As the seemingly never-ending 2020 finally comes to an end, parcel carriers, customers, and anyone in the supply chain realm are all thinking about what the future holds. Can the national carriers continue to make the rules as they go along? Will customers finally be able to rationally negotiate in 2021? Or does 2021 continue to bring uncertainty and new challenges to everyone involved?
UPS and FedEx have dominated the news in the parcel world in 2020. From the start of this pandemic, both national carriers have played by their own set of rules (such as each quickly enacting indefinite peak surcharges, impacting customers across all industries). That “indefinite” is still ongoing, and it would be a major surprise if it ended prior to the start of the new year. Additionally, both carriers began siphoning capacity from shippers of all sizes by capping the number of packages customers could ship and/or increasing rates, to guarantee packages get picked up.
Despite all of this, FedEx and UPS continue to be the most viable options for shippers trying to get their products to consumers in most cases, paving the way for the rich to get richer.
Annual and quarterly reports told a striking story in this regard:
· FedEx Ground’s average daily volume grew between six and seven percent in 2018 and 2019, but as of the fiscal year end had grown over 11% for 2020
· FedEx Ground’s FYQ4 (March-May) revenue grew 10-12% YOY in 2018 and 2019, but over 20% in 2020.
· UPS reported Q2 2020 ADV increases (April-June) of over 22% YOY.
Most regional carriers have also suffered the same capacity constraints UPS and FedEx have, being unable to add additional volume into their networks. It has made for a turbulent and unprecedented year.
National Carriers in 2021
As 2021 begins, something must give. The carriers cannot expect customers to continue to take rate hikes, pay non-agreed-upon accessorial fees, and have virtually no indication as to when it may end. One key component you should be asking your carrier about is how you can renegotiate your current contract to eliminate uncertainty now and in the future.
Furthermore, regional carriers will continue to become a more viable option as UPS and FedEx change the rules and, in some instances, become unreliable. However, in the latter part of 2020, most regional carriers have stayed away from new volume due to capacity constraints. This may change in early 2021.
One would assume UPS and FedEx plan to continue this growth as we head into 2021 and beyond. However, if UPS and FedEx plan to continue expanding their networks to accommodate further increases in e-commerce volume, they will need to get back to the negotiating environment that preceded these current times. Otherwise, regional carriers will continue to be more and more attractive, specifically to the large shippers in the marketplace.
As the market steadies, consumers get back to (some) in-store shopping, and volume becomes more predictable, regional carriers will be set up nicely to swoop in and take volume from national carriers that are unwilling to negotiate. The national carriers will be forced to “play ball” and make competitive offers once again.
The wildcard in all of this, however, is Amazon. As it expands to offer its services to new shippers, it is likely to try to take on FedEx and UPS head on. It will be wanting to take volume directly from the Big Two and may be willing to take a loss or break even on some of their services. The pandemic has allowed Amazon to continue to grow its e-commerce business as well, giving it the necessary capital to make such investments. While this is more likely to affect most shippers closer to 2022 or 2023, it is important to bear it in mind while negotiating.
Customers in 2021
With all of that being said, the latter half of this year has been extremely hard on the average shipper in the marketplace, especially those trying to negotiate new transportation agreements in virtually any mode. By early spring of 2021, we could see a more favorable negotiating environment that has more bidders, more attractive offers, and an overall better solution for customers. Early 2021 might be the right time to engage in discussions around launching a parcel RFP.
2020 has driven up costs, driven down shippers’ trust in carriers, and created discussion about what the most sustainable solutions are going forward, in transportation and all aspects of businesses across the globe. These conversations need to continue in 2021, as we try to adapt and return to a bit of normalcy.
Creating Flexibility and Controlling Costs in 2021
As we move into the new year, the number one question likely to be asked of transportation leaders by executives is going to be something similar to, “How do we set up a sustainable shipping strategy that can drive through turbulence?” To make that a reality, the top two questions you should be asking your carrier rep are:
· How do we ensure new accessorials and surcharges have the least impact possible?
· How can we make sure that our capacity is never capped?
These questions, if incorporated early on, will set the direction of all negotiations and allow customers to make sure the carriers are aware of their intentions and reservations up front. They also set guidelines for the bare minimum in negotiations, such as, “We do not want to take new surcharges and we expect to have all of our packages picked up and delivered.
There will certainly be a “feeling out” time in the early stages of the new year. Are carriers going to be reluctant to give the same incentives customers have long expected out of their agreements? Are new, creative terms regarding capacity going to be put into new contracts by the national carriers? What does the general rate increase (GRI) mean for shippers in the new year? Where does Amazon play in all of this? These are important questions that need to be answered as soon as possible. An interesting 2021 is almost upon us and the transportation landscape is certain to continue to evolve.
Logan Mullen is a Consultant at enVista, a global consulting and software solutions firm. Logan’s role at enVista includes helping customers negotiate parcel agreements and the data analysis that comes with that. You can contact him at firstname.lastname@example.org.
This article originally appeared in the November/December, 2020 issue of PARCEL.