2019 has seen a number of changes in the parcel industry, such as FedEx not renewing their contract with Amazon, the new UPS 5-year labor contract, and the near departure of the US from the Universal Postal Union. What will 2020 bring? Here are 4 trends to consider in your parcel shipping planning:
1. Rates will not only go up, but affect you more than each carrier’s General Rate Increase announcement suggests.
Background
Every year, the major parcel carriers release their announcements for pricing changes in the coming year. FedEx has announced a rate increase of 4.9%, UPS 4.9%, and even USPS expects package pricing to increase 5.3% in 2020. But these rate announcements are never that simple.
Changes to zone maps, surcharges, and the contractual clauses of each shipper always change the direct impact, with many shippers taking increases greater than the 4.9% stated averages. To make it even murkier, each provider makes additional announcements throughout the year for changes to services, new services, and even changes to policies that can increase the cost of shipping indirectly.
At the same time, the dynamics of the industry are changing. The direct increase in volume across all services, the increase in volume for faster services, and the need for additional delivery methods to the consumer are all contributing factors. These trends will continue in 2020, and the resulting pressure on pricing will continue as well.
So, what can you do to mitigate this trend?
Negotiate your contract to cap increases, use custom values, or even negate whole surcharges in the billing. Know which areas of the service guide for your carriers can impact your costs. And finally, stay on top of the news from the carriers to determine how your service may change.
Ensure that you audit your parcel invoices from your carriers. Given the lag in the billing systems for international, multi-carrier, or unusual circumstances, it may take a while for all charges for shipments to be known. Auditing will not only allow you to know your true “Cost to Serve,” but also where your service needs attention. The quarterly reviews with the carrier are great for spotting trends, but actively contesting bills or catching emergent issues will aid in preventing shifts you don’t expect.
2. Consumers will expect faster and more reliable deliveries
Background
In 2019, Amazon announced their emphasis on 1-day delivery for orders to Prime members. To accommodate this, Amazon has created its own network of warehouses and delivery trucks. Given this widespread membership in Amazon’s Prime program, this fast delivery expectation will be demanded of other e-commerce – or any commercial – operations by customers even more so in 2020 than 2019.
In response, the major carriers have added more planes and trucks to their fleets. They are adding facilities, technology, and even automation to any element that can speed processing and delivery.
This expansion allows their customers to meet the operation changes needed for more rapid shipping and new service options. You can obtain later pick up times for certain services, new delivery options for secure delivery, and more accurate delivery day commitments to the customer’s door.
This shift towards policies and networks to speed deliveries will only accelerate in 2020. The most obvious policy change will be the availability for FedEx Home shipwares for Sunday delivery beginning in January of 2020. While this is expected to shift volume from the SmartPost final mile deliveries from USPS back to FedEx, the true impact is still unknown.
3. Carriers continue to expand and increase capacity
Background
Another major impact of the split between Amazon and FedEx was the increase in capacity the FedEx Express services suddenly created. While the temporary increase in 2019 helped to handle growth, the expected 2020 growth in e-commerce and matching Amazon on order to door speed has encouraged all carriers to expand their fleets, networks, and delivery options.
FedEx announced expansions to their Memphis facility with a planned final expenditure of $450 million. UPS has announced the creation of at least 5 “superhubs” to support faster processing. These two plans, announced in 2019, will result in capacity coming online in 2020 for pure volume. Exactly when and how much remains to be seen in the coming months.
This means that 2020 pricing will reflect the need for newly expanded offerings to contribute to margins. Like all pricing changes announced for 2020, the exact pricing of each service, zone and weight will be focused on making the shift to more packages moving faster profitable.
How to address the trend for increased capacity
More capacity in vehicles and processing capability should mean additional flexibility in handling your shipping volume. The additional cost can be addressed in the parcel contract negotiations that you should have with your carriers. These negotiations should aim to remove minimum charges for various services, discuss pricing bands for the services you use, and rationalize the selection of which services must be used. You should focus on using primarily ground services to make use of the expanding facility network and only use the air/express services as needed.
4. Changes to petroleum markets and regulations
Background
The other trend to watch closely is the shift in regulations for fuel and the surcharges they generate. This trend is more subtle than most and requires explanation. Fuel surcharges are indexed to a specific weekly US government diesel price index. Any change to the refinery capacity or output that can impact that index is then modified by each parcel carrier. So what factors can affect the refinery capacity and production?
In 2020, ocean carriers will be affected by IMO 2020 regulations. The push for ultra-low sulfur fuels for the ocean shipping fleets of the world will put pressure on refineries to find new markets for the fuel oil no longer being purchased. This shift may put pressure on the diesel market to compensate. While the ocean carriers, refineries, and parcel carriers have had time to begin the transition in 2019, the deadline is in 2020. Whether the players have adjusted to the new fuel demands sufficiently has yet to be seen, or the true impacts felt.
The other major factor on the fuel costs is the carriers’ expansions into alternative fuel options. As of 2019, most of these attempts are trial runs, designed to test the actual value of using electric, hybrid or more exotic fuels like LNG. Currently, the focus is on the final mile delivery segment of the delivery network, but even the OTR fleets are testing new ways to fuel their trucks. Expect the carriers to expand their testing in 2020 as the results of the initial tests are evaluated.
What can you do with this trend?
Once again, know where the fuel surcharges affect your shipping. FedEx and UPS both apply the fuel surcharge to the base shipping charge for each shipment. But certain surcharges may have the fuel surcharge calculated on top of them as well. It should only affect large, non-standard packaging, or poorly packed items. So, controlling the more “unusual” shipments in your fulfillment chain will save you more money than just the base charges.
Conclusion
The central theme for these trends is that costs will go us as the carriers expand services, options, and networks. Making use of the additional capacity, new service offerings, and expanded coverage areas will definitely help you meet your shipping expectations.
Customers expect fast fulfillment and your parcel carriers are a major part of your response. But, at the same time, your costs can increase. Knowing how you are affected and how you can address those costs pressures is key to keeping control of them.
Shipware offers parcel and LTL invoice auditing as well as parcel contract negotiation consulting to ensure that your company can keep up with the latest trends in the parcel shipping industry. This can save you money, reduce the variances in your on-time delivery performance, and help you add functionality to keep ahead of change.
