Interactive Shipper Survey: Live PARCEL Forum Results Unveiled (Part One)

We asked the questions, you provided responses. Exclusively for the PARCEL Forum, Shipware conducted a live parcel pricing and benchmarking survey, entitled Live & Interactive Parcel Pricing & Procurement Benchmarking, at the 2022 PARCEL Forum. Dozens of shippers responded in real time to survey questions about their parcel usage, carrier preferences, cost reduction strategies, and other valuable benchmarking data. Survey respondents collectively commanded approximately $3.5 billion in annual parcel spend.

This article will highlight demographics and selected responses to more than 79 survey questions to help you gain insight as to how shippers are thinking about general parcel procurement, strategies to mitigate rising costs, receptivity to US Postal Service parcel products as a complement to the services of the private national carriers, concerns about the potential for a UPS strike, and much more.

Due to the length of the survey, we will unveil results in two parts with Part One (this article) covering survey demographics, shipper sentiments around pricing, and procurement practices. Part Two will be published in the May/June issue and will reveal the actual pricing/discount benchmarks, as well as address several miscellaneous categories (Amazon, potential for UPS strike, service performance, etc.).

It’s important to note that parcel pricing agreements were not shared due to confidentiality, but rather, participating shippers responded anonymously to survey questions based on ranges. Technology-enabled and totally blinded to avoid confidentiality concerns, the survey was designed to help shippers to better understand how their pricing stacks up with other shippers. Moreover, all survey responses were cross-tabulated by industry, company revenues, primary carrier, and annual parcel volume/spend for more meaningful like-volume correlations.

Why is benchmarking parcel pricing data so critical? Well, the most common challenge we hear from volume parcel shippers is that they don’t know how good – or bad – are the incentives, terms, and structure of their carrier pricing agreements. While no shipper would ever negotiate a contract and knowingly leave money on the table, the reality is that some shippers have clearly done a better job than others when it comes to negotiating the most favorable rates and terms.

SURVEY DEMOGRAPHICS

Industry

While participants included a mix between several industries, the most common sector was retail/e-commerce (29.55%) followed by 3PL/warehousing/fulfillment (18.18%), healthcare (11.36%), automotive (9.09%), and manufacturing (9.09%).

Annual Revenues

Small and large companies alike were represented with annual sales revenues ranging from under $100M to those businesses that generate revenues greater than $15B.

Primary Carrier

Predictably, 86.4% of all survey participants named UPS or FedEx as the “primary” carriers (as defined as more than half of overall volume). Other carriers included USPS and regional carriers although adoption of carriers outside of FedEx and UPS was not common.

Controllable Volume

While UPS and FedEx enjoy the status as “primary” carrier, shippers continue to diversify carrier mix to include postal aggregators, regionals, postal, and other alternative carriers.

Parcel Volume

Annual parcel volume revealed a balanced mix of small, medium, large, and mega shippers, although as expected for the PARCEL Forum audience, half the survey participants shipped high volumes of more than 15 million parcels annually.

Parcel Spend

Annual parcel expenditures likewise revealed a balanced mix of shippers of all sizes. Collectively, we estimated survey participants command annual parcel spend of $3.5 billion.

As you will see below and throughout this article, for simplicity, we have grouped responses to many survey questions into three revenue categories: Under $10M in annual net charges, $10 to $50 million, and over $50 million. As the chart below shows, survey respondents were mostly larger shippers (44.4%), followed by medium-sized spend (33.3%), and the smallest representation at 22.2% were businesses that spend under $10M net per annum.

GENERAL PARCEL PROCUREMENT

How do you feel about your current parcel agreement?

While nearly 41% of survey respondents feel their discounts are better than average, they conceded that rates and contracts were improvable. In fact, three-quarters of shippers feel their parcel pricing agreements could be improved, with only 6.8% believing they had best-in-class pricing.

Although all three groups by spend share the sentiment that their parcel discounts are better than average but improvable, there were interesting distinctions amongst the groups, with nearly half of medium spend shippers feeling less confident about their pricing than the other two groups. Surprisingly, nearly a quarter of smaller shippers expressed very strong confidence in their pricing.

