| It's perhaps the most fundamental economic concept – supply and demand.
From that we know that if demand is rising and supply is relatively stable, prices are heading higher.
Supply Chain Digest Says...
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With capacity at a premium, shippers have little room to play the carriers off each other to win discounts and other concessions. |
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When it come parcel shipping, demand is soaring, though just how much depends on the source.
Last week, Adobe Analytics reported that June US ecommerce sales were $76.2 billion – up a staggering 76% from June 2019 levels. Adobe says that means US ecommerce sales are now at about the level of last's years total peak season retail sales in total.
Meanwhile, ecommerce fulfillment company Radial said that in April and May, it shipped one million more orders than in the five-week 2019 holiday season.
UPS last week reported similar huge growth in volume, with demand for domestic residential delivery surging 65.2% in Q2. FedEx's fiscal quarter ended at the close of July, but it is likely to report similar volume growth from consumers in the stay at home economy.
The supply-demand balance for now at least is clearly in the parcel carriers' favor – and they are using it to drive up rates to shipper.
The Wall Street Journal recently reported that with its own on-line sales soaring, sports gear retailer Foot Locke was told by long time carrier UPS that it would face a substantial rate increase on some of its shipments – so much so that company executives balked and are exploring moving that business to FedEx.
The situation is simple – the parcel volume growth has pushed the capacity of the networks of both UPS and FedEx to their max. In effect "sold out" of additional shipment capacity, the logical business move is to raise rates on additional shipment demand.
The Journal reports that UPS is hitting some large shippers with price increases in the double-digit percent range in recent weeks, with FedEx following suit, lowering profit margins for etailers as they either offer free shipping or can't pass on full shipping costs to customer.
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Some of the increases have even come mid-contract, the Journal says, while other increases have broached during contract renewals.
 A UPS spokesperson said price increases are normally in the 2-3% range, but that it was now approaching rates "on a customer by customer basis."
A FedEx spokeswoman told the Journal that it has "extremely high demand for capacity" as it nears the peak shipping season ahead of the holidays. "We are taking several steps to manage our network, and this includes working with our customers to find solutions during this challenging time," she added.
As SCDigest has reported previously, both FedEx and UPS in recent months have made other moves, such as limiting how many parcels can be shipped from each store on a daily basis, and raised surcharges on large parcels.
All this puts shippers in a tough spot, as the dynamic of negotiating with the carriers has for now fundamentally changed.
"With capacity at a premium, shippers have little room to play the carriers off each other to win discounts and other concessions," a logistics executive told the Journal.
Even shippers which have locked in good rates aren't able avoid the increased leverage the carriers now have.
"The better rates you have, the less capacity you're going to get these days," the same executive said.
Are you seeing the parcel carriers hike rates - even in mid-contract? Let us know your thoughts at the Feedback section below.
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