts to offer a competitive service for their customers that are looking to leap into new markets, combating national carriers' efforts to gain more volume.

"I anticipate there will be winners and losers, and we believe we're building a network that will be one of the winners," Whiting said.

From softening demand to climbing labor costs, 2023 proved to be a challenging year for FedEx and UPS.

Both carriers moved to right-size their networks in the face of waning package volumes while navigating testy union disputes. Meanwhile, FedEx and UPS shippers capitalized on the excess supply by securing discounted delivery prices, but rates are climbing again.

These shifting market dynamics can be seen in data from FedEx, UPS and third parties. Read on for six charts that explain the delivery giants' volatile year.

Carriers face weak demand

FedEx and UPS grappled with soft demand throughout the year, extending a slump that emerged in 2022 as the pandemic-fueled e-commerce boom cooled off and shippers navigated a cloudy economic climate. But one company has fared better than the other of late.

For the quarter ending September 30, UPS weathered a 10.8% decline in average daily volume year-over-year. The company saw many customers divert packages to other carriers during its contract negotiations with the International Brotherhood of Teamsters in the summer.

"From a demand perspective, August proved to be the most challenging, as some customers waited for the ratification of our Teamster contract, before returning volume to our network," CEO Carol Tomé said in an October earnings call. "Since contract ratification, we've been gaining volume momentum."

FedEx's demand woes eased for the quarter ending August 31, with the combined average daily volume at its Express and Ground units dropping less than 1% year-over-year. The company was one of the beneficiaries of diversions during the UPS-Teamsters negotiations.

"Across Ground and Express, volumes improved sequentially, aided by the threat of a strike at our primary competitor," EVP and Chief Customer Officer Brie Carere said in an September earnings call.

FedEx, UPS offer up rate discounts

As shipping demand faltered, FedEx and UPS offered up pricing discounts to draw more volume into their networks.

Ground parcel delivery rates have fallen as a result, with the TD Cowen/AFS Freight Index recording a year-over-year decline in the category for Q3. Ground parcel pricing is projected to decline again in the fourth quarter due to softer peak season shipping activity.

Shippers are reaping the benefits of improved negotiating power, with UPS customers Rent the Runway and Macy's touting more favorable delivery contracts secured earlier this year.

“Delivery expense has been a part of some of the cost savings initiatives that we’ve thought about, which impacts the combination of the placement of our goods within our system and also how we think about the processing of our delivery,” Macy's CFO and COO Adrian Mitchell said on an August earnings call.

Carriers roll out lower annual rate increases

Although pricing power has tilted in favor of shippers, FedEx and UPS customers still have to be wary of the carriers' annual rate increases.

Both companies are hiking their 2024 rates by 5.9% on average. That's a step down from their 2023 increases, but it's still higher than what they rolled out in 2020 prior to the COVID-19 pandemic.

“The price adjustments reflect incremental costs associated with the current operating environment, while enabling FedEx to continue investing in service enhancement, fleet maintenance, technology innovations, and other areas to serve customers more effectively and efficiently,” FedEx said in announcing its rate increase in August.

Rate hikes vary depending on shipping characteristics, with packages that are heavier or traveling over longer distances generally seeing larger increases than the 5.9% average.

UPS hit with higher labor costs

For UPS, higher shipping rates can help it offset costs tied to its new five-year contract with the Teamsters. The roughly 330,000 UPS employees represented by the union will see wage gains that outpace the previous agreement. From 2023 to 2028, general wage increases will total $3.35 more an hour compared to the previous contract’s gains.

UPS is also mitigating labor costs by streamlining its package sortation process, from expanding its RFID initiative to leveraging automation. Additionally, the company uses AI and machine learning to adjust its network capacity in times of waning demand, like when it was in negotiations with the Teamsters.

The effects of the UPS-Teamsters contract are poised to ramp up wage pressure for other logistics companies. FedEx also increased wages for certain U.S. employees this year, but the company didn't specify eligibility requirements or to what extent wages increased.

