In good news for brands as they handle the holiday shipping rush—discounts are holding down parcel delivery costs at UPS and FedEx, even as both logistics giants implement more assorted surcharges.
The markdowns have become more prevalent as the delivery firms endure a weak freight demand ecosystem and seek to attract more package volume and shippers into their networks—particularly small businesses.
According to the quarterly TD Cowen/AFS Freight Index released in October, the ground parcel rate per package in the third quarter was the lowest it had been since Q4 2021. While the Q3 ground parcel rate per package was 20.3 percent above the index’s January 2018 baseline, it was 3.1 percentage points down from the year prior.
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In the upcoming fourth quarter, the index is projected to tick up again for the holiday season to 21.5 percent, but that is still 2.3 percentage points below the 2023 quarter.
The rush to bring more shippers into the fold also comes amid pressures of a shorter holiday season, in which there is only 17 shipping days between Black Friday and Christmas—the fewest since 2019.
“In parcel, the holiday shipping season brings more wrinkles to an already convoluted pricing picture, in which low demand has carriers discounting away the effects of their own pricing changes,” said Andy Dyer, CEO of AFS Logistics. The net effect even negates the impact of various surcharge increases in some ways, the TD Cowen/AFS report said.
Persistent low demand has driven discounting to “unprecedented” levels, according to the report, with carriers like FedEx and UPS offering heavier discounts to more types of customers and on more line items.
For UPS, the company has its own dynamic pricing model that it launched in 2023, called its “pricing architecture of tomorrow,” uses modifiers that can automatically change a base price, while better aligning with the firm’s cost to serve a customer.
CEO Carol Tomé said in the company’s earnings call that the modifiers can be used to test pricing elasticity depending on the customer.
While SMBs made up 29.4 percent of total U.S. volume in the third quarter for UPS, the company has a goal to increase that number to 40 percent by 2026.
Tomé said in a first quarter earnings call in April that UPS is using its Digital Access Program (DAP) to help reach this target. According to the parcel delivery company, DAP launched a new platform called FastLane earlier this year which unlocks more flexibility for UPS to adjust rates and offer discounts on a transaction-by-transaction basis.
As for FedEx, the company is teaming with logistics solution providers like Pitney Bowes and ShipStation parent Auctane to bring cheaper rates to their SMB clients.
Both companies have launched a FedEx Platform Account, with Pitney Bowes offering its ShipAccel users immediate access to the discounted rates. A full expansion to the rest of Pitney Bowes’ services is expected by the end of this year. Auctane will roll out the account program to its product suite starting in November.
These accounts benefit the SMBs who would likely have to negotiate for lower rates on their own, which isn’t always easy if they don’t have enough order activity to qualify for volume-based discounts on their own.
The targeting of SMBs for discounts has some risk to it, particularly given both have recent needs to boost volumes and margins at the same time—a task made more difficult with discounts. UPS forecast a softer holiday season and trimmed its revenue guidance for the second time this year, while FedEx cut both its revenue and earnings guidance.
At the same time, both companies have to fend off parcel shipping competition from Amazon and the U.S. Postal Service, all while they are undergoing mass cost cuts to the tune of billions of dollars.
Both companies already have unveiled their generate rate increase (GRI) for 2025, instituting a 5.9 percent average hike to start the year. The number mirrors the 5.9 percent GRIs rolled out ahead of 2024.
Parcel shipping intelligence platform Reveel calculates that the new GRI number for 2025 likely results in a 7.7 percent increase in shipping costs for UPS customers, and an 8.2 percent hike for FedEx users when depending on other factors such as business volume or contract negotiations.
