Parcel & Express Consulting Services
Created by:
Geoff Chambers
Director, Supply Chain Services
a Division of Scarbrough Consulting
2023 INCREASES
he dynamics of the parcel and express consulting services landscape has changed dramatically over the past several years. What was once a few pages contract, now contains 35 plus pages involving a host of accessori-al charges and undercurrents. This past year, both UPS & FedEx Express implemented the single largest General Rate Increase in their history. By all appearances, this 6.9% GRI is on their base rates, which were once mir-rored but changed at the start of 2019, mak-ing it more challenging to quantify. While the GRI might seem straightforward, and uncomplicated, accruing for this additional cost is not that informal. Quite the contrary. There are new Delivery Area Surcharges (DAS), tighter dim factors, peak surcharges, the lack of money back guaranteed services, 3 day select services climbing 7.5% and 11.9% beyond Zone 5. Moreover, FSC with both carriers has more than tripled in 2023 while in the 2nd Quarter of 2022 for example, jet fuel increased 125% year over year to name a few. Navigating the changes and understand-ing their impact on your package-level detail becomes paramount.
U.S. PARCEL SHIPPING VOLUME FROM 2016 - 2022
To get an idea of parcel volume managed by carrier in 2022, according to UPS, they av-eraged 27 million packages per day, FedEx Express 10 million, and the USPS ships around 4,900 pieces per second.
Without question, during the COVID pandemic, the escalation and growth of parcel volume and E Commerce business intensified. Teamsters and non-union employees alike were working 24/7, including overtime to keep up with the demands and volume. 2023 has been like a springboard for the Teamsters to gather their ranks and stand firm on negotiations with UPS. Moreover, FedEx pilots reached a new agreement in late May of this year, with a 30% pay increase, 30% increase to their legacy pension, and a fully developed, equally balanced Market-Based cash balance pension to replace their legacy pension. To put into perspective the timing of the new FedEx agreement, negotiations had been taking place since May of 2021 with mediation in tow, November of 2022. This timeline provides us with a possible scenario with the imminent Teamsters strike.
THE ECONOMICS OF A STRIKE
Using the statistics from 2022, recognizing UPS handles approximately 24% of the total U.S. par-cel volume, we do know UPS has a “contingency plan” in place for about 4 million packages per day in the event of a strike. This leaves the marketplace with close to 20 million packages per day to default to other service providers such as FedEx Express & the USPS. Even with the USPS new “Ground Advantage” program, along with FedEx Express, who is having their own internal difficulties and announced earlier this year on their SEC earnings call, they were grounding planes and shutting down service centers, the strike of 1997 is trivial in comparison to today’s package volume and marketplace. UPS could potentially lose a significant percentage of their volume not to mention, lost drivers’ jobs for all the packages diverted to other carriers. One of the other economic outcomes of the strike would be the forward push on the LTL carriers. During the strike of 1997, and subsequent lack of coverage, Shippers moved more volume through LTL channels. One of the examples would be minimum charge floor. While most shippers have a threshold of around 150 lbs. on their weight break for parcel before they move to LTL, in many instances, some will shift smaller shipments and palletize them to minimize service disruptions. There may also be a drive to offer discounts for Shipper’s customers to purchase more product at a reduced price to compensate. In any event, there will be a strain on the LTL providers as well. During the past several years, there have been more regional parcel carriers who can provide zonal parcel pricing. While this solution may be cohesive in specific zones and regions, this ser-vice has not advanced enough to be a replacement for the larger parcel carriers and service.
TAKING THE NECESSARY STEPS IN PARCEL & EXPRESS NEGOTIATIONS
Regardless of a strike, it is critical to understand a list of key objectives when negotiating parcel & express agreements. Below are a few examples:
- Understand your shipping profile and data trends at the package level.
- Know your current agreement and what you are paying for, including hidden accessorial charges (how much of your volume is DAS - over 25,000 US zips out of 41,000 are now DAS)
- What is your shipping environment, JIT, PO fulfillment ratio, OTIF, average zone, average cost per piece, average weight per piece, OD parcels, and annualized spend?
- What are your internal needs - are you on target with your accrual, has e-commerce increased as % of sales, have shipping characteristics changed or been adjusted to eliminate or reduce your incentive program on cost per piece, what are your scenario plans to improve ROI, do you have rebates on money back guarantees or did you sign a waiver, is your sales, customer service departments, and operations working in collaboration with one another, what is your forecast, and goals in 2023 & 2024 as it relates to parcel & express consulting services.
EXPECT MORETM FROM YOUR LOGISTICS PROVIDER.
Founded in 1984, The Scarbrough Group has grown its global logistics operation, one client and one employee at a time. Whether international freight forwarding, customs brokerage, transportation services, or warehousing, The Scarbrough Group manages supply chains differently. We remain a people-first organization with dedication to traditional values and support for our community.