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.

Carrier Surcharges: What’s the Real Impact?

Now we know more peak carrier surcharges are on the way for the traditional holiday season. Between the major carriers, the UPS plan is quite a bit different than the FedEx strategy for applying new costs.

FedEx has set peak surcharges to begin as they plan to pull back the COVID surcharges, in essence, keeping the charges in place through the Christmas season. The biggest difference between the FedEx and the UPS charges is the SmartPost charge. It appears all SmartPost customers will have the charge, while the UPS and Home Delivery surcharges will be used for larger customers.

In particular, it appears the FedEx SmartPost charge looks to jump 100% for one week in December and then drop back to $1 the remainder of the season. This type of complexity between carriers and service impacts makes it difficult to manage cost.

Unlike global changes that impact all shippers (i.e., the modification in dimensional weight definitions introduced in 2015 and again in 2018), surcharges affect companies differently.

For example: 

  • An e-commerce apparel company sending most of its orders to residential addresses likely felt the brunt of COVID-related surcharges. 
  • A large B2B company delivering primarily to commercial addresses, on the other hand, was likely shielded from the brunt of these impacts, unless they were moving larger packages. 

The good news is that even though individual companies can’t control parcel carriers’ surcharges, they can minimize the budgetary impact with accurate shipping data, experienced logistics partners, and quick responses to carrier announcements.

What are Carrier Surcharges Costing You?

One 30-cent surcharge on a residential parcel shipment may seem innocuous. Multiply that fee across thousands of parcel shipments, and it’s clear just how burdensome this unexpected fee can be to a company’s bottom line. 

Furthermore, spend management becomes more complicated when carrier surcharges are based on average volume benchmarks, especially when they become retroactive to all shipments once thresholds are crossed.

Consider this: 

If a retailer averages 200,000 weekly packages shipped through UPS Ground Residential or SurePost in February, what’s the cost impact of a 30-cent surcharge when that volume increases to 250,000 weekly packages?

*After average threshold is exceeded, surcharge applies to all packages shipped.

  • If a distributor averages 50,000 weekly packages shipped residential through FedEx Ground, what’s the cost impact of a 30-cent surcharge when that weekly volume increases by 75,000 packages?

*FedEx surcharge volume threshold was higher at 40,000, and included the stipulation that weekly volume had to be 120% higher than the February weekly average.

Factor in any additional fees for oversized packages, and a shipper operating on tight margins can quickly find itself losing money on every order. And without a plan for dealing with unexpected surcharges, SKU profitability moves out of reach quickly. 

Adding to the complexity, carriers can make changes in how or when surcharges are applied – at any time. We saw this with the reduction in dimensions and weight for when carriers applied additional handling surcharges.

Although not a specifically a surcharge, shippers saw a significant change with the migration of the DIM factor from 194 to 139, which increases the billable weight for many packages.

Manage Carrier Surcharges to Avoid Budget Shock

Both the predictable and unexpected carrier surcharges are likely here to stay.

As you plan your transportation spend for the remainder of 2020 and into 2021, be sure to factor in the reality of carrier surcharges. It doesn’t take a global pandemic to create peak season pressure on carriers’ profitability and spur added fees on your parcel shipments. 

While none of us has a crystal ball — nor can we control the steps carriers take to shore up their own operations during peaks and difficult periods — preparing in advance, understanding the impetus behind the charges, and taking the proactive steps can improve your ability to control costs in the current and future parcel freight environments.

To help you improve your ability to plan for and respond to carrier surcharges, 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.

Mitigating Parcel Delivery Challenges in a Post-Coronavirus World

Consumers are now using e-commerce as their primary channel to buy everything from groceries and small electronics to home appliances and even cars. Most of those items move through one of three parcel networks: FedEx, UPS, or the U.S. Postal Service. Because of the sheer amount of parcels being processed and handled across the United States, we’re seeing natural “log jam” points come alive, resulting in delayed delivery and dissatisfied customers.

With the challenges mounting, is it possible to mitigate issues and maintain customer satisfaction? It’s possible – but it’s critical for teams to work together and understanding the challenges currently in play.

UPS Experiences Backups In The Northeast

The Northeast region of the United States was heavily impacted by the spread of COVID-19, forcing major cities like Boston and New York to virtually shut down overnight. Although those cities are starting to open, there remains a major backlog of parcels waiting for sorting and delivery.

