Surface Transportation 2025 Annual Review & Outlook
Ground parcel costs fell 2.5 % in Q3 due to higher discounts and lower average weights . Karolis Kavolelis / Shutterstock . com
Pricing pull
FedEx , UPS to continue discounting parcel rates amid increased competition
By Cathy Morrow Roberson
The big picture : Large parcel carriers FedEx and UPS are discounting rates to attract volumes , while retailers are courting business-to-consumer ( B2C ) shipments by offering free delivery through subscription services . Shippers have spread volumes out among a number of carriers , which has also taken volumes from the large carriers . The more profitable business-to-business ( B2B ) parcel market is not expected to increase until manufacturing demand picks up .
A look back : FedEx and UPS struggled in the B2C last-mile market last year , and B2B parcel volumes remained muted due to weak global manufacturing activity . Shippers diversifying the number of carriers they use and increased competition from regional carriers , retailers such as Amazon , Target and Walmart , the US Postal Service and parcel management technology tools have forced FedEx and UPS to lower rates to regain lost volumes . According to AFS Logistics , the cost to ship a ground parcel declined 2.5 % year over year in the third quarter 2024 due to higher discounts and lower average package weights . Those lighter parcels are often e-commerce related , which is the future of ground parcels , according to FedEx CFO , Bill Dietrich . “ E-commerce is going to make up a large percentage , probably up to 90 % of the volume growth of our ground network ,” Dietrich said at the November Baird Global Industrial Conference . “ We just have to find the right cost structure to accommodate it .” Despite automation investments that have lowered some operating costs , FedEx and UPS are struggling to compete within the B2C last-mile market . Protecting revenue per parcel is a priority for both carriers , but it conflicts with discounting rates to attract volumes .
A look ahead : Higher rates for 2025 went into effect as early as Dec . 23 , 2024 , with UPS ’ average rate increases of 5.9 % followed by other last-mile carriers ’ rate increases effective in January . However , FedEx and UPS will likely continue to discount ground parcel rates because of the expected continuation of stronger B2C volumes . Amazon , Walmart and Target will benefit the most in terms , volume-wise , because of the expected increase in e-commerce demand and subscription services that each provide which also include free delivery services . B2C parcel volumes will continue to shift away from FedEx and UPS . B2B volumes may see some gains , but not much , at least for the first half of the year . According to Deloitte , manufacturers are expected to continue to face a challenging and uncertain business climate due to a combination of higher costs , potential policy changes following the US and global elections , and geopolitical uncertainty in 2025 . Until manufacturing demand improves , FedEx and UPS will face a competitive B2C last-mile market in which lower rates are the norm . This assumes , however , that consumer spending will remain resilient . Year-to-date through
The last-mile market has become fragmented , benefiting shippers from a cost and capacity perspective .
October , US retail sales rose 2.4 % from the same period in 2023 , according to data from the US Census Bureau . But slowing economic growth and the uncertainty of a new presidential administration could result in a pullback in consumer spending this year .
The next inflection : Prior to the COVID-19 pandemic , shippers tended to split parcel volumes between FedEx , UPS and the US Postal System . Since then , however , the last-mile market has become much more fragmented , benefiting shippers from a cost and capacity perspective . But it has left FedEx and UPS trying to figure out how to profitably compete in the B2C parcel market while they wait for the B2B market to revive .
email : cathy . morrowroberso @ spglobal . com
68 Journal of Commerce | January 6 , 2025 www . joc . com