How would you change your FedEx/UPS pricing agreement if you could? (Top 5 rank)

In addition to the desire to improve discounts (15.75%), shippers appear to be plagued by carrier-imposed surcharges: 16.54% would most like to improve fuel surcharge discounts, 14.96% would improve peak surcharges, another 14.96% would like to reduce the impact of other accessorials, and 10.24% would lower minimum charges.

Grouping this question into our three buckets based on shipping spend, we begin to see differentiation on how spend/size impacts concessions sought by shippers, with smaller shippers focusing almost exclusively on discounts, fuel surcharges, peak season concessions, and money-back guarantees, while medium-and-larger shippers, in addition to those improvement opportunities are also focused on reducing accessorial charges, improving DIM-weight pricing, and lowering minimum charges.

What is the most frustrating aspect of negotiating pricing with FedEx and UPS?

When we asked what is the most frustrating aspect of facing FedEx and UPS at the negotiating table, the number one response (29.69% of respondents) is not getting meaningful discounts despite their best negotiation efforts. Shippers acknowledge that their carrier rep’s motivation to drive revenue and margins is opposite the shippers’ desire to reduce costs (14.06%), leading to pricing delays (9.38%), and not being taken seriously (6.25%).

When did you last have a full-scale pricing negotiation with your primary parcel carrier?

While our general observation is that shippers that negotiate pricing most frequently tend to have the strongest pricing, we recognize that the pandemic-inspired volume surge over the past couple of years may have limited pricing discussions. After all, it’s difficult to ask for deeper discounts when the demand exceeds the supply. More than half of survey respondents hadn’t managed a full-scale pricing negotiation for parcel services in more than a year, with 43.18% foregoing the exercise for two years or more.

What changes were made?

Given the demand for parcel services throughout the pandemic, shippers need to be careful in how they approach the carriers for pricing. While some achieved savings by adding discounts or improving terms, 15.91% reported discounts got worse!

Not surprisingly, smaller shippers (under $10M) focused parcel contract changes around accessorial charge discounts, while larger shippers ($50M and up) sought concessions to fuel and peak surcharges that their greater leverage through higher spend affords.

What is the best way to get higher discounts with FedEx/UPS?

Shippers are recognizing the importance of benchmarking as a way to improve discounts (25.45%), developing a personal relationship with carrier reps (14.55%), and playing the carriers off against each other (13.64%).

When negotiating our parcel pricing agreement, we typically…?

The most common approaching to negotiating parcel contracts was to ask for very specific concessions, like a discount to the residential surcharge or fuel surcharge (25.27%), followed by the use of benchmarks (20.88%), and providing package-level detail to non-incumbent carriers (19.78%).

It is important to note that what’s meaningful for one shipper may not be for another. It is important to conduct a comprehensive analysis to understand which pricing contract changes will have the most material impact.

Have you ever hired a third party to help negotiate your parcel pricing agreement?

It’s well-documented that FedEx and UPS don’t prefer their customers to solicit the help of third-party consultants that specialize in parcel procurement, but more than one-third had done so (36.36%). Another 29.55% hadn’t but were open to hiring a parcel pricing expert, and only 27.27% responded it’s unlikely they ever would.

When was the last time you changed your primary carrier?

Unsurprisingly, the pandemic also inspired greater carrier loyalty, as less than 10% of shippers changed primary carriers over the past two years.

Two years from now, I will still use the same primary carrier.

Moreover, it appears that loyalty will continue into the future with 68.19% of shippers stating they’d likely, very likely, or definitely be using the same carrier. Only 18.19% responded “unlikely” or “highly unlikely”.

However, given our survey correlates actual pricing results mapped to the frequency of negotiations, the data would suggest that those companies having negotiated contracts more recently are in fact driving deeper discounts than those shippers that hadn’t negotiated in more than two years.

We advocate that shippers should create an expectation with carrier reps of ongoing cost reduction. Notable reasons to bring the carriers back to the negotiation table include changes in shipping profile: volume fluctuation, changes in shipping product utilization, zonal distribution shifts, weight/DIM changes, etc. Moreover, changes in FedEx Earned Discounts thresholds and UPS Portfolio Tier changes, up or down, are legitimate reasons to make contract changes.

