While we started to see the impact the economy was having on the parcel shipping industry in last year�s survey outcome, the impact is even more pronounced in this, our seventh year of analyzing the results of the Parcel Shipping & Distribution Best Practice Survey. Again this year, Morgan Stanley, a global financial services firm and a market leader in securities, investment management and credit services, co-conducted the survey with us. While we use the survey results to help our readers better gauge their operations, Morgan Stanley analyzes the data for their clients� investment portfolios. In Part 1 of the survey results, we delve into the carrier part of the parcel process. In the December issue, we will reveal the results of the operational side of parcel shipping including management issues, productivity standards, packaging concerns, latest equipment investments and more.
If you negotiated carrier rates this year, don�t feel alone if the discounts weren�t as favorable as years past. On average, express rate discounts were four percentiles less this year, from 32% in 2003 to 28% in 2004. Likewise, ground rate discounts went from an average of 25% last year to 22% this year. Gas prices and a continued sluggish economy no doubt played a factor in the toughened negotiations. Some notable differences: Those who negotiated B2R shipments actually got deeper discounts than last year. Also, wholesalers/
distributors were granted deeper discounts than in 2003. If you ship more than the average ground packages into Zones 4 and higher and less than the average into Zones 2 and 3, you also should have walked out of negotiations better this year than last.
DHL, now strengthened by several acquisitions, seems to be targeting very high-volume manufacturers and 3PLs with B2B ground shipments into all Zones. Companies with these characteristics are realizing the deepest rate discounts. On the express side, DHL seems to be granting the biggest discounts to businesses with the majority of their parcels being shipped express to residential addresses in Zones 2 and 3. And, if you changed your carrier to DHL in the last 12 months, you faired the best in express discounts (DHL granted on average 33% off express rates, the highest of any carrier who accepted new shippers). DHL and FedEx both granted 25% discounts, on average, to those shippers who moved their ground shipments to them.
FedEx Express granted the deepest discounts to 3PLs, shipping very high volumes into Zone 6 and had more than their high volumes going to residential addresses. FedEx Ground seems to be shot gunning the marketplace because discounts are rather even across industries and delivery destination and volume. If you negotiated rates with FedEx recently, you should have been able to hold your ground discounts at about the same as last year (24%), but you probably took a hit on express discounts (average, 32% in 2003 to 29% in 2004). �
Negotiating with UPS: expect lower discounts for both ground (from 23% in 2003 to 20% in 2004) and express (31% in 2003 to 28% in 2004). UPS seems to be providing the most favorable express discounts to retailers who have volumes approaching a million parcels a year. Otherwise, UPS express discounts seem to be fairly consistent across the marketplace. Ground discounts seem to be fairly even across volumes and delivery destinations as well. Manufacturers and retailers may fare better than other industries in negotiating ground rates.
While negotiating rates can have an important impact on a company�s profitability, our readers must enjoy the task, since very few noted negotiating rates as their number one challenge. January and spring (March/April) still appear to be prime times to negotiate rates; rates on average negotiated during those months are deeper than at other times of the year. If you are only using one carrier, you probably won�t be able to negotiate as deep of discounts as the average shipper, unless your volume is high. On average, your discounts will be two and three percentiles less for express and ground, respectively.
Only 12% of shippers changed carriers in the last 12 months, but the number one reason this year for the change was rates. Retailers were most likely to go shopping for new carriers, even though industry-wide they are getting above-average discounts. The economy may be forcing them to look for all possible cost-cutting measures. Manufacturers and 3PLs were more content to stay with their current carriers.
UPS still holds the market share of shipments, with 77% of respondents using UPS as their primary carrier for ground and 56% for express. FedEx follows with 12% ground and 30% express. USPS comes in third with eight percent ground and seven percent express and then DHL at four percent ground and seven percent express. The majority of respondents use more than one carrier. For international shipments, the field is a little more even with UPS having 35%, FedEx 30%, DHL 18% and USPS 11%, with others six percent.
The returns shipment market is also changing with the economy. Last year, shippers had 41% of their customers paying for return shipping. This year, that number has dropped to 39%. It could very well be that in a stagnant economy, the buyer is in a little better position to negotiate who pays for returns, and consumers with fewer dollars to spend may be looking at all costs of a product, including who pays shipping. The Postal Service and UPS are continuing to gain market share in return deliveries.
There is good news and bad news for the future of parcel shipping. More companies this year than last year don�t expect changes in the volumes that they are giving their current carriers. Overall, 69% of companies do not expect volume changes to their carriers. However, there are more companies this year than last expecting volume decreases and fewer companies than last year who expect volume increases. Since there are not great shifts from one carrier to another, it is obvious that decreases in volumes are a matter of a sluggish economy.
Be sure to watch for the next issue of Parcel Shipping & Distribution with Part 2 of the survey results. The staff of Parcel extends a sincere thanks to all of those who took the time to respond to the survey, which is conducted in the spring of each year. Watch for the survey next year and please take the time to participate; your contribution helps not only the industry as a whole, but each and every professional in the industry as well.
