April 2024 - News & Views
As the giants of shipping, UPS and FedEx wield significant influence. In 2024, a notable shift in their pricing strategies prompts a close examination of Delivery Area Surcharges (DAS), revealing implications that may give pause to even the most seasoned shipping logistics executives. What changes in DAS have occurred and how will it impact shippers? And what can businesses do to adapt and maintain profitability?
The Expansion Effect: Changes in Delivery Area Surcharges
In April 2024, UPS and FedEx revealed plans to expand their DAS coverage by adding 82 more zip codes. These new DAS zip codes went into effect on April 8, 2024, for UPS and April 15, 2024, for FedEx.
This adjustment increases the total US DAS zip codes from 7,543 to 7,625 for both Carriers. While the addition of 82 zip codes might seem like a modest amount, it affects approximately 1% of the entire US population, translating to about 3 million individuals.
The 82 zip codes are listed below, and it’s clear that they represent densely populated regions. This move serves as yet another tactic for Carriers to bolster their revenue streams and raise shipping expenses for businesses.
While UPS ostensibly framed the DAS zip code expansion as a measure to align with market dynamics and enhance service quality, these changes carry weighty implications. With adjustments to DAS boundaries and criteria, UPS subtly shifted the cost burden onto businesses, particularly those operating in remote or less accessible areas.
Simultaneously, FedEx echoed this maneuver, albeit with its unique twist. By adjusting its own surcharges and service parameters, FedEx reinforces the broader trend of tightening pricing controls. Such synchronized actions by the two shipping behemoths underscore a shared commitment to assertive pricing strategies.
Beyond Surcharges: Implications of Pricing Dominance
For logistics executives, these developments present a dual challenge. On one hand, the need to navigate evolving surcharge structures demands a meticulous reassessment of shipping strategies. Businesses must recalibrate their logistical frameworks to mitigate the financial impact of these changes effectively.
Fuel surcharges are another example of how Carriers manipulate changing price structures to their benefit. FedEx just announced a 1% increase in their Fuel Surcharge for Ground and Domestic Air that will go into effect on May 6, 2024. Once again, UPS entered the fray with a 0.5% Fuel Surcharge for the same services, effective April 29, 2024. This déjà vu scenario reflects 2023 increases when UPS first raised their Fuel Surcharge by 0.5% in November, followed by FedEx announcing a 1% increase in December, followed by yet another increase by UPS a week later to 0.75%.
Now the question is: Will UPS raise their Fuel Surcharge again to match—or beat—the FedEx increase? Furthermore, with today’s volatile energy market and geo-political conditions, can we expect additional fuel surcharge increases in 2024? Carriers will likely continue to take advantage of the evolving and uncertain environment to increase fuel surcharges as well as delivery area surcharges.
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However, the broader implications of UPS and FedEx’s pricing power extend beyond surcharges. As these Carriers consolidate their dominance, they wield increasing leverage over pricing negotiations. For businesses reliant on their services, this dynamic raises concerns about long-term cost containment and operational sustainability.
Strategies for Resilience
In the face of such formidable pricing power, retailers must adopt a proactive stance. Beyond adapting to immediate surcharge adjustments, it’s clear that strategic partnerships and diversified shipping options are crucial solutions for resilience. By fostering relationships with alternative Carriers and exploring innovative shipping strategies, businesses can mitigate the risks posed by UPS and FedEx’s hegemony.
One proactive response to the increase in shipping costs caused by the DAS changes is to negotiate—or renegotiate—Carrier contracts. A comprehensive?contract and rate analysis?along with an?assessment of Carrier performance?will reveal specific points of leverage for negotiating more favorable rates and terms?that can result in significant savings for your business.
A nuanced understanding of market dynamics is also indispensable when it comes to fighting back on the impact of the DAS zip code expansion. By leveraging insights into regional shipping landscapes and emerging industry trends, logistics professionals can identify opportunities for optimization and cost containment. In a landscape dominated by UPS and FedEx, this kind of agility greatly strengthens your position.
More and more retailers are partnering with?logistics advisors?who are immersed in the shipping world and stay up-to-the-minute on news that impacts their business. At LJM, an online?Newsroom?provides critical news, trends, resources, and updates, like the recent Carrier expansion of DAS zip codes coverage.
Vigilance and Adaptability
Ultimately, the pricing power wielded by UPS and FedEx demands constant scrutiny from shipping executives. As these giants assert their influence with subtle yet significant maneuvers, businesses must react with strategic foresight and adaptability. Responding effectively to Carrier tactics requires a proactive approach that includes staying on top of market trends, implementing analytics to improve strategic decision-making, and negotiating lower shipping costs to counter the impact of DAS zip code expansion.
Reach out?if you need help quantifying the impact on your shipping profile.
This?SCOPE session?focused on Parcel Carrier Contracts, their basic elements and the cost drivers which dictate them. Attendees to this?April 22nd Summit Event?learned how to “think like a carrier” when it comes to carrier cost to serve their business, including defining Carrier Operating Ratios and how to influence them.