Navigating Small Parcel Rates and Capacity ‘Perfect Storm’ in 2021

The first quarter of 2021 promises to bring much of the same volatility and uncertainty to the small parcel rates and capacity environment . With the holiday season behind us, many service providers are now fully entrenched in a worldwide vaccine distribution effort in a shipping environment that was already more expensive and capacity constrained than it was a year ago.

Here’s what all shippers should know as we move out of the small parcel rates chaos of 2020 and into a New Year that promises even more challenges – and opportunities!

Small Parcel Capacity Lessons Learned from the Holiday Season

The 2020 holiday season was like no other. Record volumes of e-commerce orders  pushed major small parcel carriers to levy new fees while also capping volumes in order to balance their networks. Affecting ground, express, and postal service, very few shippers escaped the impact.

“As Americans increasingly shop online because of the coronavirus pandemic, private express carriers FedEx and UPS have cut off new deliveries for some retailers, sending massive volumes of packages ordered past deadlines to the Postal Service,” the Washington Post reported.

With capacity at a premium in the small package environment, shippers were left to their own devices when it came to getting their goods out the door and monitoring the cost and service impacts. We were called upon to help many companies as carriers took a brutally honest approach and let everyone know that they were buckling under the strain.

We’re really gridlocked all over the place ,” a Postal Service manager told the Washington Post. “It’s bad. I’ve never seen it like this before.”

Navigating the Perfect Small Parcel Storm

With carriers implementing caps in order to avoid being overwhelmed (or completely collapsing) and volume congestion riddling networks nationwide, shippers had to swallow a bitter pill: meeting consumer expectations for next-day or two-day service wasn’t happening. Shippers with contingency plans in place going into the holidays fared best as elections and vaccine distributions claimed an extraordinary amount of parcel and mail shipping capacity during the fourth quarter of 2020.

As with any crisis, there are always lessons to be learned. If 2020 taught shippers anything, it’s that it pays to listen to your small parcel carriers. Pay attention to their market moves and announcements. Then factor those insights into your overall transportation planning. We saw a similar uptick in awareness levels in 1997, when a 13-day UPS employee strike crippled the nation’s parcel network.

Fast-forward 23 years and COVID-19 had a similar impact – albeit more sweeping and longer in duration – on an industry that now includes multiple parcel carrier options. This time around, we saw that companies capable of distributing their shipping volume across FedEx, UPS, DHL, the USPS, and other providers (versus relying on just one) fared best during the 2020 holiday season.

Moving forward, smart shippers will continue to integrate flexible tactics into their supply chain planning, knowing that a “squeeze” on one end of that value chain will equate to a diversion at the other end of that sequence. This is where regional carriers and last-mile delivery services are helping to pick up the slack and, as a result, are now being taken more seriously than ever before. We expect this trend to continue in 2021 as companies shore up their transportation plans and work to avoid the challenges of 2020.

Small Parcel Rates: Network Visibility is the Key

Even with the vaccine distribution, COVID, and other outside forces impacting the small parcel landscape right now, we do expect a competitive, more rational, parcel shipping landscape to emerge later this year.

Small Parcel Rate Guide - Insight Fusion

We could see a retreat in surcharges and other extra fees, but only when volume begins to wane and the environment starts to normalize. We also expect more competitors to enter the parcel marketplace and grab some of the opportunities that the larger carriers are overlooking right now. As this takes place, shippers should get some benefit from the heightened competition.

Regardless of the current small parcel shipping environment and the challenges that it’s inflicting on shippers and end customers, supply chain visibility continues to rise to the top as the ultimate combat tool. In an environment where next-day and two-day deliveries are the norm – and where these options are getting more expensive – the company that understands its total shipping costs is the one that will be best equipped to offset the “perfect storm” of capacity constraints, rising rates, and surcharges.

A critical tool for any market conditions, supply chain visibility includes all aspects of your transportation network—from the time the goods leave the loading dock until they reach their final destination, and all points in between. “The COVID-19 pandemic has moved supply chain and logistics technologies to the public eye like few times before,” Crunchbase states, “as shortages at grocery stores and the distribution of a possible vaccine highlight the importance of moving goods and essentials.”

End-to-end supply chain visibility also helps companies pinpoint areas of concern (i.e., is fulfillment causing the delay?), and address them quickly. It also gives shippers accurate insights into carrier performance and enables good decision-making on that front. Transportation Insight, for example, breaks down the data by geographic region and individual carrier to come up with the best possible options for shippers.

In other words, we’re not just throwing small parcel rates and other information over the fence to our customers. We take a highly consultative approach that helps companies shape successful supply chain strategies in any market conditions. As we move further into 2021, expect new parcel shipping opportunities and challenges to emerge. Those companies that align themselves with a knowledgeable, tech-enabled logistics partner will be best positioned to leverage these opportunities and circumvent the challenges.

Tap into our team’s insight to support your freight and parcel management practices. Download our Q1 ChainLink 2021 for multi-modal trend forecasts and cost impact analysis. Read it today  for supply chain strategy guidance, as well as the latest changes in small parcel rates and other transportation modes.

For more detail, listen to our SME Roundtable discuss transportation trends in our latest digital event.

Holiday Shipping: Will Your Parcels be Picked Up and Delivered on Time?

Days after “Black Friday” UPS put holiday shipping restrictions on Nike and Gap and directed drivers to stop Cyber Monday pick-ups at other large retailers that are already exceeding parcel volume forecasts through booming online sales.  