Transit times improve for deliveries

Despite a challenging stretch for FedEx and UPS, company executives have reported strong service levels throughout the year in earnings calls. This coincides with a broader industry improvement in on-time delivery performance and transit times.

Shippers tapping into a diverse mix of carriers, a lack of pandemic-era capacity constraints and companies moving inventories closer to end consumers have all contributed to improving delivery speeds this year.

Maintaining reliable service levels can position FedEx, UPS and other carriers for success in the future after a turbulent 2023.

"Through all of this, we remained focused on controlling what we can control, and are continuing to adjust the network to match volume levels, and deliver industry-leading service to our customers," UPS CFO Brian Newman said in an October earnings call.

The parcel delivery market may be swinging in shippers' favor, but UPS and FedEx customers will still have to contend with rate increases for 2024.

The delivery giants announced a 5.9% average rate increase on their various shipping services that take effect on Dec. 26 for UPS and Jan. 1 for FedEx. It's a smaller increase than the 6.9% bump both unveiled for 2023 as they contend with declining demand.

FedEx and UPS have since released the full details of these rate increases and accompanying surcharges. Parcel spend experts say the rivals unsurprisingly mirror each other's changes even beyond the 5.9% average.

Read on to find out what shipment types will see the largest rate increases, what it suggests about the carriers' evolving strategies and how shippers can minimize the impact of higher delivery costs.

Increases target expedited, long-distance deliveries

The 5.9% rate hike at FedEx and UPS is only an average. The actual increases shippers will encounter vary depending on each delivery's shipping characteristics. These include:

• Distance traveled: Shipments moved over longer distances, which the carriers measure by "zones", will encounter sharper rate increases than those being delivered to a closer location. For FedEx, ground and air deliveries in zones 2-4 will see an average increase of 5.91%, while those in zones 5-8 will see a 6.39% average increase, according to an analysis from LJM Group. UPS has similar discrepancies.
• Package weight: Heavier packages will generally see greater shipping rate increases compared to lightweight parcels at both FedEx and UPS. For example, shipments weighing 1 to 5 pounds will see a rate increase of 5.5% for commercial ground services at both FedEx and UPS, according to a Shipware analysis. But packages weighing 11 pounds or more will see rates jump by at least 6%.
• Service used: Packages delivered by faster shipping services will generally see price increases above the 5.9% average. A Shipware analysis shows rates for minimum charges that FedEx and UPS levy for their air cargo services versus slower ground transportation offerings.

Shippers should also consider any surcharges that apply to their shipments, which aren't factored into the carriers' base rates but will also see increases for 2024. Added fees that FedEx and UPS levy include charges for large and oversized goods, packages that require additional handling and deliveries to remote locations.

AFS Logistics Chief Analytics Officer Mingshu Bates said UPS is adjusting which ZIP codes it considers rural or remote areas of the U.S., which comes with an added delivery fee for shippers.

How UPS classifies these ZIP codes has a marked impact on a package's shipping cost. Delivery area surcharges for 2024 will range between $3.95 and $7.70, while remote area surcharges will cost $14.15 in all states except for Alaska.

"If you happen to shift to one of those fortunate or unfortunate ZIP codes, you're going to see a huge difference," Bates said.

FedEx and UPS adjust to competition

The variances within rate hikes indicate what shipment types FedEx and UPS face greater competition for.

There are plenty of alternative carriers serving specific regions that shippers can use for shorter-distance deliveries, and these companies continue to expand their coverage areas and capacity.

"I think that speaks to them feeling a little bit more of a competition from regional carriers than they're willing to admit," said Paul Yaussy, a senior consultant of professional services at Shipware.

FedEx and UPS also have competition for lightweight packages that don't require expedited delivery, even at longer distances. Amazon Shipping is touting lower shipping prices than what shippers can expect from the parcel delivery giants.

