Historically, brick-and-mortar retailers, e-commerce businesses, and other small parcel shippers have had limited leverage in negotiating small parcel rates in a supply market that behaved as a duopoly. Current industry dynamics have shifted market power to shippers, and the Ankura Performance Improvement Practice has been successfully helping clients reduce costs by 15% to 20%. Shippers should act quickly, as we estimate the window of opportunity may close in 6-12 months.

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Finally, Shippers Have the Upper Hand!

While growth has moderated slightly from the dramatic increases seen during COVID, consumer expectations for fast, inexpensive service continue to remain high.

Expansion of Amazon's capacity and services has taken share from UPS and FedEx creating excess capacity in their networks.

In addition to Amazon, the emergence of new last-mile delivery services has taken additional volume, intensified competition, and is providing alternative partners for shippers.

Key Industry Developments

•Excess capacity and increased driver availability, a major shift from the peak shipping levels experienced post-pandemic, is driving increased competition in the industry.

•Hidden tariff changes, such as expanded delivery area surcharges, increased fuel surcharges, and other fees are being implemented by UPS and FedEx to boost declining revenue without appearing to increase rates.

•Improved AI data tools and delivery management capabilities drive more efficient shipping, through improved mode/freight class selection and make it easier for shippers to optimize with multiple suppliers.

•Possibility of autonomous vehicles and drone delivery could transform the industry over the next few years.

Key Events Driving the Industry Dynamics

• UPS’s highly publicized union negotiations started in Dec ‘22, which narrowly averted a strike in July ‘23 which would have been the U.S.'s largest in 60 years. The new UPS contract put $30B of new money in secured wage hikes, more full-time jobs, and workplace improvements for Teamsters. It was approved in August ‘23.
   
• FedEx saw the potential for disruption from the 2023 UPS contract negotiations and actively positioned itself as a reliable alternative by urging shippers to switch due to a potential UPS strike. Many shippers that were previously exclusive to UPS hedged by routing a portion of volume through FedEx.
   
• Amazon has shifted its focus from building its infrastructure DCs and trucking to two key evolving dynamics in logistics: (1) Adoption of a data-first strategy and (2) replacing manual data integration methods with machine learning (ML) automation to drive increased efficiency.
   
• Fueled by the increase in retailers with ship-from-store capabilities, alternate last-mile carriers are leveraging their network to expand their services to traditional last-mile delivery. Some examples: Instacart broadened out from its grocery base, DoorDash expanded to grocery and convenience, and ShipT supports a number of retailers beyond their parent Target.
   
• Walmart has reached $2B in monthly store-fulfilled sales by adding parcel stations to its stores to receive packages from fulfillment centers and deliver to customers' homes via its proprietary Spark Driver program, or other 3rd party services.

Opportunities for Parcel Shippers

Ankura estimates the window for shippers to capitalize on current market opportunities will close in 6-12 months. 

Shippers should act soon to:

• Take advantage of the current competitive intensity by re-bidding contracts and potentially introducing alternative vendors to UPS and FedEx for some portion of last-mile deliveries.
• Develop a deep understanding of pricing complexity to enter “fact-based” negotiations with full knowledge of how not just rates, but minimum charges and surcharges impact total costs.
• Evaluate opportunities to leverage capabilities of alternative last-mile carriers to create additional competitive tension and reduce costs for certain customer segments.
• Re-align fulfillment strategy- adjust network shipping nodes, review package sizes, and optimize mode selection to cost-effectively meet consumer expectations.