In a year marked by a pandemic-driven shift in consumer buying habits that has driven consecutive quarters of record e-commerce growth, parcel networks have been at or near capacity for months. An unprecedented holiday peak has been on the radar, but as expected, early promotions and efforts to bring parcel volume forward could never be enough.

And in the midst of a monumental peak period, the parcel carriers continue to adjust their strategy to not only drive revenue growth in high demand e-commerce service areas, but also protect volume and achieve competitive advantage as Amazon’s delivery networks continue to evolve. 

Let’s look at some of the latest developments in the parcel shipping environment. They may affect your ability to delight customers this holiday season.

E-Commerce Bloats Holiday Shipping Volume Beyond Capacity

Demand for the 2020 holiday peak shipping season is forecast to exceed 86 million packages a day – about 7 million packages outside current parcel network capacity. These estimates are validated by the National Retail Federation’s estimate that online shopping increased 44 percent during a five-day stretch that included Black Friday and Cyber Monday. 

Both UPS and FedEx prepared retail shippers for tight holiday shipping capacity, issuing advice for holiday shippers and encouraging clients to “shop earlier than ever with special offers or other incentives.” Yet, before December even dawned, both carriers were enforcing volume agreements and applying peak season charges and accessorial fees that create additional order fulfillment cost for shippers. 

In this environment it is critical that you have real-time understanding of your parcel shipping activity. While volume outside agreed-upon levels or historical averages may result in added cost during other parts of the year (as it did with COVID peak surcharges), packages exceeding a shipper’s determined space simply will not be served – at least until additional capacity becomes available.

Shipping Delays: Expect, Forewarn and Facilitate

Based on the recent trends observed, the average package delay rate during the 2020 holiday season may range between 14 percent and 18 percent. Consumers in densely populated cities can expect delays as high as 25 percent to 30 percent. 

Unless you create an expectation of delayed delivery, this can be a real problem for customer experience. Proactive communication with your customers about anticipated delays is one of the most important steps in preserving holiday shipping experience.  Use your website and email communications to help set expectations. 

That said, as consumers’ expectations on speed evolve, we are seeing an increased willingness to wait for a delivery, especially if it means free shipping. According to BoxPoll, more than half of consumers opting for free shipping (57 percent) considered five-day delivery to be “fast” – that’s up 8 percentage points compared to last year. One-third of respondents in the weekly survey said that seven-day delivery is “acceptable” at minimum.

Retailers are positioned to capitalize when they maintain awareness of shipping characteristics, alternative service models and, of course, their customers’ expectations. A “no-rush” option is a familiar part of the Amazon order process, and now other brands are following suit, even offering incentives for delayed or “slow service.” If a consumer considers five-day service “fast,” are you driving up cost by offering more service then they need?

FedEx Counters Amazon’s E-Commerce and Logistics Buildout

The FedEx acquisition of ShopRunner complements the actions that we have seen FedEx taking to remain relevant in e-commerce as Amazon continues to strengthen its logistics and fulfillment capabilities.  

The move reinforces the FedEx position as the anti-Amazon solution for companies seeking an Amazon alternative. Some of the carrier’s other recent activity following the same strategy includes:

  • Acquisition of GENCO to form the basis of Fulfillment by FedEx
  • Moving to a seven-day-a-week delivery schedule
  • Severing ties with Amazon for delivery to focus on other e-commerce volume
  • Pulling SmartPost deliveries into the Home Delivery network to bolster density and profitability.

With the global parcel market positioned to more than double by 2026, fueled by e-commerce growth and further accelerated by COVID-19, both FedEx and UPS will need to continue adding value to retailers’ unichannel solutions to keep volume when Amazon opens their delivery network to third party shipments. Amazon suspended its delivery service earlier this year due to the pandemic, but it is expected to reopen in the near future.

Of course, the parcel carriers are among an ever-growing contingent of organizations devising new strategies to compete with Amazon. Just in time for the holidays, WalMart is dropping the $35 minimum on free shipping for e-commerce purchases of electronics, toys and clothing made for participants in its WalMart+ membership program. The move – and the program – are both designed to compete with Amazon Prime.

Are You Positioned to Compete?

Make sure your holiday shipping success is not eclipsed by transportation costs.

Can you quickly determine how your parcel shipping volume falls within your capacity agreement with your carriers? Do you know how quickly your customers are getting their orders – and whether you are meeting your delivery commitments? Can you determine which SKUs are making money – and which are not?

Ongoing awareness of evolving trends in the parcel environment – from service disruptions to capacity shortages – is integral to your ability to pivot your small package shipping strategy. 

Understanding how those trends affect your transportation cost and service to end customers requires expert analysis and actionable intelligence. The latest enhancements to our technology platform puts the power of that information at your fingertips with best-in-class visualization of data gathered across your entire supply chain.

Schedule a demonstration today to see how our clients are able to identify business trends, understand the impact of cost and service on working capital, and recognize ongoing performance improvement opportunities.

2021 Parcel Rates: 3 Areas for Attention

The average rate increase for primary services provided by UPS and FedEx mirrors that same familiar 4.9 percent increase that we have seen for many years. 

And just as we have seen for many years, the 2021 parcel rates increase announcements are just a visible layer in the carriers’ rate and service pricing structures. With multiple layers, the complex pricing and surcharge practices of UPS and FedEx can make it difficult to determine the true cost for your small package shipments. 

