Much has been made of the good and bad changes at FedEx. And rightly so. But it's not like the waters have been calm at the brown giant.
When UPS first implemented peak surcharges in 2017, they were a temporary bump-up on specific services (Residential and Large Packages principally) for a relatively short period (Nov. 19-Dec. 23).
The peak surcharge concept has since expanded, starting in October to capture more of the ramp-up into peak and stretching into January to capture holiday returns. That's roughly 15 weeks vs. 5 weeks.
UPS then added peak transportation charges for package volumes that exceeded a "baseline" established during historically low-volume periods.
As of Jan. 15, these "we didn't build enough capacity" surcharges became a feature for UPS' most-used services. For example, these surcharges will be permanent for shippers moving more than 20,000 packages per week in residential parcel services. Only they won't be "peak surcharges;" UPS calls them "demand surcharges" — and they will "apply until further notice." This is a particularly galling change, particularly now that supply once again exceeds demand, making a “demand surcharge” seem like an odd name to use.
The calculation is Byzantine, to say the least, and well beyond our scope here. Essentially these charges will apply on any week where the shipper's volumes for the above services exceed 105% of the June 2022 weekly average. Using historically low volume months for the baseline period seems especially conniving, but the point is this surcharge that wasn't present in 2018, and seasonal from 2019-2022, is now perpetual.
The opening moves have begun in the Teamsters / UPS contract negotiation. Here's the latest:
● The Teamsters / UPS national contract expires on July 31, 2023.
● On Jan. 9, the Teamsters' UPS National Screening Committee met to begin its negotiation strategy process.
● Teamsters President Sean O'Brien has said he expects an aggressive negotiation.
● At that meeting, Teamsters General Secretary Fred Zuckerman said that O'Brien "is going to pick a fight with this company, and that fight is to get the very best contract we can get for our members." While this may be a prepared soundbite to rile the membership, it's also likely true.
● UPS likely knows they will have to give ground in this negotiation. With industry package volumes falling and competitors emerging daily, a work stoppage would be disastrous.
● For this reason, UPS won't let negotiations extend beyond the contract expiration. They will likely negotiate hard and eventually concede where they must.
● However, rumor has it that UPS has told their people not to schedule vacations for August / September to backstop in case of a Teamsters outage — which would allow UPS to avoid a full work stoppage.
● Looking to take advantage of the uncertainty, FedEx is warning UPS shippers that the only way to secure FedEx capacity in the event of a UPS disruption is to shift volumes now.
While a work stoppage is unlikely, shippers should carefully review their carrier diversification and contingency planning to ensure access to capacity during a service disruption. FedEx is just one of many options. Consider regional carriers, alternative fulfillment plans (freight Ship-to-Store), partnering with existing FedEx customers for 3P shipments, etc.
After waiving service guarantees in Q2 2022 amid soaring market volumes and transportation demand exceeding supply, FedEx and UPS brought them back in a limited fashion — for overnight and some export/import services. But even as excess capacity becomes an issue, both national parcel carriers fully waive guarantees on the most-used services. To put this into context: The past two years have brought exorbitant price increases, reduced on-time deliveries (although Peak 2022 showed improvement), and waivers of the one tool shippers have, aside from pulling volume, to hold carriers accountable for service. Frustrating doesn't begin to cover it.
The 2022 peak was a significant improvement in on-time performance over 2021. According to FreightWaves, UPS' OTP rose from 96.9% to 97.5%. While lower than UPS's mark, FedEx's OTP of 95.2% far outdistanced its 88.2% in 2021. Some attribute those improvements to the investments both of the nationals made over the past year. But much, if not most, likely the higher marks stem from the free capacity that just wasn't present last year.
So what can we take away from all of this? These are fast-moving times for UPS and the parcel industry as a whole. I would argue that more has changed, changed back, and changed again in the past three years than in the previous 10. But the fundamentals hold true whether in volatile or stable times:
● Know what you're trying to achieve.
● Build a roadmap of the strategic changes — cultural, technological, and operational — to get there.
● Build in as much flexibility and mitigate as much risk as you can.
● Execute your strategy
● Institute feedback loops to check progress and serve as guardrails to check and adjust your strategy.
Joe Wilkinson is VP, Professional Services, at Intelligent Audit. He can be reached at firstname.lastname@example.org.