At one UPS facility in Rhode Island, at least 40 UPS trailers remain on the dock, waiting to be processed. The parcels in these trailers represent a substantial amount of packages, destined for many different destinations across the northeast. Potentially, that could reflect over tens of thousands of customers who are frustrated because the items they ordered are not being processed for delivery.

The northeast isn’t the only facility experiencing problems. In Tucson, Arizona, employees at one facility is expressing concern about an outbreak of COVID-19. The local union claims 36 employees tested positive for Coronavirus, while three have been hospitalized for COVID-19 symptoms. If this facility shuts down for cleaning and sterilization, it could also create problems for parcel delivery in the Southwest as well, including the major population centers of Los Angeles and Phoenix.

Trouble Continues for the U.S. Postal Service

Packages sent through the mail are also facing delay threats due to the COVID-19 pandemic. The U.S. Postal Service is chartered by the U.S. Congress to deliver first-class mail, and in 2019 they delivered over 143 billion pieces of mail to 160 million addresses across the country, including parcel delivery through Priority Mail and other products.

But the COVID-19 outbreak has forced massive changes in their structure and how they manage their workforce. According to data from the USPS, at least 60 postal workers have passed away due to COVID-19 complications, 2,400 have tested positive for Coronavirus, and 17,000 employees – or three percent of their workforce – were temporarily displaced on quarantine. While there’s no way to measure the human loss, the number of employees affected by this virus is forcing the Board of Governors to work up a plan to keep employees healthy despite a decline in profit.

The profit drop comes from a reduction in one of their most successful business areas: Direct mail advertising. At one point, direct mail advertising made up 23 percent of revenue for the Postal Service. As companies look to save money and find new ways to get in front of consumers, they are pulling away from pre-sorted and direct mail advertising, putting a major impact in the USPS budget. The future of the Postal Service is now in question, as they are experiencing both a cash and personnel crunch like never before.

Managing Difficulties and Driving Customer Satisfaction

Although the COVID-19 pandemic is creating challenges, it’s nothing that we cannot overcome. With a combination of actionable insight and sound decision making, it’s possible to still drive customer satisfaction by understanding and controlling the current situation.

To start, it may be useful to start a relationship with a secondary carrier. Opening a new door with a carrier can expand your options, especially when it comes to expedited parcel delivery. For example: although UPS has an expansive ground network, FedEx can offer more daily flight connections. Understanding the tradeoffs and opportunities give you an upper hand in determining how to ship parcels to consumers, and through what options.

From there, constant analysis of parcel delivery optimization can help you determine how effective your plans are, and how to improve them even further. Through service and compliance audits, you can find out how quickly your packages are moving, if they are moving within guaranteed service parameters, and if how many packages end up lost or damaged.

Finally, understanding the current parcel situation can help you mitigate and manage customer expectations. Expressing the potential problems and managing an understanding of when parcels may be delivered can help customers better plan for the issues, driving better loyalty in the end.

Bringing it All Together With a Trusted Partner

Navigating the parcel world in a post-Coronavirus world doesn’t have to be intimidating. The experts at Transportation Insight can help you identify change opportunities in your parcel delivery program, and lead to long-term success. Schedule a consultation with us today, and learn how our decades of experience can quickly improve your parcel program.

Monitor, Pivot, Perform: Strategies for Unexpected Parcel Delivery Peaks

However, unlike the seasonal Black Friday and Prime Day spikes many shippers and carriers have mastered, the current parcel climate is yielding new challenges.

Home-bound customers aren’t answering the door for signature-seeking parcel delivery couriers. How does the FedEx and UPS driver complete deliveries at closed businesses? When parcel trucks are loaded to the roof and more e-commerce orders are filling the pipeline, essential supply shipments cannot stop and impede consumers’ medical, home office and home school needs.

During this non-standard peak period, communication is critical between shippers, carriers and customers. As the novel Coronavirus (COVID-19) situation evolves across North America, an organization’s proactive efforts to monitor, validate and optimize its small package program can improve efficiencies, maintain customer service and control costs.

Parcel Volume is Filling Networks

Limitations on passenger travel across international borders isn’t slowing the movement of goods into the U.S. Air cargo flights enter the country daily, and the express market is working as usual. Essential goods – medical, protective and cleaning supplies – are getting priority over non-traditional retail shipments, but Amazon’s move to add workers illustrates that fulfillment and service providers are focused on meeting the rising online demand for vital needs.

“UPS’s network planning and operations teams are experienced with adapting to changing conditions, and are developing contingency plans to address potential sources of disruption in our air and ground networks,” UPS Chairman and CEO David Abney said in a March 18 email to the marketplace. “Our teams are working to continue to serve the supply chain needs of businesses during this time, while keeping our employees and customers safe.”

