FedEx and UPS Continue To Distance Themselves From Large Packages

2019 marks the second year in a row that both FedEx and UPS introduced significant surcharge increases for large packages. In addition to surcharge increases, both companies lowered the threshold for packages hit with Additional Handling Surcharges (AHS) from the historic 70 pounds to 50 pounds.

If it wasn’t already, it’s pretty clear that neither FedEx or UPS want large shipments going through their parcel networks. E-commerce growth and changing customer expectations are fueling a demand from both shippers and consumers for faster delivery times. So this trend will almost certainly continue, as both companies see more profit in streamlining their operations to meet these demands than they do in accommodating larger packages that don’t make it through their sorting facilities as efficiently.

This move doesn’t mean that both companies are shunning large packages altogether, but it’s a clear sign they don’t want them going through their parcel networks anymore. Both companies also announced an expansion of their residential LTL delivery networks to serve shippers who need to get larger packages straight to consumers.

The market for large package delivery is still growing, with products such as furniture, appliances, and automotive parts being shipped direct to consumer more frequently. So new delivery options to service this market will likely be popping up over the next few years, whether they’re with FedEx and UPS or other carriers.

All in all, if your company frequently ships large packages via FedEx and UPS parcel networks, 2020 might be a good year to start expanding your horizons and exploring other options. For the time being, simply eating the roughly $15 AHS with FedEx or UPS might still be a competitive option compared to other available services for packages in the 50 to 90 pound range. However, this likely won’t be the case for much longer after both companies have made drastic moves away from large packages in consecutive years. Beginning to develop relationships with Regional, LTL, and White Glove delivery companies for your larger shipments now can help shield you from rapidly increasing costs in the future.

The Drones Are Coming

To preface this section we are still years away from widespread adoption and use of delivery drones, at least for residential shipments. However, 2019 saw some pretty big breakthroughs for delivery drone usage.

UPS became the first company to operate a revenue generating business with the use of delivery drones at the Wakefield Medical Hospital in North Carolina. They were then the first drone company to be granted a full Part 35 Certification by the FAA, giving them approval to operate an unlimited number of delivery drones in other campus setting around the U.S.

While we’re still years away from regular drone use for deliveries, this is one of the most significant breakthroughs in delivery vehicle technology we’ve seen since the invention of the car. And its significance shouldn’t be understated.

This one small drone delivery operation marks the tipping of two major dominos for future developments. First, it shows the governments willingness to approve drone delivery usage on a nationwide basis, and without individual approval of each operations. Secondly, it gives us the first positive business use case, validating that there is an actual revenue generating market for the technology.

After years of brainstorming ways to solve the last mile problem, and speculating about using drones to deliver goods, the first step has been made showing that it’s actually a feasible option. While small, this case should open the gates to a significant increase in investment of time and resources into delivery drones and other last mile technology in the coming years.

Again, we are still at least a few years away from widespread adoption. But this development should significantly speed up the process. It will certainly be beneficial to stay on top of technology trends and advancements in the delivery and last mile industry in the coming years, as things may be changing faster than we expect.

FedEx and UPS Don’t Want To Give You a Refund

Whether you file for refunds or not, you probably know that every FedEx and UPS shipment comes with a delivery guarantee entitling you to a full refund if your package is late. But FedEx and UPS are both increasingly trying to shield themselves from this liability in their contracts.

FedEx and UPS have been trying to slip Guaranteed Service Refund (GSR) Waivers in their contracts for years, primarily with their larger accounts whose potential refunds could be upwards of $100,000 to $1,000,000. But this year both companies starting trying to slip these in their contracts more frequently and with smaller and smaller shippers. Additionally, UPS has began putting language in some of their contracts making GSR’s void if the shipper uses a 3rd party software to track shipments.

Every year over $2 Billion worth of parcel shipping refunds goes unclaimed, because finding late packages in invoices and filling for a refund was simply too much work. However, as Parcel Audit firms like SHIPRX make it easier and more timely for companies to find and file for refunds, we’ll likely see the carriers making stronger attempts to shield themselves from liability.

Next time you renegotiate your parcel carrier contract, be sure to keep an eye out for any language waiving your right to file for refunds. This language isn’t justifiable in virtually any FedEx or UPS contract. If you notice a GSR waiver, your carrier rep may push back momentarily and claim that the waiver in in exchange for steeper discounts. However, this will never be the case, they would never extend a discount contingent on you accepting poor performance. So as long as you notice it and bring it to their attention, it can ultimately be removed.

Longer Zone Expedited Shipments Are Becoming More Expensive

Another trend present the past few years that continued into 2019 is that annual rate increases for both FedEx and UPS were weighted heavily towards longer zone shipments for air and time definite service levels. While both carriers announced a General Rate Increase averaging 4.9%, prices to zones 6-8 for some service levels will increase by as much as 8%.

This trend will likely continue into next years rate increase as sorting facilities become more efficient and FedEx and UPS become more capable of servicing next day, 2 day, and 3 day shipments to short zones through their ground networks. This trend will have two significant impacts on shippers in the coming years.

The first is that effective service level selection will become increasingly important for companies trying to offer faster shipping options without breaking the bank. With the price of ground and air shipments, which are already 2-3 times more expensive, diverging rapidly companies that are able to utilize ground networks as much as possible will see massive savings. If you haven’t already, it’s probably a good time to invest in a TMS system with time-in-transit functionality to maximize your use of FedEx and UPS ground networks.

Secondly, companies with a single location fulfillment strategy will see their costs increasing the most significantly. While it’s a good practice to get your products as close to customers as possible regardless, this trend will increasingly incentivize companies to invest in multiple, or more centralized, distribution centers whether they are 3PL’s or in house facilities.

James Founding Partner