Small Parcel Costs to Increase Despite Softening Freight Market
While many freight costs are decreasing due to competitive pressures, we are seeing nearly double-digit price increases in small package freight this year. 2H-2023 experienced reduced small parcel shipment demand YoY. This normally leads to reduced pricing to spur demand in a competitive market. Small Parcel, dominated by the UPS and FedEx duopoly, has implemented higher-than-normal price increases for 2024.
FedEx and UPS Show Near Double-Digit Small Parcel Increase for 2024
Both UPS and FedEx are expecting a decline in shipment volumes this year.
UPS and FedEx are increasing prices to compensate for declining volume and higher costs. UPS signed the new labour union contract in 2023 to prevent a strike that will increase labour costs by about 9% year-over-year. Both companies have implemented a general transportation rate increase of 5.9% for 2024. These increases are higher than the 3.9%-4.9% increases we observed pre-pandemic.
Express services (overnight, 2-day, and 3-day) and longer distances/zones are seeing even higher increases than 5.9%. Additionally, minimum charges for overnight shipments will increase between 7.5%-8%. These minimum charge increases will impact the smaller weight and closer zone shipments.
On top of that, the carriers are raising numerous fees that are significantly higher than 5.9%:
- Additional handling charges ^ 18%-21%
- Weekly pickup rates ^ 10%
- Residential/DAS ^ 7-10%
- Address Corrections ^ 8%
US Postal Service (USPS) is Competitive Small Parcel Option
As consumer and media mailing continues declining, USPS is focusing more on commercial deliveries. With their existing last-mile infrastructure, USPS offers competitive rates for smaller consumer shipments.
USPS is also increasing its rates for 2024. USPS Ground Advantage will increase by 5.4%, Priority Mail will see a 5.7% increase, and Priority Mail Express will see a 5.9% increase.
Considering other fees charged by FedEx and UPS, USPS increases are smaller and will remain competitive in 2024, especially for direct-to-consumer shipments of small packages.
ERA Helps Decrease Small-Package Spending Despite Rising Costs
Even in this rising-price environment, there are still ways to reduce costs.
While most companies focus solely on negotiating better discounts, ERA has found that adding operational enhancement to negotiations yields even more significant savings.
Our approach to assessing clients’ operational needs and analyzing pricing options that meet those specific needs has generated substantial savings. Additionally, making informed operational adjustments further reduces accessorial and transportation charges.
By combining these changes with expert rate renegotiations, ERA has helped clients achieve more than an 18% reduction in express and parcel costs.
