In the final weeks before US de minimis exemption for parcels from China ends, UPS and FedEx have implemented an extra charge for this traffic.
And recent action by Amazon points to a different future pace for ecommerce.
UPS was the first out of the starting blocks with a surcharge of $0.29 per pound on all US-bound parcels from China, Hong Kong, and Macau from 13 April. The integrator’s ‘surge fee’ is applied on the billable weight of a shipment and is subject to its fuel surcharge.
FedEx followed suit on 15 April with a levy of $0.45 per pound on parcels sent to the US from China, Hong Kong, and the Philippines. Unlike the UPS surcharge, which is open-ended, the FedEx ‘demand surcharge’ will expire with the end of de minimis for China origin parcels on 2 May.
UPS explained the surcharge as an effort to meet shippers’ needs “without compromising on the quality or timeliness of service expected from us”. FedEx assured clients that it “continues to make adjustments within our network to best deliver for our customers”.
While the timing suggests a push to take advantage of a last-minute rush to buy goods from Chinese online platforms before the end of de minimis, Cathy Morrow-Roberson, head analyst of Logistics Trends & Insights, views the levies as structural efforts by the integrators to maintain yield.
Time and again in earnings calls, senior executives of both firms have brought up the need to manage their margins by protecting their revenue per package, she pointed out. B2C traffic has grown while B2B volumes have been sluggish, a trend that is unlikely to change in the near future.
The US manufacturing purchasing managers index slumped back into contraction in March after a two-month spell of growth that had ended nearly two years of decline, and the current environment points to further headwinds.
“B2C is an area they both struggle with,” Ms Roberson said, adding: “I think they’re both struggling to keep their planes full at the moment.”
The TD Cowen Freight Index published earlier this month predicts ground delivery costs to rise 2.6% year on year in the current quarter, as a result of rate increases and surcharges by FedEx and UPS.
Meanwhile, recent moves by Amazon point to downward pressure as the ecommerce market shows signs of slowing. According to a report by Bloomberg, the ecommerce giant recently cancelled a considerable number of orders from China and other Asian countries for products destined for its US warehouses, such as household goods like air conditioners and apparel.
Amazon is also gearing up for more deliveries from US locations. Management is examining plans to invest $15bn in its US warehousing network.
These developments suggest a defensive stance for the near future and confidence in ecommerce growth in the long run, but with a greater focus on fulfilment from US locations.
Source: By Ian Putzger, The Loadstar
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