Weak pricing for the rest of the 2023 parcel-delivery season will give way to 6%-%10% increases in base rates and accessorials charges in 2024, according to parcel consultants.

Branden Burt, director of parcel operations for TransImpact LLC, said that weak freight markets will keep rates low through the balance of the year. However, that will not stop carriers from taking up rates in 2024 due largely to the impact of inflation, and the dominance the carriers enjoy on business-to-business (B2B) and to a lesser extent, business-to-consumer (B2C) deliveries.

Shippers, which will soon gear toward building their 2024 budgets, should expect another inflation-driven increase in tariff rates of about 5.9%-6.9%, which Burt said “mirrors the sentiments” of late 2022.

FedEx Corp. and UPS Inc. (NYSE: UPS) imposed record-setting 6.9% general rate increases for 2023. FedEx (NYSE: FDX) executives, in particular, have been public in saying that most of those increases have held.

Asked why shippers would accept similar increases in 2024 in the face of a buyer’s market, Burt said “that the annual general rate hikes are standard and implemented by the carriers – in short I don’t think the market has a choice and we all know it has a short memory.”

A shipper’s best tool against steep rate increases are strong agreements that include rate caps, which aren’t available to all shippers, Burt said. For those who will be negotiating late in 2023, He said FedEx has been known to void the rate caps on a freshly executed rate agreement if it was executed late in the current year.

Burt advised shippers that “timeliness and expertise are your best tools to avoid steep rate increases, although some increase needs to be accounted for in next year’s plans.” 

Paul Yaussy, senior consultant, professional services at Shipware LLC, said the rate of increase for parcel should follow the same downward trajectory as all other modes. “I’d expect a 5.9% increase or lower if the carriers are reading the room properly,” Yaussy said.

Josh Dunham, co-founder and CEO of The Reveel Group, a company that provides multi-carrier rate and accessorial platforms to compare parcel provider services, said that “what’s hidden and/or not included in any announcement that matters are increases in surcharges, fees added on to the line-haul charges. “I would expect when we run the model over our data set for the ’24 increase we’re going to see an average of 9-10% increase that will be realized by shippers,” he said.

Burt added that UPS and FedEx are facing continued headwinds due to a global recession and have had to rationalize asset utilization due to flat or negative volume growth. “Some believe that once UPS reaches a deal with the Teamsters that it will seek to engage in a volume grab like we saw with FedEx during (its) Q1,” he said.

FedEx has reached a tentative deal with its pilot union so we should expect no service disruptions out of either carrier at this stage on the heels of what “positive direction” from negotiations between UPS Inc. and the Teamsters union. The Teamsters and UPS have reached a tentative deal, which will reduce the size of packages tendered to the U.S. Postal Service under UPS’ Surepost program. The agreement would mean more parcels being redirected to UPS package cars and union drivers, though it is likely to drive up UPS’ costs. Under Surepost, large volumes of small, inexpensive parcel shipments are aggregated and put into the postal delivery network for residential deliveries.

Higher costs from a Teamsters contract could compel UPS to raise rates higher than normal to offset the increases, Yaussy said. FedEx would follow suit, he added.

The post Look for hefty rate hikes in 2024, parcel consultants say appeared first on FreightWaves.

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