Mid-Year Look Into the Parcel Landscape

Mid-Year Parcel Landscape

The shipping industry continues to change, and those changes are happening faster. On the carrier side, supply chain costs from fuel to labor to fulfillment services, keep rising.

On the consumer side, Americans keep ordering more packages online and expecting them to be delivered faster. Two-day shipping is now an expected norm. The variety of packages being shipped keeps growing, as customers buy heavier and bulkier items online instead of in brick-and-mortar stores.

All of this together explain why parcel shipping rate increases are rising twice the rate of inflation.

Innovations are in the works across the industry with some are quickly becoming everyday practice. Drones and self-driving trucks get most of the media attention. Parcel lockers and hold-at-location options are increasing efficiency for carriers while addressing customers’ desire for flexible delivery.

Last-mile delivery (the most expensive part of shipping) remains a puzzle for many carriers, who are trying to solve it by implementing a number of different strategies.

As parcel carriers get ready to announce mid-season surcharge increases, here are the trends we’re tracking in 2018.

Carriers Are Zeroing in on Large Packages

Every shipper knows this pattern by now: American consumers keep ordering more products online. At the same time, they continue to expect low-cost or free two-day shipping or less.

Carriers can deliver those services, but that performance comes at a cost. Base rates have risen by an average of 4.9 percent annually for several years. When we include surcharges and accessorial fees, shipping costs are rising by more than 6 percent annually.

In the last year, carriers have aimed their biggest surcharge hikes at large and heavy packages including oversize package fees, additional handling fees and over maximum fees. These per-package charges can climb into the hundreds of dollars.

Heavier items weigh trucks down, causing them to burn more fuel. Moving these products through warehouses and to doorsteps is a much slower process than it is moving small parcels. That means heavy, bulky packages are more expensive for carriers to move.

Carriers say the goal of these hefty surcharges is to discourage the use of standard package services for mattresses, appliances and furniture and force retailers to move those parcels through freight services instead.

Pricing certainly may be able to change shipper behavior. The change will have to come on the part of shippers and carriers, though customers show no sign of gravitating away e-commerce companies.

DHL is Back in the US Parcel Market

FedEx and UPS have maintained a duopoly over the U.S. shipping market for years. They face some competition from the U.S. Postal Service and regional carriers, but no true national carrier has sought to challenge their dominance.

That is, until DHL re-entered the market this year.

DHL Parcel Metro is the carrier’s attempt to break into the last-mile delivery market. The service offers next-day or same-day delivery, utilizing an existing network of fulfillment centers and on-demand contract labor. DHL plans to add two-hour delivery too.

DHL is still significantly smaller than FedEx and UPS. Currently, the company delivers about 500 parcels per year in the country. FedEx delivered 400 million parcels during the five-week holiday season in 2017.

However, DHL announced a $137 million investment in seven new or expanded U.S. fulfillment centers in 2016.

Parcel Metro is not a new cross-country delivery network. It will only be available in urban areas, and DHL is positioning itself as a last-mile fulfillment partner—not a full-service carrier. But that will keep the company’s costs low, meaning DHL will likely be able to undercut the FedEx and UPS services it competes with.

If Parcel Metro forces UPS SurePost and FedEx SmartPost to offer discounts or slow rate increases, that’s good news for shippers across sectors.

Rising Costs Throughout the Supply Chain

Carriers aren’t just raising rates because they’re racing to keep up with consumer expectations. Their costs are rising, too.

First, fuel is getting more expensive. Oil prices are at their highest levels in almost four years. Second, there is a severe nationwide shortage of truck drivers, meaning carriers are paying higher and higher salaries to try to attract workers.

According to a Washington Post summary of data from DAT Solutions, shipping a “dry good”— one that doesn’t require special handling, such as refrigeration—now costs more than $1.85 per mile, up 40 percent from a year ago.

Fuel prices are subject to global economic trends. Long-term, automation may eliminate take care of the trucking labor shortage, but widespread adoption of self-driving vehicles is still many years away.

As these costs rise, carriers naturally pass them onto shippers. Retailers and manufacturers can’t do much to mitigate these industry-wide trends. But they can prepare for rising prices by eliminating inefficiencies in their existing shipping contracts and minimizing their shipping spend. This is so that even when prices rise, they’re not spending more than they should. Want a second opinion? Reveel’s consultants can help analyze your shipping data and provide professional advice on money-saving solutions that are specific to your company.

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