Like organizations around the globe, carriers are focused on good hygiene within facilities and among employees, but they’re also focused on maintaining their own efficient operations. Packages destined for a location that is closed under nine days, will be held at the UPS/FedEx centers. However, if the delivery location is closed more than nine days, they are returning to the shipper.

The central issue here becomes two-fold:

  • Carriers don’t have storage for these packages. Many held packages are being stored in feeder units (trucks) and stay there until unloaded for scheduled delivery. If an urgent package needs delivery, shippers will likely have to resend product. 
  • If drivers are unable to deliver a package due to time constraints or buildings are closed, they are instructed to mark them “Emergency Conditions – COVID-19.” All of those packages will circumvent guaranteed service refunds.

Meanwhile, UPS and FedEx are easing requirements for physical signatures, and offering alternatives to customers meeting a driver at the door. For deliveries to high-density buildings closed to outside traffic, such as apartment complexes, service to lockboxes or other alternative pick-up points may become increasingly prevalent.

In this environment, it is important that shippers closely monitor and validate parcel service performance, especially within carriers’ complicated accessorial structures. Interior deliveries may not be feasible. Heavy weight packages, such as reams of paper for the home office, will generate additional costs. Be alert for carrier adjustments to rates and services during this non-standard peak period.

Nuances related to parcel delivery services can create new challenges for commercial shippers accustomed to operating in a business-to-business world. Responding to direct-to-consumer delivery demands can trigger unfamiliar shipping cost assessments. An experienced shipping provider can help implement drop-shipping programs that balance cost and service for shippers responding to home-bound consumers. That partner’s ability to monitor transportation activity also supports shippers’ proactive communication of delivery status or delays to end customers.

Monitor Fluctuations in Spend and Volume

Our team has spoken with customers experiencing a spike in online orders stemming from people staying home to reduce the risk of infection. As spread of the virus evolves, employee absence could jeopardize their ability to fulfill orders. Curtailment of non-essential shipments could further impact some organizations’ shipping volume.

It is important to actively monitor carrier spend levels to protect volume-based discount incentives. Earned discount thresholds offered in parcel carrier agreements are based on a 52-week rolling average. In the event of a slowdown, as new weeks of data are incorporated, the gross rolling average will decline and discount incentives will adjust downward.

For FedEx customers, this often results in an incremental change. The change for UPS customers could be more stark as a shipper’s spend levels diminish over time.

As the transportation environment continues to shift, it may make sense for some small package shippers to consider evaluating low-weight, multi-piece LTL shipments. Where warranted, transitioning those shipments to UPS Hundredweight or FedEx Multiweight can help drive revenue calculations.

If your company’s fluctuating parcel spend jeopardizes discount incentives, now is the time to have an honest conversation with account managers about the current situation, or consider exploring other carrier options. This can spur broader conversations that support improved cost management, including routing guides for outbound volume or billing practices that put cost control in your hands instead of your vendor partner.

Experienced parcel shippers can manage these program practices in-house. However, at a time when operational demands challenge many companies’ profitable performance, multi-modal transportation management experts using technology-enabled analysis can support parcel shipping optimization that enhances service and controls costs.

Parcel logistics leaders: Now more than ever it is important to make sure you get the best carrier rates possible. Companies pursuing peak fulfillment opportunities can leverage this non-standard peak season to their benefit while protecting customer experience.

Long-term Parcel Outlook

Don’t trust any crystal ball hype that you’re hearing in the marketplace. Nobody can predict what is happening tomorrow, next week or over the long-term. One thing is certain: there will be change.

This creates new opportunities to examine end-to-end organizational processes.

Digital transformation in recent years laid groundwork for the supply chain evolution many organizations are already embracing. Sourcing strategies, vendor locations and distribution network design are key elements in executives’ active conversations during this time of disruption. The prospect of financial incentives will drive more companies to diversify and reshore domestic production.

Transportation Insight manages supply chains for organizations of all sizes so they can focus on areas of their own expertise. Combining parcel invoice audit and payment, data management and analysis with decades of deep parcel industry experience, we help clients align their multi-modal transportation programs with carrier capabilities and customer demands.

In a dynamic, unpredictable marketplace, we’re here to lead you through efforts to adapt your current strategy, construct contingency plans for future disruptions and monitor your carriers performance. To make sure your small package shipping processes are delivering maximum value when it is needed most, schedule a parcel program assessment today.