Beyond the average increase on standard services, it is also important to recognize that surcharges, accessorials, new fees and tweaks to the carriers’ terms and conditions could require you to budget a 2021 cost increase closer to 8.5 percent. Capacity pressures created by exponential e-commerce growth during the pandemic and uncertainty about mid-year or peak surcharges for 2021 creates an environment of unknowns.

You need to understand how your shipment characteristics align with carrier networks. If you are a large shipper with a great contract, be prepared to defend that as tight capacity drives renegotiation motives for UPS and FedEx. Your parcel partner can be a real asset during this time if they have the ability to analyze your historic performance and determine areas for future cost savings that do not jeopardize performance. 

Let’s explore three aspects of this year’s parcel rate increase that could drive new costs in your transportation budget. 

  • Expanded ZIP Codes for Delivery Area Surcharge 

More ZIP codes than ever before will be eligible for Delivery Area Surcharges (DAS) for both UPS and FedEx. Both carriers adjust the applicable ZIP codes every year, but the past two years have reflected significant changes. In 2021, these charges will apply to almost 38 percent of the United States.

The increase for UPS DAS areas will apply to almost 12.3 million people, while the FedEx changes will affect about 11 million people. Ultimately, that means you are facing an additional surcharge for more of your customers. 

This is a difficult adjustment to calculate on your own, but when that much of your customer-base is affected by new costs, deep analysis is required to determine how these changes will impact your budget in 2021.

We talked more about the changes around DAS during our recent parcel rates webinar. Watch the replay for more insight on the how and the why behind this move by the carriers. 

  • Additional Handling Charges for Large Parcels and More to Come

    If your packages measure over 105 inches in length and girth combined, you will be charged an Additional Handling Fee of $16. This dimension change on the fee targets packages that barely miss the Oversize criteria of 130 inches (L and W combined). It applies to packages that take up a lot of space on conveyor belts, but do not get charged high dimensional weight.  

    Parcel carriers are becoming increasingly selective about the packages that move through their automated networks. Large packages, in certain instances, can cause significant problems in an automated facility. Moving them often requires more work from human resources, a costly and time-consuming element. 

    Beyond this $16 charge, UPS is also implementing a new structure for additional handling and large package rates that will differ by zone. Those rates will be announced at a later date, April 11, 2021 for non-hundred-weight packages and July 11, 2021 for hundredweight packages. 

    For heavy retail customers that are not clothing-oriented, this change could create a significant impact. We work with clients to identify specific impacts and solutions to mitigate the added cost.
  • Lightweight 2021 Parcel Rates Face Steepest Increases

    It is important to understand that when the carriers have a rate increase, it is not a universal rate increase across all weights and zones. The average rate increase is 4.9 percent. The level of rate increase for your volume depends on your shipping characteristics. For many shippers a larger percentage of their packages qualify for minimum charges, especially larger shippers with more aggressive pricing. 

    This year, parcel shippers charged at the zone 2, 1-pound minimum will face a steeper increase – about 6.4 percent – than their counterparts in other weight and zone combinations. Likewise, UPS and FedEx rates match between 1 and 15 pounds, and for these lightweight shipments the increases are generally higher than those for heavier packages. 

This strategy of larger increases on lightweight packages is an abrupt change for UPS and FedEx. Two factors likely affect the decision:

  • Competition from Priority Mail: Last year (before COVID-19), FedEx and UPS were both concerned with competition from Priority Mail. Lightweight Priority Mail rates are significantly lower than UPS and FedEx Ground rates, especially to residential addresses. Heading into 2021 with the parcel industry at capacity, there is less concern on competitiveness and more emphasis on profitability.’
  • Profitability: Lightweight packages are typically less profitable for small package carriers than heavier weight packages. Carriers are likely to continue to increase lightweight packages at higher levels as long as there are capacity constraints. Regional carriers can offer an efficient alternative in some of your lightweight shipping scenarios. In light of capacity challenges and other disruptions during 2020, many of these operations have filled a niche and grown. These carriers can sometimes be easier to implement, and they don’t often bring the surcharges the national carriers apply.

    During our Parcel Rates Roundtable we share tips for leveraging regional carriers as part of your parcel program. Watch the webinar to make sure that type of move does not drive up cost with your national carrier due to your tier commitments.

Parcel Bills: Do Not Pay Late

Another area for attention: when its GRI takes effect Jan. 4, 2021, FedEx will begin applying a 6 percent late payment fee. UPS implemented this fee in 2004, and this gives FedEx customers cause to pay close attention to the payment terms in their contracts. 

Not paying your bills on time now becomes a more financially impactful decision, and these fees can add because they apply at the invoice level.

Master Your Parcel Plan, Minimize Rate Impact. 

Do you have your finger on the pulse of your parcel program so you can understand the true cost impact of the 2021 annual General Rate Increase across your end-to-end supply chain?

Questions to consider:

  • How do your contract terms and conditions address volume caps?
  • How will volume caps affect your actual rate increase, surcharges and other fees?
  • How does your customer base change now that more than 11 million people have been added to the DAS delivery charge?
  • How do you budget for these changes?

Open our Parcel Rate Outlook 2021 for our expert support in preparing a plan that carefully considers these questions – and all changes across the parcel environment. Leveraging deep parcel expertise, tools and technology, we’re able to provide rate impact analysis specific to your personal needs and design a business solution that controls cost and protects experience.