"We have some of our clients getting some offers from Amazon Shipping, and the offers are pretty aggressive," Yaussy said. "We've seen that their service guide is very, very similar to those that FedEx and UPS have."

Competition is less heated for longer-distance and heavier shipments using expedited services, allowing FedEx and UPS to impose higher rate increases without dissuading too many shippers. These shipments are also more expensive for carriers pushing to reduce operating costs and increase efficiencies.

How shippers can reduce rate hikes' sting

Despite the rate hikes, shippers are in a prime position to negotiate better contract terms as delivery demand remains soft. Parcel carriers are offering up more robust discounts to secure volume, benefiting customers like Macy's and Rent the Runway.

A key for shippers in negotiations is to make sure they understand their biggest strengths as a customer that could lead to reduced charges, said Nicholas Fanelli, managing director of Shippingwise.

"Do you have multiple packages shipping from the origin to the same destination on the same day? In that case, you have a strong argument to be negotiating certain surcharges, like the fuel surcharge or residential surcharge, because they're already going there,” Fanelli said.

Companies should also consider what they can adjust internally to avoid unnecessary shipping costs, experts told Supply Chain Dive.

This could include exploring ways to put products in less bulky packaging or splitting a large item into two individual shipments to avoid surcharges. Shippers may also opt for less expensive ground transportation for more time-sensitive deliveries if the destination is close enough to the shipment's origin.

Carriers welcome these types of adjustments from customers, as it makes their volume easier to handle, said Kevin Miller, VP of data insights at logistics software provider Sifted.

“[Carriers] can give you suggestions as well on how to improve your network to help them be more efficient," Miller said. "By doing so, it will save both companies money."

UPS unveiled its growth plans for the years ahead at the delivery giant's investor and analyst conference on March 26, with executives outlining the company's "better and bolder" approach to bolster revenue and profit despite tough market conditions.

"Better and bolder means being very selective in the markets that we want to serve, and serving them better than anyone else," CEO Carol Tomé said.

Tomé and other top UPS officials provided details on the company's future with Amazon, the evolution of its pricing technology, excess carrier capacity and how it's looking to gain share from competitors during the conference. Here are five key takeaways from the delivery giant's wide-ranging presentation.

1. U.S. delivery market has a capacity glut

UPS estimates a carrier capacity surplus worth 12 million in average daily volume in the U.S. small package market, with about half of that excess tied to the U.S. Postal Service, said Matt Guffey, UPS chief commercial and strategy officer.

That's a sharp contrast from the capacity shortfall of 6 million packages between 2020 and 2022, when the COVID-19 pandemic spiked demand and strained carriers' operations.

"The industry is expected to revert to equilibrium as the market grows and we optimize capacity," Guffey said.

Some excess market capacity is a good thing, Tomé said. Before the pandemic, market supply outpaced demand by about 6 million parcels. The current glut will be absorbed by a return to volume growth in the market, along with capacity being removed, she added.

2. "Glide-down" with Amazon is over

The "glide-down" in volume that UPS delivers for Amazon is now over, with activity expected to be stable going forward, Tomé said.

"There are services that we can provide for them that they find really relevant and important, and packages they're going to continue to deliver for themselves," Tomé said of Amazon. "So from a volume perspective, think of them as equilibrium for the next three years."

UPS' revenue derived from Amazon fell to $10.7 billion in 2023, its lowest annual total since 2019. If Amazon volume is poised to be stable going forward, that means UPS will have to pursue volume growth from other customers and segments while taking share from competitors.

Excluding Amazon, U.S. delivery activity declined by 2.4 million packages a day in 2023, according to Tomé. Volume growth in the current market is largely driven by Amazon's in-house delivery operations, Guffey added.

"This means to grow, we are leaning into parts of the market that are aligned with our competitive advantages," Guffey said.

3. Pricing technology evolves

UPS is relying more on Deal Manager to help grow its customer base. The tool uses data science and machine learning to provide UPS’ sales team with real-time guidance on pricing, allowing them to close shipping deals faster with small- and medium-sized businesses.

