US parcel carriers struggle with sustained high demand

Parcels Express

The congestion seen through much of the rest of the global transportation system is spreading to the consumer-facing sector. US Express parcel carriers are, unsurprisingly, prominent in this as they struggle to cope with sustained high demand generated by internet retailing.

One way to cope with such a leap in volume is to increase the prices. For example, FedEx issued a notice of a rate increase on Wednesday, December 16, saying that “the impact of the virus continues to generate a surge in volume, and we are experiencing extremely high demand for capacity and increased operating costs across our network this holiday peak season. We anticipate volume to continue to surge into the new year. To continue providing our customers with the best possible service during this challenging time, we will continue to implement peak surcharges on some US domestic services effective January 18, 2021, until further notice.” This “peak surcharge” was previously known as the “temporary surcharge” until November 2, 2020. The new surcharge rates will begin on January 4, 2021.

Another response has been to directly limit volumes. A number of reports from the US describe how UPS and FedEx are rationing parcel collection from shippers, much to the shipper’s annoyance. One of the underlying issues is that both Express carriers are concerned to avoid any build-up of consignments in the network, something that would threaten operational viability. This issue is amplified by the increased emphasis on speed of delivery to customers. Of course, the consequence of this policy is that deliveries are made later than promised.

Whilst many parts of the consumer-facing logistics sector are facing capacity problems, it appears that Amazon is not suffering quite so badly, although there are suggestions that it is limiting the volumes from its army of third-party ‘merchants’. Its huge investments in new hubs and transport are reaping dividends in terms of the ability to respond to capacity and service level increases.

The clear implication of such market developments is that both UPS and FedEx will have to invest aggressively in the short to medium-term to keep up with both market-share and to fulfil customer expectations. The effective management of this investment will be key to their future profitability.

Source: Transport Intelligence, December 17, 2020.

Author: Thomas Cullen