FedEx makes surgical strike in peak-shipping-season battle with UPS
FedEx targets outsized shipments for surcharges while exempting small-parcel business; move seen protecting FedEx cost structure while preserving customer core.
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
By targeting peak holiday season surcharges at heavy, oversized shipments—often the main culprits in driving up peak shipping costs—FedEx Corp. appears to be betting it can protect its cost structure while retaining, if not gaining, small, low-cube parcel traffic that still accounts for most peak activity and isn't a drag on the company's operating network.
In diverging from rival UPS Inc., which will apply a 27-cent per-package surcharge on ground residential deliveries for three of the five weeks of the upcoming peak season, and 91-cent and 97-cent per-package surcharges on air and three-day deliveries, respectively, during the final week, Memphis-based FedEx will not impose any surcharges on the standard small-parcel deliveries its infrastructure is essentially built to handle. Instead, it will focus on the "large format" items that are not conveyable, may require extra or special handling, or both.
Delivery demand for those items is rising rapidly as retailers expand the stock-keeping units available for online purchase. This holiday season, 15 percent of all traffic will be comprised of the types of shipments to be affected by the new FedEx surcharges, according to SJ Consulting Group Inc. That translates into an exponential increase in the past few years, according to Satish Jindel, SJ's president. However, those shipments generally drive up line-haul costs because they are so unusually large and heavy.
In addition, while Atlanta-based UPS will not apply any surcharges during the middle two weeks of the five-week holiday cycle, the FedEx charges will be in effect from start to finish.
The biggest change occurs in a segment of the parcel delivery trade known as "unauthorized" packages, shipments with such outsized weight or dimensions that the company may refuse to handle them. That surcharge will soar by a whopping $300 per package, to $415 per package. The surcharge will apply to U.S. and international ground deliveries.
FedEx also boosted its surcharge on "oversize" packages—items not quite as outsized and somewhat easier for its system to handle—by $25 per package, to $97.50. The charge applies to all domestic air shipments and U.S. and international ground shipments. Finally, FedEx added a $3 per-package "additional handling" surcharge to U.S. express and U.S. and international ground deliveries, bringing that surcharge to $14 per package.
The announcement of the oversized and special handling charges was expected, though some observers were surprised by the magnitude of the jump in the "unauthorized" shipment surcharge. UPS also imposes surcharges on similar awkwardly shaped shipments.
For the past decade, the two companies have followed in virtual lockstep in implementing major pricing actions. There has been much speculation since UPS' June 19 announcement that FedEx would follow suit with similar surcharges. Even though FedEx went in another direction, Jindel doesn't expect UPS to lose peak business exclusively committed to it. However, shippers that are using both services and that aren't tendering the types of goods subject to the surcharge may tilt toward FedEx, he said.
Rob Martinez, CEO of consultancy Shipware LLC, said the FedEx moves will not result in a flood of UPS business to FedEx, but they will check UPS' ability to make all its surcharge increases stick. "Now that shippers have a choice and clear price difference, UPS customers will have more leverage to negotiate bigger residential discounts to offset the holiday rate hikes," Martinez said. UPS shippers will give the carrier a chance to adjust its increases before switching carriers, he added.
Several analysts said FedEx's pricing strategy is aimed at either discouraging the tender of very large items or forcing shippers to package them more prudently. Both carriers have adjusted their pricing based on package dimensions to make it more costly for customers shipping high-cube, low-weight items like pillows and lampshades.
This holiday, FedEx may end up sacrificing revenue should shippers of outsized items defect to UPS or to less-than-truckload (LTL) carriers whose forte is handling those types of goods. Yet the sacrifice may be worth it if FedEx drives down line-haul costs and frees up precious trailer space for 50 or so small parcels that could fit in the space equivalent of one or two outsized items.
Krishna Iyer, who spent nine years at FedEx and is today director, strategic partnerships and business development, at ShipStation, said merchants that fulfill on sites like Amazon.com, many of which are not sophisticated in the ways of shipping, need to be careful lest they get hit hard for surcharges on such items as a free-standing desk. Shippers also should be aware that the carrier determines which goods require special handling, and that the shipper may not become aware of the carrier's dictates until the shipment is delivered. "You will get the sticker shock after the fact, without much way to plan, in some cases," he said.