"We are seeing win rates of about 80% on Deal Manager," Guffey said. "So our sales force is winning more, they're winning faster and they're winning better."

Guffey said 95% of all deals less than $1 million use the tool. By the third quarter of this year, UPS expects nearly all deals up to $10 million to be priced in Deal Manager.

UPS is also developing a more nimble pricing approach on its Digital Access Program, an initiative connecting the company to top e-commerce platforms to offer rate discounts and other services for shippers. Fastlane, a new capability for the program, unlocks more flexibility for UPS to adjust rates on a transaction-by-transaction basis, Guffey said.

"Prior to Fastlane, offering new product capabilities took months," he said. "Now we can do it in days and weeks, and when it comes to rate changes, we can implement within 24 hours."

UPS has seen growth in its Digital Access Program, more than doubling its customer base since 2021 with 5 million on board and 25,000 more being added weekly, Guffey added.

4. UPS looks to double healthcare revenue

UPS aims to reach $20 billion in annual healthcare revenue by 2026, doubling the amount it made in 2023, after strengthening its capabilities in the sector through acquisitions and new facilities.

Along with small and medium-sized businesses, healthcare is a key customer target as it is generally more profitable than home deliveries on a per-shipment basis.

"The healthcare logistics market is a major strategic move for UPS, because the demand for healthcare is growing, and healthcare companies of all sizes are rapidly innovating to keep pace with the needs of an aging population and problems related to chronic disease," said Kate Gutmann, UPS EVP and president of international, healthcare and supply chain solutions.

UPS is specifically focused on becoming the top provider of complex healthcare logistics, a market that is projected to grow to $82 billion in 2026. The company's investments in healthcare logistics capabilities are centered around six growth segments: Cold chain, clinical advanced therapies, labs and diagnostics, pharma, home healthcare and medical devices, Gutmann said.

UPS aims to leverage its end-to-end capabilities to help reach its 2026 revenue goal and differentiate itself from its competitors.

"[There are] tens of thousands of specialized healthcare logistics providers that do a piece, but not the whole," Gutmann said.

5. UPS launching new weekend sorts

UPS will offer Saturday package pickups for Sunday sortation starting in Seattle, Houston, Boston and Minneapolis this year, said Nando Cesarone, EVP and President U.S., speeding up delivery times by injecting volume into its network earlier.

"For example, when a customer has a scheduled Saturday pickup they can reach many of their customers a day faster with a Monday delivery," Cesarone said. "We can also accommodate shippers to inject volume on Sundays for that same Monday delivery."

UPS plans to launch new weekend sorts in 26 origins overall. That will help UPS better balance volume levels throughout the week.

"Our peak day is actually Wednesday, and the more we can de-peak the week and spread that volume across the days, the better off we'll be economically," Cesarone said.

OnTrac's launch of seven-day delivery for most of its network differentiates it from FedEx and UPS in the ground parcel shipping space, but long-term success will hinge on shippers' own capabilities and how much consumers value Saturday and Sunday deliveries.

The service's debut began in March with various omnichannel retailers and direct-to-consumer brands on board, ready to take advantage of faster delivery speeds, OnTrac said in an announcement.

"For example, a customer living in New York City places an online order on Tuesday from a retailer that ships from Southern California," the company said. "OnTrac will deliver the customer’s order by Saturday, up to two days faster than the national carriers, who will not deliver the order until Monday."

As OnTrac’s service has expanded into the weekend, competitors FedEx and UPS both remain limited in terms of Sunday delivery. UPS taps the U.S. Postal Service for Sunday deliveries through its SurePost service, and FedEx Ground reduced its Sunday home delivery coverage to focus on densely populated areas last year.

Although FedEx Ground still offers Sunday delivery to 50% of the U.S., its rollback opened the door for OnTrac to launch seven-day delivery as a more enticing service in a crowded parcel delivery market, said Caleb Nelson, chief growth officer at Sifted, which offers logistics optimization software for shippers.