Get our Parcel Rate Outlook 2021 today and make sure your 2021 transportation budget considers the nuances lurking in the layers below the 4.9 percent average rate increase.

UPS Announces Last Day to Ship

Know the last day to ship to make sure your UPS small parcel delivery arrives on time.

A later-than-usual Thanksgiving on Nov. 26 condenses the shipping season by almost a week. Meanwhile, continuing effects of COVID-19 drive more buyers online to fill holiday wish lists – and many of them will avoid the personal contact of store shopping altogether.

Combined, these factors predict a capacity crunch for the small package networks. Already experiencing service delays and disruptions, these networks will not see relief until after the New Year, even as parcel carriers bring on thousands of new workers.

Be mindful of the “last shipping days” announced by UPS and FedEx, but that may not be enough to avoid a disappointed holiday customer in 2021. That’s why the world’s largest retailers are turning the holiday shopping clock from Black Friday toward a “Black October.”

Navigating this year’s peak season during the middle of a pandemic will require companies to be more creative and flexible. Forward-thinking shippers should be prepared to adjust. 

Retailers Drive Christmas Creep, Protect Experience

Amazon’s Prime Days on Oct. 13-14 delivered $3.5 billion in sales to small- and mid-sized businesses, with a 60 percent uptick in sales over last year. The move expedites holiday shopping – and product shipping. It also adheres to latest guidance from UPS: “encourage your customers to shop earlier than ever with special offers or other incentives.” FedEx echoes the same advice for shippers preparing for the 2021 holiday season.

Promotions like Walmart’s “Big Save Days” and Target’s “Deal Days” are all designed to pull parcel volume forward and avoid a costly catastrophe caused by a lack of capacity in December. 

If your organization is focused on protecting customer experience this holiday season, keep these five things in mind: 

It is more important than ever to make sure that you proactively and clearly communicate the potential for delays. Every year the national carriers suspend their on-time guarantees during the holiday period. Earlier this year they suspended the guarantees due to COVID-19 complications and disruptions.

Retailers can ship-to-stores for curbside pickup.

Retailers can also ship-from-stores to shorten the distance that the package travels in the carrier’s networks and thereby reduce the potential for delay.

Shipments can be made to alternative delivery locations such as certain retail partners, your customer’s office, or to one of the many parcel lockers.


5. Finally, if you operate multiple DCs across the US, it will be important to have the right inventory at the right locations to speed delivery and avoid split orders.

In a time where lockdowns have driven e-commerce shipments to levels never seen before, companies will need to deploy an all-of-the-above strategy to navigate it appropriately.

Know the Last Days to Ship

Now more than ever, it is important to make every possible effort to avoid deadline shipments. If you anticipate a last-minute holiday rush, make sure your UPS shipments go out on or before these dates to give your parcel the best possible chance to arrive by Dec. 24:

  • UPS Ground: As early as Tuesday, December 15* 
  • UPS 3 Day Select®: Monday, December 21 
  • UPS 2nd Day Air®: Tuesday, December  22 
  • UPS Next Day Air®: Wednesday, December 23

*Note UPS advises that most UPS Ground shipments have a later “last recommended shipping dates.” Shippers can track their transit time and cost here

FedEx released its holiday schedule ahead of UPS, and both schedules align closely. We detailed 7 tips for holiday delivery success shortly after the FedEx announcement. 

Regardless of the service provider you trust with your shipments, through full transparency and good information, you can effectively manage customer expectations while also syncing with the carriers that will deliver the goods to their doorsteps.  

You Shipped it – Did it Make Money?

Protecting customer experience this holiday season will require timely shipments and thorough communications throughout the sales cycle. 

Protecting your organization’s profit while responding to these customer expectations requires additional awareness and proactive measures.

  • Be aware of the Peak Season Surcharges and more importantly the differences for UPS, FedEx, Regional carriers and now the USPS.
  • Perform a detailed analysis to estimate the surcharges financial impact and to mitigate any negative effects on profitability.
  • Identify specific SKUs that will be negatively impacted and make decisions regarding those items to protect profit margins.  
  • Raise the cost of the item.
  • Increase the free shipping threshold.
  • Pass some or all of the additional cost to the customer.
  • Ensure carriers agreements are best in class and that invoices are audited for compliance to them.
  • Make sure you have the right box sizes so that the packaging is only la
    rge enough to adequately protect items during transit.
  • Work to eliminate operational errors that create avoidable costs such as incorrect addresses, unnecessary declared value and unauthorized packages.

To help shippers protect profit on every customer and every order, we created “You Shipped it … But Did You Make any Money.” Open it today for more guidance on making sure your peak season ends in the black.

Why Audit Parcel Service Now? Here’s 4 Reasons

If you don’t think the delivery experience is directly related to customer retention, think again. According to Dimensional Research, of customers who report a bad experience, almost all of them (97 percent) changed their future buying decisions. Further, 58 percent stopped buying from the company, more than half went to a different company for the product or service, and 52 percent told others not to buy the product or service. 

Maybe the shipment was late, perhaps it was damaged, maybe it was delivered to the wrong house, or perhaps the shipping label was wrong in the first place. In the small package shipping environment, it is hard to have awareness of the problem without parcel audit validating the service received.

