Supply Chain Matters provides an update to our previous commentary: Are Parcel Carriers Pushing Too Far in Dampening Online Fulfillment. Our commentary reflected on whether both FedEx and UPS were inching closer toward upsetting the “golden goose” of their current growth strategies, that being their participation in the boom in online B2B/B2C fulfillment. We primarily reflected on FedEx and its announcement of implementing added surcharges to parcel rates as a response to heavier packages and a rise in residential deliveries. Further, how such a move could be rationalized with the average fuel costs reportedly down 35 percent from year earlier periods.
This week, as everyone on the planet expected, UPS joined-in, and somewhat upped the ante. The parcel carrier just about matched FedEx for ground based parcel transportation but outreached FedEx’s fuel surcharge, while implementing 2016 rates a week earlier than FedEx.
UPS announced that effective November 2, 2015, for Over Maximum Packages and the tables for Ground, Air and International fuel surcharges will be updated. For Ground, the fuel surcharge will increase from the existing 4.75 percent to 5.25 percent. For Air and International, the surcharge will increase from 3 percent to 4.5 percent. The Over Maximum Limits fee will increase $52.50.
Effective December 28, 2015, UPS Ground rates and accessorial charges will increase by an average net 4.9 percent. UPS Air and International services and accessorial, including UPS Air Freight rates within and between the U.S., Canada and Puerto Rico, will increase an average net 5.2 percent. UPS Freight® rates will increase an average net of 4.9 percent, effective October 26, 2015.
Included in area surcharges are increased surcharges that will be applied to commercial business addresses. Similarly, the Residential Surcharge for UPS Ground Services, UPS Air Services and On-Call Pickups will increase $0.15. The Residential Surcharge for UPS Hundredweight Service shipments will increase $1.30, and the Residential Surcharge for UPS Worldwide Express Freight® shipments will increase $5.00.
The Large Package Surcharge will increase $10.00.
Newly announced was that beginning January 4, 2016, UPS will institute a Third-Party Billing Service of 2.5 percent applicable to the total charges on all packages that are billed to third parties. This has an important implication to Omni-channel online commerce where third-party logistics or manufacturers drop-ship directly to customers and bill freight charges to the online provider. A 2.5 percent surcharge of the total invoice could be significant, especially when other charges noted above are added, to include package dimensional surcharges.
According to UPS, these rate and surcharge changes are to address the impact of increased costs, changing demand for select UPS products and other market factors. Essentially, as was the case with FedEx, this broad wording perhaps defies the realities that both carriers seek to boost their margins and profitability while riding the presumed increased B2B/B2C commerce wave. It would behoove both to actually provide customers with hard data indicating what actual volume trends of larger packages really are.
These pricing scenarios threaten Free Shipping options for online consumers and open the door for new industry disruptors, either larger online retailers, or other transportation and parcel services providers to serve as an alternative parcel delivery mechanism in 2016 and beyond. We believe they will move online consumers to opt more for the free pickup in-store option but retailers will have to find increased methods to leverage localized inventory.
For supply chain teams supporting dominant online fulfillment channels, best that you crank-in these new rate structures into your supply chain network models as soon as possible. You may well find impacts related to online fulfillment center locales.
A final note: Yes, there are realities that nationwide parcel delivery networks require large asset investments, but disruptors such as Amazon, Google, Lyft and Uber strive to challenge any status-quo. From this author’s view: The door is now open for alternatives
Bob Ferrari
Hello Everyone,
We provide a follow-up to the above posting regarding both FedEx and UPS proposed hikes in fuel surcharges and 2016 service rates.
The United States Postal Service has now indicated it will seek to increase its commercial-package shipping rates by an average of 9.5 percent and by 23.5 percent for its Parcel Select packages weighing less than a pound. This comes after the USPS slashed rates last year by as much as 58 percent on Priority Mail packages for shippers with volume of 50,000 parcels per year, in an effort to better compete with FedEx and UPS.
The highest price increases have been requested to start in mid-January for packages that weigh under a pound, including Parcel Select, utilized by FedEx, UPS and Amazon.
Ironically, both FedEx and UPS have publicly warned that the USPS runs the risk of pricing itself out of the market for lighter weight, last mile deliveries. These are deliveries that the private parcel carriers have already passed along to the USPS because of cost factors.
Now the picture gets even more interesting.
Bob Ferrari
Hello Everyone,
After our two Supply Chain Matters commentaries of posing the question of whether parcel carriers are pushing too far in the latest round of rate hikes, the Business Insider blog posted its own commentary on October 19th.
Author Eugene Kim references data from ChannelAdvisor indicating that Amazon is continuing to bulk-up its fulfillment center network and opines that the online giant may be serious about stepping into territory historically dominated by UPS and FedEx. Amazon has added 21 new logistics facilities globally over the last twelve months and may be positioning to displace traditional parcel carriers in Amazon Prime concentrated areas. Further cited was a research note published by Baird Equity Research that envisions Amazon getting further into online logistics fulfillment soon. Baird cites the name of the new service as “Amazon Transportation and Logistics” (ATL).
Further data cited are recent job postings from Amazon whose job descriptions hint of a parcel-delivery and logistics service entity.
Separately, current news reports indicate that Amazon plans to add 25 percent more seasonal workers for the upcoming holiday surge, amounting to nearly 100,000 temporary workers. Since current NRF predictions predict only a slight increase in this year’s online sales volumes, it may be a further indication that Amazon is planning to support added activity in its logistics sortation and fulfillment centers.
Two Other Data Points to Consider: China based Alibaba, now threatening to surpass Amazon in online sales volume already operates its own logistics fulfillment service within China. Finally, Jeff Bezos, CEO of Amazon is an investor in Business Insider through his personal investment company. Bezos’s style has often been to leak certain information regarding Amazon for the purposes for pressuring competitors. Why else would the potential name of the new service be disclosed?
Interesting developments are indeed unfolding in online retail and logistics and transportation.
Bob Ferrari