"At a time where everybody's fighting over volume, anything that you can do to differentiate yourself as a market leader in your specific segment, they're going to do," Nelson said. "I think it's a smart thing to do as long as you've got the density to be able to handle it."

For OnTrac, 75% of its network is now offering seven-day delivery. Expanding that to less populated areas will be a challenge, as carriers need enough packages per route to cover the added operating costs tied to extra delivery days. Attracting enough large-scale shippers to fill delivery vans on the weekends is a tall order for carriers in today's soft demand environment.

"I think it's going to be very difficult to consolidate that much density until you see, unfortunately, fewer players in this market," said Vijay Ramachandran, VP of go-to-market enablement and experience at Pitney Bowes.

Shipper limitations complicate adoption

OnTrac said various shippers signed up to secure seven-day delivery capacity ahead of its debut, but weekend services isn’t guaranteed to be a perfect fit for other businesses interested in the service, experts say.

Sunday delivery has value if it can be displayed to a customer as a clear, estimated delivery date, LPF Spend Management founder Nate Skiver said in a LinkedIn post. However, many retailers display delivery estimates in business days rather than calendar days, since not all carriers deliver on the weekends.

"This leaves 7-day Ground residential delivery as a nominal 'surprise and delight' value," instead of a competitive advantage, Skiver said.

Shippers that want to tap into carriers' weekend delivery capabilities should be able to offer live customer support on those days as well, rather than forcing the recipient to wait until Monday for issues to be addressed, Sifted’s Nelson said. They should also consider how many additional orders they would generate by offering weekend delivery, and ask themselves if the demand boost is enough to make the endeavor worthwhile, he added.

"Honestly, if I was a shipper, that'd be kind of a hard question to answer," Nelson said.

Are consumers on board for weekend delivery?

Whether weekend delivery will generate more demand for OnTrac shippers remains to be seen. In a Pitney Bowes survey of 2,094 U.S. consumers in July 2022, 41% of respondents said being able to get packages delivered on Sundays is important.

Additionally, only 21% of consumers polled considered Saturday and Sunday as factors in estimated delivery dates, according to Pitney Bowes. Those respondents expected a Friday order with 3-day shipping to arrive Monday at the latest.

"Taken together with responses to our hypothetical 3-day shipping scenario and the largely unchanged definition of fast, we see the 41% of online shoppers who call Sunday package delivery important as aspirational thinkers, not a groundswell of consumers demanding Sunday service from retailers," Pitney Bowes said.

However, expectations may have shifted further in Sunday delivery's favor since that survey took place. Weekend delivery is an important perk for retailers looking to compete more effectively against the likes of Amazon, Walmart and Target, said Jie Zhang, a professor of marketing and Harvey Sanders Fellow of Retail Management at the University of Maryland. All three have made heavy investments in recent years to deliver to customers faster.

"From the shoppers perspective, it's not like most people absolutely need that weekend delivery, but to know that it is within their range as one of the options they could check really makes a huge difference," Zhang said.

Amazon is finally inching its way toward direct competition with FedEx and UPS with the relaunch of its Amazon Shipping service, and experts see both benefits and potential downsides for shippers considering the ground delivery offering.

The long-awaited push by the company into last-mile services outside of Amazon.com orders isn't yet a comprehensive answer for how to compete with traditional delivery giants. The ground shipping service for Amazon.com sellers offers delivery in two to five business days in the contiguous U.S. for orders placed on non-Amazon channels, per its website.

However, parcel industry observers say that Amazon Shipping's promise of straightforward rates without tacked-on fees and a speedy claims resolution process could make it an appealing alternative for small businesses.

“We’re always working to develop new, innovative ways to support Amazon’s selling partners, and Amazon Shipping is another option for shipping packages to customers quickly and cost-effectively," spokesperson Olivia Connors said in an emailed statement. "We’ve been providing this service for a while with positive feedback so we’re now making it available to more selling partners.”