Whatever caused the problem, the bottom line is that this and other issues could be making you lose customers right at a time when no company can afford to have this happen. Between the global pandemic, the economic recession, and the business volatility occurring in most industries, organizations need to be at the top of their games when it comes to customer service. 

$1.50 Per Package Adds Up Fast

No matter how much customers love your product, many won’t come back if the experience is not good. This should be reason enough to conduct frequent service audits. 

There are also other reasons, some of which do not relate to the customer experience. For example, Transportation Insight recently worked with a shipper that noticed a significant change in its per-package shipping costs. After a service audit, it realized that its cost-per-package had increased by about $1.50 due to a billing adjustment error made by the carrier (for early-morning deliveries). 

Had the shipper not conducted that analysis, there’s no telling when it would have recognized that it was being overcharged by $1.50 per package. Multiply that number times thousands of shipments per year and the value of frequent service audits becomes crystal clear.  

Why Bother Auditing?

With service guarantees being waived right now, many companies are wondering if they still need to audit their invoices and charges. The answer is “yes,” and here’s why: even with these waivers, there are still a high number of errors and ways to ferret out savings on pretty much any transportation bill. 

For example, shippers are still being hit with duplicate charges and other billing errors on top of late, incorrect and damaged shipments — problems that can directly impact customer service and retention. With fewer drivers on the road and higher demand for parcel capacity — largely due to the massive uptick in e-commerce shopping — both loss and damage incidences have increased. 

By auditing every package to make sure it’s successfully delivered, companies can manage the loss and damage process from start to finish. Audits can also uncover data regarding insufficient packaging and ensure that payments are accurate and on time. In fact, auditing is a great risk management tool that companies can use during both peak and regular seasons.    

Here are four more reasons why you need to continue service audits:

  • Good visibility into what you’re actually paying. The audit platform you use should break down carrier invoice details to the charge level to analyze all peak season surcharges, rates, and discounts. This year, we’ve seen a number of rate errors and worked on our clients’ behalf to recover over $1.4 million in savings. We’re also identifying duplicate charges and billing errors at the charge level, which is impossible to do without an invoice audit in place.
  • Make sure it gets there on time and in one piece. Sure, some service guarantees are waived right now, but shippers should still want to audit every package to ensure it is delivered and not lost in transit or damaged. This year, we’ve seen the perfect storm of greater-than-usual demand, fewer drivers, and more retailers shipping items that normally would be purchased and picked up in store. Without a doubt, that’s caused an increase in lost and damaged packages. 
  • Tracking losses and damages. The best approach is to manage the entire loss and damage process from identification to resolution and recovery. So far this year, Transportation Insight has secured over $1.7 million in loss and damage savings, and all while providing data regarding insufficient packaging details down to the SKU level. This is particularly helpful for companies that are introducing new products and/or shipping with new vendors.  
  • Pay accurate bills on time. The data collected during a service audit provides insights into how new surcharges or new carrier rules will impact transportation and the related costs. For example, FedEx recently announced a new late-payment fee effective January 2021. Using a compliance audit, companies can keep close tabs on these types of fees and either avoid them completely (by paying on time) or correcting errors (by flagging erroneous late fees). With so many staffing changes and work-from-home scenarios taking place in 2020, shippers need to be especially careful about paying their carrier invoices correctly and on time.

Helping You Rest Easier

Transportation Insight is the only parcel audit and logistics solution provider that undergoes an annual SOC 1 Type II third-party compliance audit. We check every parcel package within your supply chain to make sure you’re getting the service you selected at your contracted price. For example, if your company is paying for guaranteed service, Saturday pickup or delivery, or other services, we’ll make sure you get them. We also check for invalid pickup, as well as identify and follow up on lost or damaged packages.

Possessing deep industry expertise, our parcel team also monitors ongoing changes in the small package environment to help keep shippers apprised of the emerging cost-drivers that affect their profitable performance. 

Q4 Forecast: Parcel Rates and Cost Impact

Not long ago parcel carriers were transporting 20-25 percent of their deliveries to residential addresses. By 2019, that number increased to about 50 percent. This year, 70 percent of all parcel carrier movements involve a residential address. The shift is largely driven by a consumer who is shopping from home either by choice, necessity or both. 

According to the Department of Commerce, U.S. retail e-commerce sales for the second quarter of 2020 were $211.5 billion, an increase of 31.8 percent over the first quarter of the year. During the second quarter of 2019, e-commerce sales increased just 12 percent over the same period in 2018. 

These are some telling numbers, and they paint a picture of a shifting consumer purchasing environment that’s pulling the major parcel carriers right along with it. For example, UPS saw its residential delivery volume increase 65 percent during the second quarter. This is just one of several carriers being asked to absorb and handle volume increases unlike anything their networks have ever experienced.

Here’s what shippers can expect on the parcel shipping front as 2020 winds down and the holiday season kicks into full speed.

2021 Parcel Rates: FedEx

FedEx Express (Domestic, U.S. Export and U.S. Import), FedEx Ground, and FedEx Home Delivery shipping rates will increase by an average of 4.9 percent. FedEx has increased these rates 4.9 percent every year since 2007. FedEx Freight will increase rates by an average of 5.9 percent. 

