With 2024’s holiday season in the rearview and the 2025 GRIs now in effect, parcel carriers are gleefully watching their new and improved revenue numbers trickle in. Though thankfully not the 6.9% jump seen in 2023, shippers have undoubtedly assessed this year’s 5.9% increase to be about as welcome as an ice storm on Christmas Day. That said, UPS and FedEx are still aggressively competing for business in light of a milder peak season compared to recent years and softer-than-expected 2024 earnings. With carriers remaining on the back foot, shippers will continue to have leverage to partner with carriers that can best serve their pricing and operational needs. This article aims to detail the overall market state and provide actionable suggestions, not only to reinforce your current discount programs, but head into fresh negotiations this year at parity with your carriers.

Establish a Baseline

Reassessing your shipping program after the GRI and aligning expectations within the broader parcel landscape is a valuable exercise for businesses of all sizes. Along with reviewing your net rate sheets, consider requesting a Letter of Notification (LON) from your carrier representative. A LON offers a clear summary of updated tier discounts and minimum reductions, providing additional insight into the impact of the GRI — details that may not be fully captured in your net rate sheets. As your company evolves, it’s imperative to partner with carriers that understand your operational needs and provide you with pricing that meets your financial ones.

Understanding the Numbers

FedEx and UPS have reported annual revenues of around $90 billion in recent years, underscoring the importance of every shipper — large and small. Even smaller programs can attract attention, as carriers prioritize customer retention in a competitive landscape.

A focus on surcharges can yield unexpected savings opportunities. For instance, while a 100% waiver on all Delivery Area Surcharge (DAS) variations may be unrealistic, targeting specific surcharges based on your shipping profile could be more achievable.

Hypothetically, if your commercial DAS discount increased from 35% to 60%, it could result in significant savings, as illustrated below:

Figure 1: Hypothetical DAS – Commercial – Savings Δ (annual). 35% v. 60% discount.

By carefully understanding how surcharges are impacting you financially, shippers can strategically address cost pressures that are impacting your bottom line.

The figure above illustrates the potential savings benefit that would occur from an increase in FedEx/UPS commercial DAS discounting from 35% to 60% if 500,000 commercial packages are hit with said charge. Between the scenarios, realized savings would increase from $735K to $1.26M if the commercial DAS incentive were improved, a >40% overall increase. Using examples like the above to weigh your problem surcharges and the impact on your program is just another strategic tool you can use to stay one step ahead as you determine which carriers and their pricing models work best for your organization.

Looking Ahead

The ongoing capacity surplus in parcel networks continues to influence carrier strategies, even as FedEx and UPS implement operational changes through initiatives like Network 2.0 and the Network of the Future. Despite these adjustments, unpopular surcharges, including Demand fees, remain a challenge for shippers. Meanwhile, regional carriers like Veho and Clearjet are gaining traction with competitive surcharge structures, offering viable alternatives in certain markets.

As shippers evaluate their options, asking key questions can help guide decisions around volume consolidation, diversification, or exploring alternate carriers:

• Are we close to meeting tier thresholds, and how might near-term changes affect them?
• If cost savings are evident with a multi-carrier strategy, are the operational challenges of switching justifiable?
• Could lateral solutions, such as in-house delivery options, provide cost or service benefits?

While regional carriers are not yet poised to significantly disrupt the volumes of UPS and FedEx, they are creating meaningful options for shippers. In this environment, staying informed about your program’s structure and negotiation leverage is essential to maintaining savings and partnering with the right carriers to fit your operational and pricing needs.

Ray Hardwick is a Sr. Transportation Analyst at Intelligent Audit, with over a decade of experience in carrier operations, 3PL, and finance roles.

This article originally appeared in the January/February, 2025 issue of PARCEL.