Most surcharges, which by definition are punitive in nature, are designed to force or influence changes in shipper behavior. In the case of residential deliveries, which for FedEx and UPS have poor delivery density, parcels tendered to them are often inducted deep into the system of the U.S. Postal Service, a low-cost operator that is required by law to serve every address, for final delivery. However, LTL and even truckload carriers are moving into the final-mile segment, drawn by the rapid growth triggered by the e-commerce phenomenon.
"The carriers seem to be focusing on 'beautiful freight,' or packages that are profitable and fit within their network constraints, rather than pure volume," said Iyer. The surcharges, he said, are part of a strategy to retain that good freight—largely high-density business-to-business deliveries—while sending more shippers to their final-mile services for residential deliveries, he said.
As a byproduct of that, more shippers of super-outsized packages could begin taking a closer look at residential LTL services, Iyer added.
Nearly one-third of American consumers have increased their secondhand purchases in the past year, revealing a jump in “recommerce” according to a buyer survey from ShipStation, a provider of web-based shipping and order fulfillment solutions.
The number comes from a survey of 500 U.S. consumers showing that nearly one in four (23%) Americans lack confidence in making purchases over $200 in the next six months. Due to economic uncertainty, savvy shoppers are looking for ways to save money without sacrificing quality or style, the research found.
Younger shoppers are leading the charge in that trend, with 59% of Gen Z and 48% of Millennials buying pre-owned items weekly or monthly. That rate makes Gen Z nearly twice as likely to buy second hand compared to older generations.
The primary reason that shoppers say they have increased their recommerce habits is lower prices (74%), followed by the thrill of finding unique or rare items (38%) and getting higher quality for a lower price (28%). Only 14% of Americans cite environmental concerns as a primary reason they shop second-hand.
Despite the challenge of adjusting to the new pattern, recommerce represents a strategic opportunity for businesses to capture today’s budget-minded shoppers and foster long-term loyalty, Austin, Texas-based ShipStation said.
For example, retailers don’t have to sell used goods to capitalize on the secondhand boom. Instead, they can offer trade-in programs swapping discounts or store credit for shoppers’ old items. And they can improve product discoverability to help customers—particularly older generations—find what they’re looking for.
Other ways for retailers to connect with recommerce shoppers are to improve shipping practices. According to ShipStation:
70% of shoppers won’t return to a brand if shipping is too expensive.
51% of consumers are turned off by late deliveries
40% of shoppers won’t return to a retailer again if the packaging is bad.
The “CMA CGM Startup Awards”—created in collaboration with BFM Business and La Tribune—will identify the best innovations to accelerate its transformation, the French company said.
Specifically, the company will select the best startup among the applicants, with clear industry transformation objectives focused on environmental performance, competitiveness, and quality of life at work in each of the three areas:
Shipping: Enabling safer, more efficient, and sustainable navigation through innovative technological solutions.
Logistics: Reinventing the global supply chain with smart and sustainable logistics solutions.
Media: Transform content creation, and customer engagement with innovative media technologies and strategies.
Three winners will be selected during a final event organized on November 15 at the Orange Vélodrome Stadium in Marseille, during the 2nd Artificial Intelligence Marseille (AIM) forum organized by La Tribune and BFM Business. The selection will be made by a jury chaired by Rodolphe Saadé, Chairman and CEO of the Group, and including members of the executive committee representing the various sectors of CMA CGM.
The global air cargo market’s hot summer of double-digit demand growth continued in August with average spot rates showing their largest year-on-year jump with a 24% increase, according to the latest weekly analysis by Xeneta.
Xeneta cited two reasons to explain the increase. First, Global average air cargo spot rates reached $2.68 per kg in August due to continuing supply and demand imbalance. That came as August's global cargo supply grew at its slowest ratio in 2024 to-date at 2% year-on-year, while global cargo demand continued its double-digit growth, rising +11%.