These are a sampling of the changes becoming effective Jan. 4, 2021:

  • Institute a 6 percent late fee to U.S. FedEx Express and FedEx Ground customers who don’t pay their invoice within their agreed upon payment terms. UPS implemented this fee in 2003.
  • New $16 Additional Handling Fee for packages where dimensions are greater than 105 inches in combined length plus girth. 
  • Additional handling charge for weight increased 6.25 percent to $25.50.
  • Additional handling charge for packaging increase 7.7 percent to $14.
  • DAS for Home Delivery is 7.5 percent from $4 to $4.30.
  • Oversize charge for Home Delivery has increased 8.3 percent from $120 to $130.
  • Residential Delivery charge for Home Delivery charge increased 8.75 percent from $4 to $4.35.
  • The ground minimum package charge (zone 2, 1 pound list rate) has increased by 6.44 percent to $8.76.
  • 2Day and Express Saver (3 day) shipments will take larger increases.
  • Longer zones have larger increases than shorter zones for Express services.
  • Surcharges have increased by more than the announced 4.9 percent for the ones most commonly applied.

Even though the GRI is 4.9 percent your true rate increase will be somewhere between 4.9 percent and 8 percent depending on usage of these additional services. This is the type of analysis Transportation Insight provides to our clients. Every year a GRI report is generated for our clients to aid in understanding the impact these rates will have on their transportation spend.

When Parcel Rates Peak Season Lasts All Year

Carriers typically experience peak season about six weeks a year. Because of COVID-19 carriers have been running at peak season pace for several months straight. There’s never been this level of capacity utilization in the small package network, and it’s clear that carriers weren’t ready for it. As a result, the massive increase created management difficulties for the carriers which, in turn, implemented COVID-19 surcharges that create new cost management challenges for shippers

These charges went into effect in the U.S. during the first quarter of the year, with UPS and FedEx creating a peak season operating plan for spring and summer (to handle the demand of home delivery while simultaneously experiencing the collapse of their commercial delivery volume). This created major problems: commercial deliveries are traditionally carriers’ most profitable and have been reduced to a fraction of their “normal” levels. 

Tracking the cost impact of these surcharges isn’t always straightforward. UPS created a $0.30 charge for residential and SurePost packages while also raising by $31.45 a surcharge on difficult-to-handle parcels (e.g., extra-large boxes). FedEx imposed its own surcharges on large shippers and added a $0.30 charge for express and ground residential deliveries, and a $0.40 addition for SmartPost deliveries.  

Navigating the New Gauntlet

With COVID still impacting the shipping environment, carriers rolled out holiday peak season surcharges. For 2020, these charges will be broad-based and targeted at the shippers that more significantly impact the parcel carriers’ networks. 

Charges for UPS will range from $1, $2, and $3 for ground residential and SurePost packages. These charges will begin Nov. 15 and continue through Jan. 16, 2021. UPS is also tacking on an additional handling charge of $5 per package, a large package surcharge of $50, and an over-max-limit of $250. These charges will be in effect through Jan. 16. 

FedEx began its holiday peak season surcharges of $4.90 on Oct. 5 for packages needing additional handling. Oversized package incur a $52.50 surcharge and unauthorized packages cost an additional $350. These rates will be in effect until Jan. 17. In addition, FedEx’s residential ground packages incur surcharges capped at $4 per package, while residential express shipment surcharges are $5. The latter charges are both based on specific formulas. 

The U.S. Postal Service (USPS) will implement its own peak season surcharges beginning Oct. 18 and running through Dec. 27. The fees still need to receive regulatory approval, but we expect them to be passed. The USPS fees will be applied per package and will pertain to all commercial shippers.  

Maintaining Profitability

For the first time, we’re also seeing small package regional carriers implementing surcharges. Because these fees are based on formulas and difficult to compute, planning for, managing, reporting and auditing the surcharges is difficult. Unfortunately, the combination of COVID-19 and an e-commerce boom overturned the parcel industry’s apple cart, and the change will be forever felt as parcel shippers navigate this new gauntlet.

For most companies, speed is the most important supply chain deliverable. They’re looking to move volume to the end consumer to achieve speed at an acceptable price point. We’re also seeing many companies: 

  • Exploring opportunities for faster growth or service into specific markets.
  • Going direct to consumers
  • Pivoting to maintain Amazon Prime designations by complying with requirements taking effect in February.

Managing these complexities on your own has become a major headache for parcel shippers – especially when logistics management isn’t your core business. Not prepared to make long-term commitments in technology, infrastructure, and employees, more companies are turning to third-party logistics providers (3PLs) to move quickly and affordably in this customer-centric business world. 

Third-party fulfillment allows companies to ramp up quickly to meet demand. It also creates a more elastic fulfillment environment that can be scaled up or down, depending on the volume of freight that’s moving through the operation. A 3PL will also help you lay out a master plan in advance, and then adjust accordingly as rate hikes, surcharges, and other variables come into play.   

Volatile parcel rates and surcharges jeopardize revenue your online shipping carts are generating.

In light of the rising costs of parcel shipping—and the myriad surcharges that went into effect in 2020—the biggest questions that shippers are asking themselves right now are: Where should I place my inventory? And, what SKUs should I be stocking in order to meet customer demand?  The companies that find the right balance between these two points will then be the ones that maintain profitability through this uncertainty…and beyond. 

Last Days to Ship? 7 Tips to Meet Holiday Deadlines

According to MarketWatch, Deloitte is forecasting a 1% to 1.5% year-over-year sales increase for the upcoming holiday season, during which time total retail sales will be about $1.15 billion (between November 2020 and January 2021). Meeting holiday shipping deadlines will be more important than ever.

