Small parcel shipping is no small expense

Impact of coronavirus, sweeping trends and business as usual

April 15, 2020

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Small parcel shipping is not a small expense category for most medium-large organizations.

Because of changes and trends—some due to the coronavirus pandemic, others to new forces like the shift to cleaner fuels or simply business as usual—shipping and transportation costs are rising beyond their usual upward climb.

UPS and FedEx changes due to coronavirus pandemic

UPS and FedEx have both announced suspensions and surcharges due to COVID-19. Surcharges have been implemented on shipments originating in China and Hong Kong and destined for the US, the Americas and Europe. These surcharges will have a significant cost impact on manufacturers and businesses that rely heavily on Asian imports. Shipping experts expect further COVID-19 related surcharges in the near future.

Both carriers have suspended their service guarantees for all US domestic and international shipments at any service level. These suspensions are similar to peak holiday season terms, but with the added uncertainty of no defined end date. For organizations that utilize parcel invoice audit services, the suspension of the money-back guarantees can potentially add 2–5% to each invoice.

Finally, UPS and FedEx have temporarily amended their signature guidelines, with the exception of Adult Signature Required (ASR) shipments. These surcharges may be a moving target, depending on how long physical distancing mandates remain in place to limit interaction with customers.

Shipping business as usual

Rates are going up and affecting businesses more than the carriers’ general rate increase announcements might suggest. Major parcel carriers increase their pricing annually. For 2020, FedEx and UPS made a rate increase of 4.9%, and the US Postal Service package pricing increased 5.3%.

Each provider also makes ongoing announcements for actions like service changes, new services, policy changes, zone map updates, and contractual clauses, all of which play a role in shipping spend. In short, you can expect these actions to affect your total shipping costs, either directly or indirectly.

Shipping industry trends

Small parcel shipping is growing in volume, with demand for faster services and the need for new delivery methods, trends that will continue in 2020 and beyond. Much of this is being driven by the shift to online purchasing, with Amazon leading the way, which trickles down and across into many different markets and industries.

In response, the major carriers have been building their fleets, adding facilities, investing in new technology, and automating anything they can. FedEx is expanding its Memphis facilities. UPS is creating several “superhubs” to support faster processing. These upgrades will enhance service, but they will be costly investments.

Meanwhile, the Wall Street Journal recently reported on Amazon’s most recent announcement that it will suspend Amazon Shipping starting in June. That service, which had been a source of new competition for UPS and FedEx in the United States, will no longer be a force that could restrain carrier pricing.

Greater vehicle capacity 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.

Fuel changes and alternatives

Another trend starting to have a subtle impact but expected to strengthen is the shifting regulatory climate and market desire for cleaner alternative fuels, which will impact this index and likely fuel further surcharges, pardon the pun.

  • In 2020, ocean carriers will be affected by IMO 2020 regulations and a push for ultra-low sulfur fuels for shipping fleets.
  • UPS and FedEx are expanding trials to test the value of electric, hybrid and other emerging options. The focus is on what’s referred to as “the final mile” segment of the delivery network, but trucks are also being tested.

Know where the fuel surcharges affect your shipping. Currently, both carriers base fuel surcharges on a weekly US government diesel price index, and that may become more volatile with new fuel options. Also note that FedEx and UPS both apply a fuel surcharge to the base shipping charge for each shipment, but it may be calculated on top of certain other surcharges as well.

Recommendations for controlling shipping costs

These changes and trends can be mitigated in a variety of ways, both for short-term management and future planning. Typical quarterly carrier reviews can spot trends and activity, but hinder your ability to spot errors and issues in a timely fashion.

It’s important to audit all your carrier invoices and actively contest any questionable items. Remember that billing systems for international and multi-carrier shipments or unusual circumstances will always lag, which means it could take a while before you know the final and true charges. Auditing will allow you to understand your true “cost to serve” and identify areas that need attention.

Finally:

  • Pay close attention to large, non-standard packaging or poorly packed items. Reducing or eliminating them can be a significant money-saving change.
  • Negotiate your contract to cap increases, use custom values, and negate billing surcharges whenever possible.
  • Understand which service aspects could impact your costs and track them.
  • Monitor carrier news to plan and avoid unpleasant surprises.

In conclusion, the central theme for these trends is that costs will go up 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 have come to expect fast fulfillment, even if that doesn’t really matter, and your parcel carriers are a major part of your response.

If these additional fees are upsetting your P&L planning, now is an opportune time to consider a contract analysis and negotiation to offset them. Knowing how you can address these new cost pressures will be key to keeping them under control.

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