Amazon previously offered the service in select cities before pausing it in 2020. But the relaunch marks a new chapter in the company's foray into parcel shipping, which could be far more disruptive for established delivery providers.

"This is not a test, it's not a trial, it's not a 'dip your toe in,'" said Nathan Hughes, president of Shipware. "It is a strategic, scaled rollout of this service in the marketplace."

How Amazon differs from other FedEx, UPS challengers

With pandemic-era capacity constraints a thing of the past, relaunching Amazon Shipping will help the company wring additional profit out of an expensive and expansive network.

"Every single package they bring on board is going to drive revenue that will help to subsidize the cost of their own operation," Marc Wulfraat, president and founder of MWPVL International, a consulting firm that tracks Amazon's logistics footprint.

This massive fulfillment operation is a key reason experts believe the company's emerging shipping service could pose a legitimate threat to FedEx and UPS. The two companies' current dominance in the parcel delivery sector is dictated by their expansive network infrastructure — warehouses, trucks, planes and people working to deliver packages in the U.S. and beyond — creating a barrier to entry few companies can even consider matching, Hughes said.

Amazon is one of the select few who could. The e-commerce giant is already a formidable player in terms of delivery activity, handling 4.8 billion deliveries last year, surpassing FedEx, according to the Pitney Bowes Parcel Shipping Index. In 2019, it handled less than half that amount.

"It's now a major juggernaut that is different than what it was pre-COVID," said Caleb Nelson, chief growth officer and co-founder at logistics software provider Sifted.

Amazon Shipping's possible pros and cons

Amazon has released few details about Amazon Shipping beyond what's on its website, but industry observers say the service appears to be targeting small- and medium-sized businesses in the near term.

The service touts "simple rates," which would be particularly attractive to smaller merchants that often don't have the in-house expertise to understand a nuanced parcel shipping contract with FedEx or UPS.

If rates are as straightforward as Amazon claims they are, then some shippers may be able to accept transit times of up to five days and bring over some of their FedEx and UPS volume, Nelson said. The lack of a residential delivery surcharge is also a significant benefit, he added.

"For an e-commerce business, that's a home run and will substantially reduce the cost," Nelson said.

However, Amazon Shipping could have trouble attracting large-scale, enterprise shippers for several reasons, experts say. Potential concerns they flagged include:

• Losing volume-based discounts from other carriers if they shift packages to Amazon Shipping
• How Amazon handles the service's deliveries compared to Amazon.com orders in periods of tight capacity, such as during the holidays or a Prime Day sales event
• The service is unable to reach the entire U.S. population by itself. The company says it will use the U.S. Postal Service to cover all Amazon Shipping delivery destinations
• Fears of Amazon rolling back the service if interest isn't high enough

Amazon's service could also threaten to siphon volume from UPS at a time when it still relies heavily on the carrier to make some of its deliveries, though it has reduced its reliance on the carrier in recent years.

"They've got to walk a little bit gingerly right now, because they still ship a fair amount of volume through UPS," Wulfraat of MWPVL said.

In the short term, Amazon Shipping is unlikely to be a legitimate competitor to FedEx and UPS due to obstacles attracting enterprise shippers, said Ninaad Acharya, co-founder and CEO of Fulfillment IQ. Instead, the company could grab market share from smaller, e-commerce-focused delivery providers like Pitney Bowes and DHL eCommerce as it builds the foundation to compete against the established delivery giants in the long-term.

"I would never, ever discount anything that Amazon does," Acharya said. "I think a lot of people have learned that the hard way."

​The financially ailing Postal Service wants to draw more commercial shippers into its network to generate more revenue and counteract declining mail volumes.

Shippers with USPS are slated to receive a lot of attention in the next steps of the agency’s 10-year transformation plan under Postmaster General Louis DeJoy.

Priorities for year three of the plan include growing revenue through new shipping services and accelerating local delivery speeds with new facilities, according to the agency's two-year progress report released in April.