“E-commerce sales, which have been strong throughout the coronavirus pandemic, are expected to climb 25% to 35%, reaching $182 billion and $196 billion,” Deloitte predicts. “Regardless of the scenario, however, consumers’ focus on health, financial concerns, and safety will result in a shift in the way they spend their holiday budget.”  

Here are seven tips for making sure your holiday packages get to their destinations on time.

7 Tips for Holiday Delivery Success 

The new realities of the current shipping environment have created ongoing service delays and disruptions, both of which have compounded into an overall capacity crunch for small parcel carriers. Working through this issue will require forward-thinking companies to adjust accordingly.

For example, shippers will need to be more creative and flexible to cope with the combination of COVID and the normal peak season. FedEx, UPS, and other carriers are hiring a lot more workers for the season, but we still expect to see some capacity issues. With the uncertainty, it will be more important than ever to inform customers when to expect shipments and be extremely transparent. 

Here are seven tips that will help you get your packages to their destinations on time: 

  1. Know the cutoff dates. FedEx’s last days to ship calendar is online here and UPS publishes its holiday deadlines here. The USPS plans to release its cutoff dates for holiday shipping sometime in October. Be sure to factor in these last days to ship dates when planning your holiday shipments. 
  2. Talk to your carriers. Proactively communicate with carriers regarding any expected increase in volume and any additional equipment requirements (e.g., feeders or bulk-type pickups). This will help your carriers plan ahead and provide some assurance that there will be capacity to accommodate your volume spikes (or, allow you to make alternative arrangements). 
  3. Next, talk to your customers. Companies should proactively communicate anticipated delays and properly set customer’s expectations on their websites and in any email communications. This could be as simple as featuring the holiday cutoff shipment dates prominently on the first page of your website. 
  4. Know the limits. Shippers should clearly understand any potential volume limits or caps that may be put in place by the carriers. Because these constraints can impact your ability to deliver on time, be sure to discuss them with your carrier. 
  5. Explore your options. Shippers should also understand their carrier options and negotiate favorable agreement terms to properly leverage all national, regional, and postal carriers. Having a “Plan B” in place is always a good idea during the busiest times of the year. 

  1. Start your product promos early. Don’t wait until the last minute to kick off your holiday promotions. Starting early will help you pull volume forward to avoid peak shipping periods and allow time for expected delays. 
  2. Factor in holiday business schedules. For example, USPS is closed for all of the major federal holidays. With delivery times varying between its services, knowing the cutoff dates and hours of operation are both important. 

Maintaining Transparency  

Reflecting on how parcel carriers performed for the 2019-20 holiday shipping season, UPS’ SurePost and FedEx’s SmartPost both assured 100% delivery for holiday orders that were shipped on or before December 14 or 9 (respectively). However, we also saw that as the cutoff date approached, those commitments slipped. This is something to keep in mind as you lay out your plans for the 2020-21 season. 

Using the tips outlined in this article, you can strike a nice balance between growing your company’s holiday sales while also letting customers know that there is a risk of passing the carrier’s “suggested date” for accepting pickup for a Christmas delivery. Through full transparency and good information, you can effectively manage customer expectations while also syncing with the carriers that will deliver the goods to their doorsteps.  

Peak Season Performance Requires Visibility

To make sure holiday shippers are aware of the latest trends affecting their transportation cost management, we convened a roundtable of our parcel experts. Watch or listen to our webinar “Peak Season: Are You Ready?” to hear Todd Benge, Robyn Meyer, Toni Caputo, Bernie Reeb and myself address the unprecedented challenges emerging his year.

This digital event shares strategies to help you protect profit and enhance customer experience. Watch it today to make sure you are getting charged correctly and manage the capacity risks that threaten to derail your performance.

4 Tips: Improve Profitability Despite Rising Transportation Costs

Profitable shipping is a very attainable goal, even in today’s uncertain environment, where FedEx and UPS peak carrier surcharges have become a moving target for all parcel shippers. Despite these rising costs, there are ways all companies can improve shipping profitability in 2020. 

Try using these four tried-and-true tactics for improving shipping profitability in any market conditions. 

  1. Think at a Package Level
    If you’re handling multiple pick-and-pack orders, you need to know what you’re putting into different sized packages. Align that information with the actual transportation costs, and then figure out the profitability level on each. 

    This can be a complex process, but ultimately it is important to understand that the dollar amount on your transportation invoice does not tie into your product profitability. Once you determine what it costs to ship each SKU, it becomes clear that offering free shipping at a $50 order threshold, for instance, may not yield a profitable order for your company. 
  2. Use Good Margin Management
    When your marketing department launches a promotion – “Buy $50 worth of stuff and get free shipping” – make sure the “losers” do not fill-up e-commerce shopping cart and drive your cost above profit. To avoid these problems, share relevant information across your organization to keep everyone marching in the same direction. 

  1. Leverage Data 
    Look not only at carrier data, but also sales data, product costs, fulfillment costs, and other metrics that go into a single order. Transportation Insight helps shippers accumulate all of that information and consolidate it into a unified dashboard that is used to track trends, pinpoint winning/losing SKUs, and single out other areas where the company may be losing money.

  1. Partner with a Transportation Expert
    Work with a reliable logistics provider that has built out the necessary systems and that spreads the value of those systems across numerous different users. The latter allows providers to leverage economies of scale and offer their services at an affordable cost. This translates into high value for shippers in any business or economic condition. 

