Decipher the Parcel Market as Strike Risk Grows, Economy Softens

There are two major themes in the parcel market today. First, UPS Inc. and the International Brotherhood of Teamsters union have resumed national bargaining as of June 5, and local unions representing Teamsters plan to begin conducting in-person voting for strike authorization this week, raising the temperature on negotiations as the July 31 contract expiration quickly approaches.

Second, overall parcel volumes are down over 5% from 2022. After expanding their capacity during the pandemic, the parcel carriers are hungry for additional packages.


Putting the Parcel Strike Risk in Perspective

A national strike would be the first since 1997, a vastly different parcel market before “the Amazon effect” accelerated home delivery and popularized parcel shipping. To put it in perspective, just became a public company in 1997.

The last contract ratified in 2018 was rejected by 54% of union members, but under a Teamsters rule, a rejection required two-thirds of voters to vote it down when less than half of eligible members participate. The stakes are even higher now with the 24 million packages UPS ships on an average day exceeding the totals from 5 years ago and accounting for about a quarter of all U.S. parcel volume. UPS also now has 350,000 unionized workers vs. the 185,000 workers who walked out in 1997.

We always recommend carrier diversification so contingency plans can be made. The situation with UPS will certainly be one to watch closely this summer, but what about the rest of the parcel market? …


FedEx Creates New Zones for U.S. International Peak Surcharges

In the continued effort to gain more profit off of each package, FedEx is increasing the number and complexity of surcharges. We previously detailed FedEx’s largest reorganization in 60 years combining Express and Ground units, but FedEx is also adjusting U.S. import and export international services peak surcharges for both parcel and freight with the creation of new zones.

Peak Surcharge Zone Details:

The announcement outlines 15 zones each for import and export and identifies 239 distinct counties, territories, and cities.

Note that the zones for import and export do have a couple of variations between them. For example, U.S. export surcharges to Canada are now segmented into two zones, Zone A for metro areas and Zone B for remote areas, while the whole of Canada is lumped into the single Zone A for import surcharges.

What Do These New Zones Mean for Shippers?

Shippers can largely expect to pay the same surcharges on U.S. import/export as they are now.

However, the new zones will allow FedEx to make more granular adjustments to these rates in the future, so you’ll want to keep a close eye on your parcel contracts.


Parcel Market Impacts as Economy Softens

Consumers are going back to brick-and-mortar stores while watching their pocketbooks in 2023. There are estimates that parcel volumes have fallen from 5-10% in 2023. After expanding their capacity during the pandemic, the parcel carriers are hungry for additional packages.

While parcel volumes are cooling overall, annual profits at UPS are close to three times what they were before the COVID-19 pandemic, with forecasts of about $8.4 billion this year.


How Should You Adjust Your Parcel Carrier Contract Strategy?

The parcel market is dynamic and uncertain. So how can you make sure you’re best positioned in case of a strike, and that your carrier contracts continue to evolve with the ever-changing dynamics?

The Redwood Parcel team can be your advocate leveraging our deep insight into the parcel market to make sure your contracts are set up in your favor and contingency plans are in place. Start by taking advantage of a no-cost parcel check-up to ensure the health of your parcel shipping strategy. Meanwhile, we’ll continue to keep you posted as the parcel market unfolds.