The rapid growth of e-commerce is transforming the parcel delivery market at an unprecedented pace. With surging shipment volumes, intensifying price wars, and challenges from giants like Amazon building their own logistics networks, how can traditional carriers adapt?
A recent roundtable hosted by Logistics Management magazine brought together industry experts including Jerry Hempstead of Hempstead Consulting, David Ross from Stifel, and Rob Martinez of Shipware to analyze market trends and provide strategies for shippers.
Parcel Market Growth: Fueled by E-Commerce
Experts unanimously identified e-commerce as the primary growth driver. Hempstead noted that major carriers including FedEx, UPS, and even USPS are experiencing strong performance in both volume and profitability due to e-commerce demand. Service levels have reached record highs this year with improved stability and predictability.
Martinez observed that the industry is undergoing significant transformation. Traditional carriers are introducing more competitive pricing strategies while UPS and FedEx have strengthened peak season operations through acquisitions. Meanwhile, regional carriers and Amazon are aggressively expanding their market share, with the e-commerce giant quietly building its global delivery network.
Ross highlighted the growing importance of two-way services (delivery and returns), with B2C growth far outpacing B2B. UPS reports that B2C now represents 55% of its parcel business—a historic high expected to continue climbing.
Rates and Pricing: The Profit Squeeze
The current rate environment presents significant challenges for shippers. Martinez explained that as publicly traded companies, FedEx and UPS prioritize per-package profitability, creating unfavorable conditions for shippers.
While 2017's general rate increases appeared modest, dimensional weight rule changes resulted in double-digit cost increases for many shippers. Both carriers now adjust fuel surcharges weekly, adding further pressure. Ross noted that Amazon's "free shipping" expectation makes it difficult for retailers to pass these costs to consumers.
Hempstead added that 2017 marks the first year FedEx and UPS have different base rates for air and ground services, with UPS implementing higher fuel surcharges. USPS implemented a 3.9% average price increase in January, while DHL raised U.S. rates by 4.9%.
Dimensional Weight: The Hidden Cost Driver
The change to a 139 dimensional factor significantly impacts shippers. Hempstead illustrated how a 1 cubic foot package now rounds up to 13 lbs instead of 11 lbs under the previous 166 factor—meaning higher costs for identical packages.
Ross advised shippers to minimize empty packaging space, as they now pay for that air. The adjustment reflects carriers' need to offset higher handling costs for larger packages that dominate e-commerce shipments.
Service Quality: Maintaining Standards Amid Growth
Despite unprecedented volume increases, Hempstead noted service levels have reached record highs due to carrier investments. Ross observed that current market conditions haven't substantially affected service quality, though the B2C-heavy mix reflects stronger consumer than industrial sectors.
Amazon: The Logistics Disruptor
Amazon continues building its logistics network with 20 regional sort centers and an air network through ATSG and Atlas Airlines contracts. The company delivers directly into USPS's network for last-mile delivery in high-volume areas.
Martinez noted Amazon's moves aim to reduce dependence on national carriers rather than compete directly. However, its massive transportation investments—including a 767 fleet, Kentucky air hub, and freight forwarding—have undoubtedly unsettled traditional carriers.
Ross concluded that while Amazon's ultimate direction remains unclear, its growing logistics capabilities will continue reshaping the industry.
USPS: The E-Commerce Backbone
Ross argued USPS remains undervalued as an essential, cost-effective e-commerce partner. Martinez noted that despite overall losses (primarily from retiree benefits), its package division grew 13.8% in volume and 15.8% in revenue during 2016.
Hempstead highlighted USPS's unique six-day delivery to all U.S. addresses, including experimental Sunday delivery for Amazon. As the only carrier offering this universal service, USPS handles last-mile delivery for major carriers through its Parcel Select service.
2017 Strategies for Shippers
Experts offered key recommendations:
Ross: Understand your shipments and available options.
Hempstead: Focus on details—carriers know your business better than you do through advanced analytics.
Martinez: Negotiate dimensional factors like rate discounts, optimize packaging, and diversify networks across regional carriers and USPS. Those who analyze and optimize will succeed in this increasingly complex environment.