FedEx and UPS raising rates in 2023! Ground package delivery costs hit record high!

• Ground package delivery costs hit a record high in the first quarter, according to the TD Cowen/AFS Freight Rate Index, although pricing discounts from carriers softened the blow.

• The portion of the index that tracks per-package Ground package rates was 29.5% in the first quarter above the January 2018 baseline, up from 25.2% in the fourth quarter. Annual rate hikes and fuel surcharges that haven’t fallen as much as the fuel price index has over the past year have contributed to the higher costs.

• A 1.6% increase in average ground package discounts helped prevent costs from climbing further, a press release noted, suggesting carriers have had to increase shipper discounts to mitigate the impact of rate hikes.

FedEx and UPS implemented higher freight rates in 2023 compared to the previous year, which they attributed in part to inflationary pressures. This further increased pressure on shippers' package delivery expenses, which were already strained by various delivery surcharges implemented in recent years.

If carriers are unwilling to offer concessions, they risk pushing customers toward other options. Alternatives have grown in the package delivery industry, and shippers have plenty of capacity to take advantage as delivery activity retreats from pandemic-driven highs. Those conditions have increased carriers’ willingness to offer deeper discounts lately.

It’s unclear how aggressive logistics operators will be on pricing after the first quarter. Despite the drop in demand, FedEx and UPS continue to be laser-focused on increasing revenue per package by chasing more profitable shipper segments.

Mingshu Bates, chief analytics officer at AFS Logistics, said carriers could acquiesce to discounts with key customers while being willing to let less valuable customers move volume elsewhere.

“They can selectively offer discounts only to their strategic customers,” Bates said.

The index projects that ground parcel rates will increase further in the second quarter to 31.7 percent above the baseline. Express parcel rates are forecast to increase 4.6 percent above the January 2018 baseline, up from 3.5 percent in the first quarter.

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