Protect Profit for Every Customer and Every Order

Our latest strategy guide “You Shipped It, But … Did it Make Money?” raises a question that is on the minds of many business leaders. 

Your business has responded to significant shifts in consumer buying behaviors and your customers expectations are being met. But did the transaction yield profit for the business? Or did transportation cost complexity eclipse your margin in the rush to serve?

Open our guide on margin management for more strategies that will help you master your supply chain to protect profit for every order.

Don’t Let Peak Surcharges Kill Your E-Commerce Profit

Shippers often don’t expect accessorial changes and peak season surcharges that carriers introduce at different times throughout the year. In most cases, seasonal demand swings and business peaks drive these cost changes. 

This year a global pandemic prompted peak season surcharges. Because these new costs coincided with skyrocketing demand for online shopping, many shippers lacked the visibility required to protect e-commerce profit on every shipment.

An Aug. 7 communication from UPS confirmed that more peak surcharges are coming for the holiday season. 

Here are three ways to keep these surcharges from killing your company’s profitability. They’ll become increasingly important as peak season surcharges could become a new year-round norm.

  1. Carefully Audit Every Carrier Invoice
    Go beyond examining the invoice number and dollar amount. Taking the position, “Okay, last week I shipped $75,000 worth of merchandise. That sounds about right,” isn’t a deep enough dive into your parcel invoices. 

    This high-level analysis doesn’t give you the insights you need to pivot effectively when surcharges are imposed. Get down to the actual package and charge level. This is one of the most important practices in managing peak season surcharges and protecting e-commerce profit.
  2. Share the Cost – Pass It or Promote It
    Don’t assume that these surcharges have to get tacked onto your “costs of doing business.”

    As long as it doesn’t affect your competitive position, pass the surcharge costs along to your customers. By strategically aligning products with marketing promotions, you can also increase order value, optimize shipment density and, ultimately, mitigate bottom-line impact of peak-season costs.

    If you do have to absorb the additional cost, be sure to factor that into the sale, versus waiting for your parcel carrier’s invoice to arrive and taking it right out of your profit for a specific order.   

  1. Team-up with E-Commerce Partners 
    Burdened by carrier surcharges and operating in a challenging business environment, shippers may be tempted to only deal with carriers when they have a gripe, a fee that needs to be refunded, or a surcharge that doesn’t apply (but was charged anyway). 

    These situations generally reach a positive resolution when shippers have win-win relationships with their carriers. This has been a practice for years in the truckload/less-than-truckload sector, where being a “shipper of choice” has become a popular stance for companies that are assessing their total costs of transportation.   

    The same applies in the parcel space, where we rely on accurate, up-to-date, supporting data when working with carriers on behalf of our customers (versus just managing issues in a one-off manner). 

    By serving as a link between shippers and carriers (who would otherwise be forced to work with thousands of different customers on an individual level), we are an extension of your parcel team. 

Master Your Parcel Program

To help you control costs in an ongoing peak season surcharge environment, we created “Manage the Surge: Avoid Surcharge Shocks, Power Performance.” It explores the how and why behind parcel carriers’ cost-recovery tactics. Read it today for the strategies you need to power a parcel program response that offsets these costs and protects your e-commerce profit.

Shipping Surcharges: 3 Ways to Manage During Peak

Here are three ways to manage parcel carriers’ shipping surcharges during peak season.

  1. Manage Shipping Surcharges: Face Peak Season Head-on.
    Review the terms and conditions of the agreements you have with your carriers. Work with your logistics partner to stay on top of these new charges, and to come up with ways to offset, absorb, or pass them along to your customers. We help customers understand those charges, why they were implemented and how they affect profitability (via good reporting and data analytics). Analysis comes with a roadmap for minimizing the impacts. 
  1. Dissect Charges on Your Carrier Invoices
    Many times, carrier invoices are so lengthy that the charges are lumped together. It’s not unusual to see duplicate charges, for instance, or duplicate tracking numbers being charged multiple times. And with the COVID-19 peak surcharges, the carriers are billing in multiple different ways, including paper invoices, follow-up emails and averages over multiple transactions. 

    Dissecting those charges and ensuring that everything was charged correctly can be time-consuming and onerous. Our audit team constantly reviews the applicability of the charges and the actual rates that were charged to ensure accuracy. 
  1. Use best shipping practices. It can be tempting to take orders and push them out the door without giving much thought to how much it costs to ship those packages. 

    Most companies understand that transportation costs take up a big chunk of their operating budgets. Few take the time to examine the true cost of shipping those goods

    Factor both predictable/annual rate increases and unpredictable carrier surcharges into the equation, and you get a recipe for poor profitability. To avoid this problem, always use best practices centered on the cost of shipping each and every package. 

Master Your Small Parcel Program

With regular invoice auditing and business intelligence reporting, you can remove most of the uncertainty from the current surcharge environment while also preparing for any new fees that may be coming. 

Deploying additional best practices in your parcel program can supplement your ability to proactively plan for mitigating the cost impact of peak season surcharges. See our infographic for more tips that will help you monitor and manage surcharges.

To help you control costs in an ongoing peak season shipping surcharge environment, we created Manage the Surge: Avoid Surcharge Shocks, Power Performance. It explores the how and why behind parcel carriers’ cost-recovery tactics. Read it today for the strategies you need to power a parcel program response that offsets these costs and protects your profit.