Moore on Pricing: The parcel oligarchy is alive and well

While the U.S. economic engine is slowly sputtering ahead, the two major parcel carriers—UPS and FedEx—have announced substantial increases again this year. Both companies continue to raise prices in sync—and well in excess of inflation.

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While the U.S. economic engine is slowly sputtering ahead, the two major parcel carriers—UPS and FedEx—have announced substantial increases again this year. Both companies continue to raise prices in sync—and well in excess of inflation. 

As of February, both have minimum fuel surcharge charts at 5%, with current low fuel prices still adding around 15% to most shipments. Shippers were hoping to see the U.S. Postal Service (USPS) step up and compete at the same level as their postal counterparts have in Europe, but it seems that they’ve been co-opted into being a last-mile subcontractor to the two big commercial players.
According to the National Association of Letter Carriers (NALC), USPS “last mile delivery” volume for FedEx alone exceeds 2 million packages per year. “The Postal Service isn’t just another shipper,” says NALC president Fredric Rolando. “It’s a service to shipping companies as well as to other businesses and individuals.”

In 2014, USPS announced a shifting of rates to encourage package shipments originating with them instead. This was met with protests to the Postal Regulatory Commission (PRC) by the oligarchy that the lower USPS prices on packages would eat into their volumes. Fortunately, the competitors were not successful in holding back the USPS from at least starting to move into profitable express markets. 
Based upon their nearly simultaneous regular price increase announcements, it’s clear that FedEx and UPS are not worried that the other will lower prices to win market share—as there’s plenty of business to go around. 

UPS and FedEx joined the USPS in rating with dimensions and weight in 2015.  While this benefits the carriers by allowing for planning of loads in transit and particularly during delivery where trucks are small and routes complex, the move to “dimensional” or “density rate” models was largely interpreted as a price increase by their customers. 

In the meantime, the growth of alternative express carriers for long distance moves in the United States has been minimal. As previously discussed in this column, there’s been an explosion of Uber-style services for local and regional delivery. Applications supporting part-time independent “curriers” to take advantage of nearby spot business opportunities by Web are proliferating. And in addition to independents, regional LTL carriers are beginning to tap into demand via apps as well. 

With the app managing booking, tracking, qualification, billing and quality control, the overhead cost becomes a variable cost, and therefore lowers the barrier to entry for thousands of providers. The shipper would merely have to change processes and technology in order to manage an increased number of potential small shipment providers. 

To make this a reality, shippers need to talk to their internal and external technology services teams to determine their capabilities. Services for managing reverse auctions, live price quotes, tracking and financial settlement in the cloud have emerged, and shippers should be doing some homework as to their cost and availability.

But keep in mind, any cost in a company that increases continuously in excess of inflation will draw management attention.

Shippers can see the relentless price increase pattern set up by the express freight oligarchy, but it will take innovation and creativity on the part of shippers to manage to get to rates that their marketplaces can stand and help them
compete effectively.

About the Author

Peter Moore
Peter Moore is Adjunct Professor of Supply Chain at Georgia College EMBA Program, Program Faculty at the Center for Executive Education at the University of Tennessee, and Adjunct Professor at the University of South Carolina Beaufort. Peter writes from his home in Hilton Head Island, S.C., and can be reached at [ protected]

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March 2016 · Parcel Express · All Topics
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