It's a big undertaking, considering the agency didn't achieve the plan's 2023 break-even prediction and how long its focus has been on handling mail rather than packages. But DeJoy has expressed confidence that the transformation will enable the Postal Service to more effectively compete against private delivery providers like FedEx and UPS in areas including price.

"I believe we can become the preferred delivery provider in the nation, reclaiming volume we have lost over the years and capturing a significant portion of the future growth in the marketplace," DeJoy said in a keynote address at the National Postal Forum in Charlotte, North Carolina.

New, streamlined services

The Postal Service expects to see $24 billion in net package revenue growth under its Delivering for America strategy, and its best opportunity to take share from FedEx and UPS could come from a plan to consolidate existing services into one offering.

The agency aims to streamline three package shipping options — USPS Retail Ground, Parcel Select Ground and First-Class Package Service — into a new product, USPS Ground Advantage. It's set to launch the service on July 9, pending review from the Postal Regulatory Commission.

The Postal Service said in a news release that the service provides a more affordable way to ship packages up to 70 pounds in two-to-five business days. The agency is proposing for USPS Ground Advantage prices to be 1.4% lower relative to current Parcel Select Ground and First-Class Package Service pricing.

Ground Advantage could pose "a significant challenge" to FedEx and UPS even though the two delivery giants have more customized and flexible shipping services, Joshua Galbraith, business development manager at ShipMatrix, said in a LinkedIn post.

"It is likely that with the introduction of the USPS Ground Advantage service, FedEx and UPS may need to reconsider their pricing strategies to compete with the significant price advantage of USPS," Galbraith said.

Beyond Ground Advantage, the Postal Service expects further package revenue growth will be driven largely by USPS Connect, a wide-ranging offering that includes same-day and next-day delivery. The program, launched in 2022, has a suite of services including Connect Regional and Connect Local.

Connect Regional provides next-day regional delivery by having shippers dropping off packages at facilities close to the final destination. The service has brought in $1.1 billion in revenue by offering direct network access to medium and large-sized shippers, per a Postal Service progress report.

Connect Local, on the other hand, offers same-day and next-day delivery for local businesses within their communities. The service, which is now available nationwide, has shippers bring packages or envelopes to a designated local postal facility for speedy delivery. More than 27,000 customers have registered for the program, the report said, despite a tepid reception in initial tests of its document-focused shipping service.

"The potential of the new suite of services will be maximized when we complete the realignment of our network," the report said.

Facility consolidation aims to speed up deliveries

To keep up with growth in its package delivery services, the Postal Service is overhauling its network for speed and efficiency. The agency has targeted key markets where it can consolidate delivery units — the final facility parcels go through before delivery — into fewer and more centrally located Sorting and Delivery Centers.

"Historically, [delivery units] were opened to meet growing demand, which ultimately created clusters of facilities close to each other, especially in busy metro areas," the agency's report said, adding that it led to operational inefficiencies.

The Postal Service opened its first Sorting and Delivery Center in Athens, Georgia, last fall before launching five additional centers in Florida, New York, Texas and Massachusetts in February, according to the report.

The agency is preparing for further growth of this network, as it has evaluated more than 100 potential new locations nationwide. DeJoy told Supply Chain Dive in 2022 that vacant postal facilities are a prime target to set up new Sorting and Delivery Centers.

Local communities across the U.S. have griped about Postal Service delivery delays in recent months, even despite year-over-year improvements in on-time mail performance overall. The agency says the end result of its buildout will be faster processing and delivery speeds between local retailers and their customers, as the centers will be able to quickly reach 200,000 customers in a local market.

“We must now execute rapidly on our plans to deploy our network," DeJoy said at the National Postal Forum. "This is the only way to achieve the service and cost improvements necessary for us to fulfill our mission to rescue this organization.”

Deliveries continue to get faster, but further improvements will be hard to realize in an era of shifting consumer preferences and cost mitigation among shippers.