However, the most effective rationale for initiating pricing improvements with FedEx and UPS are changes in the marketplace, such as the rise of the USPS – especially when comparing Priority Mail to Ground – regional parcel carrier options, package consolidators, service guide and rate hikes initiated by FedEx and UPS, etc.

Interestingly, one third of the largest shippers responded that it would be “unlikely” that they’d still be using the same primary carrier in two years.

Is your answer likely to change if Amazon has become a common carrier by then?

Despite the conjecture about Amazon entering the domestic package delivery market, it appears that the majority of shippers won’t base their FedEx or UPS primary carrier decision on whether or not Amazon enters the fray. 56.81% of respondents would not be motivated to change carriers if Amazon were a competitor in the space. Only 27.27% indicated Amazon’s entry could influence their decision to change primary carriers two years from now.

And even then, it appears that the smaller segment of shippers would be most likely to give Amazon a try with 62.5% responding they’d be more likely to switch. Medium and larger shippers are overwhelming opposed to using Amazon.

What would Amazon have to do to become your main carrier?

However, Amazon could replace FedEx or UPS if it reduced costs (34.85%), offered better service (30.3%), and guaranteed privacy (10.61%). However, Amazon will never be a realistic option for 9.09% of survey respondents.

How much savings do you need to justify switching carriers?

We also asked how much savings would be required to justify a change in carriers – to Amazon or anyone. 40.91% of participants reported 6-10% would get it done, while 22.73% would need to achieve savings of 11-20%. Very few shippers (2.27%) would not switch carriers regardless of savings.

OTHER INSIGHTS

What changes have you made to compensate for higher shipping charges?

In 2022, shippers categorically felt the impact of pandemic-fueled cost increases in shipping, many forced to alter their business by reducing margins, increasing the price of their goods, and charging for shipping. Enormous variance in strategies based on shipper size.

We also noted response differentiation based on shipper size, with many larger shippers opting to promote buy online/pickup in store (BOPIS), while medium-sized shippers stopped selling certain product lines, downgraded shipping service, raised the threshold for free shipping, and consolidated orders to use more LTL.

To keep shipping costs in check over the next 12 months, we plan to….

Shippers will apply many strategies to keep shipping costs in check in 2023 including: renegotiating rates, engaging alternative carriers to complement UPS/FedEx, auditing carrier invoices, changing packaging to reduce box sizes, and add regional and other alternative carriers. Again, strategies vary very significantly between our small, medium, and large shipper segmentation.

SUMMARY: BENCHMARKING VALUE & LIMITATIONS

Of course, benchmarks can only take a shipper so far in their carrier negotiations. While overall volume and revenue certainly play a role in pricing, FedEx and UPS discounts are largely based on the carriers’ analysis of distribution footprints and physical package characteristics, which are directly tied to the carrier cost drivers. Other pricing factors include desired carrier operating ratios, sales commissions, strategic account value, and competitive considerations.

Therefore, simply reviewing benchmarking data may not be enough to draw conclusions that you, too, should be receiving similar discounts. Benchmarks like those published above will provide shippers with an idea of what’s possible – high watermarks for which to strive. Finally, when survey questions are cross-tabulated with shipper volume, spend, industry or other key metrics, shippers are better able to correlate their results with more relevant peers.

Rob Martinez, DLP is Founder of Shipware LLC, an innovative parcel audit and consulting firm that helps volume parcel shippers reduce shipping costs 10%-30%. Rob offers more than 33 years’ experience negotiating parcel contracts – on both sides of the negotiating table – for some of the most recognizable brands in the world, and is a sought after speaker and industry thought leader. He welcomes questions and comments, and can be reached at 858-879-2020 Ext 114 or rob@shipware.com.

A portion of this article originally appeared in the March/April, 2023 issue of PARCEL.

Interactive Shipper Survey: Live PARCEL Forum Results Unveiled (Part One)

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