One of the biggest events for global supply chains, the Parcel Forum 2022 was also one of the most anticipated events for all industries across the world.
Given contemporary issues and unprecedented circumstances faced by supply chains around the globe, the Parcel Forum was expected to provide answers to several important questions.
And needless to say, it delivered on its promise of providing insights into how we can expect present circumstances to evolve.
Aaron Alpeter, Founder of Izba and Capabl, was invited to speak with Gina Anderson, VP of Solutions & Growth in GEODIS USA on how Supply Chain as a Service is right for your business.
Along with several other leaders, the Forum addressed several ongoing debates and questions as people with different expertise recommended their solutions and helped to put things in perspective.
Carrier Pricing Updates
One of the major issues that was discussed at length was related to UPS and FedEx, which both have experienced declining packaging volumes. Year over year UPS has been growing pretty steadily in the healthcare space, but the number of packages that they’re delivering in total has been declining.
The total daily volume reflects a 3% decline, year over year, equating to about 611,000 packages on a daily basis.
Despite this decline, the peak surcharges that were implemented during COVID-19 are now called demand surcharges, and they are not going away. UPS states that the surcharges were needed to handle all of the additional work that they had and still do, which is why they’re going to keep the surcharges.
UPS cites their superior reliability, which is true; they are performing better than FedEx, as of 2022.
Aaron points out, “The key thing is that there’s no objective measure. UPS controls both the numerator and the denominator. And they will take things, they’ll exclude certain service delays as an act of God.”
UPS is going to decide the circumstances they choose to work with and given the increased dependency in the market, they can afford to hold this stance.
“Another key piece is that from a carrier perspective, it’s much, much easier for those carriers to look at raising rates on existing customers and to make more money that way as opposed to winning new business.”
If they have to go out and win new business, they will likely have to be very aggressive on rates. This may result in decent volume, but not as much profit for the company as compared to simply raising rates on existing customers. Based on the current growth, we could see a rate increase of nearly 30%, year over year.
UPS Strike
A major topic of conversation revolved around the UPS and FedEx labor markets, particularly on the UPS side given the team service negotiation that’s due in July.
On one side, there’s Carol B. Tomé who has an impeccable record of experience but has never been through a Teamsters negotiation.
On the other side of the negotiating table is Sean O’Brien, who comes from a very strong Teamsters chapter in Boston and has really developed a reputation for consistently gaining concessions from UPS.
There’s much to gain and lose on both sides and either way, supply chains are going to be affected as a result. The Teamsters have a clear goal of unionizing FedEx and Amazon next, which is why getting the best possible deal they can is imperative for their mission.
Even leading up to the days of the contract, market sentiments show a very reasonable possibility of a strike. Many are of the opinion that it’s a necessary power move to show UPS what they’re dealing with.
A strike in a company like UPS that’s responsible for moving almost 22 million packages every day will result in what some might refer to as a supply chain apocalypse.
Although business will likely flow to competitors like FedEx, it’s going to be a chaotic negotiation period for everyone remotely connected to these carriers.
Broadening Carrier Options
Speaking about other topics discussed in the Forum, Aaron recounts, “Another really big thing that was talked a lot about was how much of an impact the majors have on the rest of Parcel.”
Citing an example, Aaron states, “A few years ago, FedEx and UPS moved towards zone pricing. They built their networks around the idea that they don’t want to have an enormous amount of packages just sitting in their network.”
The parcel giants were determined to get packages to come in and out as quickly as possible because they’re paid on that turn.
By penalizing zone eight and zone seven with higher prices, they pushed many shippers to expand their operation from maybe one or two centralized warehouses to requiring four or five or six warehouses.
This has inadvertently opened up the door for regional carriers making it possible for fulfillment centers to align themselves with other carriers.
Other discussions at the Forum involved talks regarding how fierce of a competitor Amazon’s going to be in this space. As of 2022, they delivered 5 billion packages compared to about 5.5 billion delivered by UPS.
Aaron states, “The reality is that Amazon could have shipped more. They were cherry-picking the routes they wanted, and they made sure that they had the most desirable, most dense rates so that their economics made sense. They could easily be the biggest carrier in a year or two from a package volume perspective if that’s what they want to do.”
Useful Tidbits from Parcel Forum 2022
Some other important tips discussed in the Forum were:
Benchmarking
Benchmarking is effective, but benchmarking only gets you to the average. It’s really about how you analyze your competition and performance that makes a difference. You should want to be better than the market and not just in competition with the market.
Negotiate a Contract
Summarizing experiences and advice, Aaron says, “Given how volatile the supply chain network really is, if you haven’t negotiated a contract in the last 18 months, your experience, while well valid and helpful, may not be as useful and relevant as it could be for what’s going on right now.”
Changing market situations have shown that companies like FedEx are already cherry-picking their clients and quoting rates higher than they did before.
Such changes have drastically changed the scope of negotiations and general market sentiments at large.
Parcel is Declining
Aaron states, “Parcel volume declines of 2021 and 2022 are similar to those of 2008 and 2009. However, eCommerce is a much bigger piece. And this will be felt more seriously by parcel carriers.”
From a total package volume perspective, things are looking similar to the way they did back in the early 2000s. And although there’s not much consensus on it, there is a real possibility of a global recession.
However, changes in eCommerce and developing markets have proved influential in providing ample businesses for supply chains around the world. Future unfolding events will paint a clearer picture for us all to devise our strategies.
Anticipations for the Future
Parcel Forum’22 has been, as always, an important event for everyone involved in supply chain as it brought attention to industry insights and predictions, but also news of innovation and experimental solutions.
In terms of optimization, carriers discussed possible ways to make the cost structure of delivering 10 iPhone packages to a commercial entity the same as delivering one iPhone case to a residential home.
The competition of a B2B delivery system versus a rhythm delivery has been a major talking point in many supply chain forums.
Since major players like FedEx and UPS are tackling socio political and other challenges, there’s much anticipation for next year as they’re forced to make decisions that will directly affect supply chains.
“There’s a lot of focus on, say, FedEx taking care of Ground Economy themselves and not relying on USPS.”
Aaron says, “I’d say that the parting thought here is that there’s a lot of opportunity for FedEx to get better. They’re having a minor revolt right now with some independent service providers, and they really need to rethink their footprint and their network.”
Historically, FedEx has kept their Ground and their Express network separate because they fall under the Railway Control Act which basically prevents any of the labor from organizing. This is an area where UPS is performing very well while FedEx is not.
Considering the scenarios, FedEx will have to think hard about what they should do regarding a decision to compete which may eventually open the doors for unionization.
Want to Prepare?
If you’re wondering what happens next and more importantly, what you should do as a business to stay ahead of the market, contact us. As supply chain consultants with networks, insights and expertise, we can help you develop and expand in profitable markets.