In April, the time between a customer placing an order and final delivery fell to an average of four days, according to project44's "State of Last Mile" report released in May, compared to 5.6 days in April 2022. The company’s supply chain visibility platform tracks more than 1 billion shipments annually.

"Looking farther back on historical delivery times, 2023 is seeing the quickest delivery times that the Last Mile market has seen in years," the report said.

Carson Krieg, project44's head of industry growth and last mile solutions, told Supply Chain Dive that a "healthy average" for end-to-end fulfillment is between four to six days. That raises the question of how much more delivery times can shrink.

"I think there's going to be some mediation to the norm," Krieg said.

What's fueling faster deliveries?

There are many reasons why delivery speeds have improved, according to Krieg.

On the transportation side, parcel carriers no longer have the capacity constraints that challenged their service levels in the early days of the pandemic. Shippers have diversified their carrier mix, tapping into speed advantages new delivery providers may have on certain lanes.

"A two day point for UPS going from Southern California to Northern California may be a next day point for OnTrac," Krieg said.

On the fulfillment side, companies have moved inventory closer to end consumers, most notably Amazon and its shift to a regional network model. Retailers have been pushing for years to better compete with the delivery speeds offered by Amazon's massive warehouse network, said Martin Dresner, professor and chair of the University of Maryland's logistics, business and public policy department. The pandemic accelerated those efforts, particularly for ship-from-store initiatives.

Other major retailers have also been bolstering their fulfillment investments and efforts. Walmart's store-fulfilled delivery sales nearly tripled over a two-year period, with the company seeing more than $1 billion a month in that category. Meanwhile, Target announced a $100-million investment earlier this year to leverage its store footprint for next-day deliveries, building upon its stores-as-hubs strategy.

It’s not just the Amazons and Walmarts of the world speeding up deliveries. American Eagle and Nordstrom have reported quicker timeframes to reach customers on recent earnings calls.

"We are delivering better service to our customers through faster delivery, with overall delivery speed up 9% from last year," Nordstrom CEO Erik Nordstrom said on a May 31 earnings call.

Cost mitigation, consumer wants could slow deliveries

A confluence of factors will likely limit delivery speeds from going much faster, if not slow them down outright.

Retailers have been cautious in recent months about leveraging higher-cost shipping services in an inflationary environment that's biting into their bottom line. In turn, the demand for express deliveries using air cargo networks has waned, with many shippers instead calling for more economical ground transportation.

"We can be in that three to five day click-to-deliver timeline," said Laura Ritchey, COO at e-commerce fulfillment provider Radial. "It gets really expensive to go faster than that."

Companies shifting to more regional fulfillment models like Amazon could lower transit times and shipping costs. But it's a risky venture for companies lacking the robust infrastructure and forecasting capabilities that Amazon has. If demand starts to shift, inventory may be stationed in areas where it isn't as economical or fast to ship out of, said Vijay Ramachandran, Pitney Bowes' vice president of go-to-market enablement and experience.

"The more you segregate your inventory across the country, the more you have to be really buttoned up with demand planning and have a good idea of where your demand is going to surface geographically," Ramachandran said.

Poor forecasting makes it harder to deliver on time, which is likely to lead to unhappy shoppers, even if transit times are still relatively fast. Sixty-two percent of consumers say an accurate estimated delivery date is more important than fast shipping, according to Pitney Bowes BOXpoll market survey data.

But many retailers haven't slowed down their delivery promises to improve accuracy. On-time performance dropped from 83.9% to 80.4% YoY in April, per project44, which attributed much of this decline in its May report to "the aggressive timeframe that some companies promise to deliver within."

Retailers will need to strike a balance between cost mitigation and meeting consumers' expectations in order to improve their delivery offerings for the long run, experts say.

"We're in a post-COVID environment, but it is not the same as where we were pre-COVID,” Ramachandran said. “That shift requires some new assumptions around what's important to consumers.”