The second reason for higher rates was an ocean-to-air shift in freight volumes due to Red Sea disruptions and e-commerce demand.
Those factors could soon be amplified as e-commerce shows continued strong growth approaching the hotly anticipated winter peak season. E-commerce and low-value goods exports from China in the first seven months of 2024 increased 30% year-on-year, including shipments to Europe and the US rising 38% and 30% growth respectively, Xeneta said.
“Typically, air cargo market performance in August tends to follow the July trend. But another month of double-digit demand growth and the strongest rate growths of the year means there was definitely no summer slack season in 2024,” Niall van de Wouw, Xeneta’s chief airfreight officer, said in a release.
“Rates we saw bottoming out in late July started picking up again in mid-August. This is too short a period to call a season. This has been a busy summer, and now we’re at the threshold of Q4, it will be interesting to see what will happen and if all the anticipation of a red-hot peak season materializes,” van de Wouw said.
The report cites data showing that there are approximately 1.7 million workers missing from the post-pandemic workforce and that 38% of small firms are unable to fill open positions. At the same time, the “skills gap” in the workforce is accelerating as automation and AI create significant shifts in how work is performed.
That information comes from the “2024 Labor Day Report” released by Littler’s Workplace Policy Institute (WPI), the firm’s government relations and public policy arm.
“We continue to see a labor shortage and an urgent need to upskill the current workforce to adapt to the new world of work,” said Michael Lotito, Littler shareholder and co-chair of WPI. “As corporate executives and business leaders look to the future, they are focused on realizing the many benefits of AI to streamline operations and guide strategic decision-making, while cultivating a talent pipeline that can support this growth.”
But while the need is clear, solutions may be complicated by public policy changes such as the upcoming U.S. general election and the proliferation of employment-related legislation at the state and local levels amid Congressional gridlock.
“We are heading into a contentious election that has already proven to be unpredictable and is poised to create even more uncertainty for employers, no matter the outcome,” Shannon Meade, WPI’s executive director, said in a release. “At the same time, the growing patchwork of state and local requirements across the U.S. is exacerbating compliance challenges for companies. That, coupled with looming changes following several Supreme Court decisions that have the potential to upend rulemaking, gives C-suite executives much to contend with in planning their workforce-related strategies.”
Stax Engineering, the venture-backed startup that provides smokestack emissions reduction services for maritime ships, will service all vessels from Toyota Motor North America Inc. visiting the Toyota Berth at the Port of Long Beach, according to a new five-year deal announced today.
Beginning in 2025 to coincide with new California Air Resources Board (CARB) standards, STAX will become the first and only emissions control provider to service roll-on/roll-off (ro-ros) vessels in the state of California, the company said.
Stax has rapidly grown since its launch in the first quarter of this year, supported in part by a $40 million funding round from investors, announced in July. It now holds exclusive service agreements at California ports including Los Angeles, Long Beach, Hueneme, Benicia, Richmond, and Oakland. The firm has also partnered with individual companies like NYK Line, Hyundai GLOVIS, Equilon Enterprises LLC d/b/a Shell Oil Products US (Shell), and now Toyota.
Stax says it offers an alternative to shore power with land- and barge-based, mobile emissions capture and control technology for shipping terminal and fleet operators without the need for retrofits.
In the case of this latest deal, the Toyota Long Beach Vehicle Distribution Center imports about 200,000 vehicles each year on ro-ro vessels. Stax will keep those ships green with its flexible exhaust capture system, which attaches to all vessel classes without modification to remove 99% of emitted particulate matter (PM) and 95% of emitted oxides of nitrogen (NOx). Over the lifetime of this new agreement with Toyota, Stax estimated the service will account for approximately 3,700 hours and more than 47 tons of emissions controlled.
“We set out to provide an emissions capture and control solution that was reliable, easily accessible, and cost-effective. As we begin to service Toyota, we’re confident that we can meet the needs of the full breadth of the maritime industry, furthering our impact on the local air quality, public health, and environment,” Mike Walker, CEO of Stax, said in a release. “Continuing to establish strong partnerships will help build momentum for and trust in our technology as we expand beyond the state of California.”