UPS Encourages Shippers to Find Alternatives Amid Tight Capacity Ahead of Peak – Supply Chain Dive
We want to keep you informed on the latest market updates and news. Below is a summary of an article from SupplyChainDive.com regarding parcel shipping services through UPS and FedEx during the month of December:
UPS is encouraging customers to bring holiday volume forward and even avoid shipping when possible, as the carrier faces a hectic peak season. "We work with our customers to help them rethink their operations via buy online pick up in-store, different timing for their promotions and different availability of their packages," UPS CEO Carol Tomé said on a Wednesday earnings call. UPS domestic volume was up nearly 14% YoY in Q3.
Tomé has emphasized since she took the helm in June that UPS will use pricing and surcharges to navigate the e-commerce boom brought on by the pandemic. "There is a shift in certain customers who are more price-sensitive than others," she said. "We're okay with that." Domestic cost per piece was up 4.4% YoY in Q3 while revenue per piece increased 2.5% YoY in the same period. Adjusted operating profit in the U.S. domestic package market declined by 8.8%.
UPS and the other major parcel carriers levied surcharges or raised prices since the beginning of the pandemic — reflecting the lack of capacity in the parcel market. "Really what we're hearing is all of these
carriers, they are not accepting any new customers through the end of the year," Convey Founder Dan Bebout said in a webinar Tuesday. Customers need to be preparing their end customers for delays and issues that are going to be coming their way. 7,000,000 packages aren't going to be delivered, how have they prepared their customers for that?
Read the full article here: UPS Encourages Shippers to Find Alternatives Amid Tight Capacity Ahead of Peak
Demand for Freight Drives Up Spot Market Rates
Transport Topics has released on article about how the demand for freight has driven up sport market rates, which could affect our customers who are sending loads that need immediate movement. Read the article below to see the trends and current prices to help you better plan your shipments and manage your freight accordingly:
Trucking has seen a turnaround bolstered by spot market rates and increased demand.
“There is definitely strong upwards trends in both demand and rates,” Nick Wynkoop, product manager for rates and analytics at Truckstop.com, told Transport Topics. “Usually in past Junes, we’ve had yearly peaks in spot markets. That’s usually the highest month. This year, instead of dropping off for July and August, we have continued the upwards trend for spot freight.”
Truckstop.com is an online freight-matching marketplace that tracks industry trends weekly in partnership with FTR Transportation Intelligence. Their latest report found that during the week ended Aug. 7, demand for loads increased 5.4% to 80.05 index points from 70.96, and spot rates for that week increased 1.6% to $2.32 from $2.28.
“This has been a very fast evolving environment,” said Avery Vise, FTR vice president of trucking research. “So if you go back to the April and even May time frame, we saw a fairly significant decline in rates in the spot market. You don’t tend to see contract rates change that quickly.”
Spot market rates apply to shipments that need to be moved immediately. Contract rates are the price agreed upon to move a type of shipment over a certain amount of time.
“We’ve seen a pretty dramatic firming of the rate environment,” Vise said. “If you look back to mid-April, we were down on the order of 25% year-over-year in spot rates. At this point, total spot rates are up about 17%.”
The weekly report showed the dry van segment had the most significant year-over-year spot rate increase at 35% for the week ended Aug. 7. The refrigerated segment followed at 27%. The flatbed segment was up 12%.
“We’re talking about levels similar to the increases we saw in the peak in 2018, [when results were up 16%],” Vise said. “But there are differences that are important. One is, we have a demand-driven response here that is combined with capacity. Both are setting the stage for this.”
DAT Solutions found similar trends. Its Truckload Volume Index, a measure of dry van, refrigerated and flatbed loads, increased 2.1% in July from June, bucking seasonal trends, and was 3.7% higher than July 2019.
“States are reopening at different rates and are being hit by the virus at different times. This is leading to unseasonal peaks and valleys in manufacturing output and consumer demand,” Ken Adamo, DAT chief of analytics, said Aug. 13.
“Carrier networks are out of balance due to inconsistent freight demand at a commodity and lane level, and this is leading to a spike in demand for spot freight in order to meet the capacity need,” he added.
DAT said its load-to-truck ratio for vans was up for the third straight month to 4.4, up 25% from June. Spot van rates averaged $2.03 per mile nationally, up 23 cents compared with June and 19 cents higher versus July 2019.
Reefer volumes in July were up less than 1% month-over-month. The load-to-truck ratio was 7.4, four times higher than April’s all-time low of 1.7 loads per truck. The rate was $2.30 per mile, up 15 cents compared with June, and 11 cents higher year-over-year.
Flatbed volume in July was steady compared with June and down 6.6% compared with July last year. The spot rate was $2.20 per mile, 13 cents more than June but 7 cents lower than July 2019.
The trucking industry has much volatility since early in the year when the coronavirus pandemic started rippling through the economy.
“With COVID, supply and demand has been all over the place,” said Kevin Zweier, vice president of transportation at Chainalytics. “Demand for shipments were down when we were in March, April and May and then it started coming back in June, July and August. That’s where we’ve been seeing the rise in spot rates.”
Further, trucking companies have had to adapt to demand shifting considerably in favor of retail (over the commercial sector) since more people have been staying in instead of going out to restaurants and bars.
“All of these things are adding up,” Adamo said. “Spot rates are up. At their lowest, they may be $1.35 in April when we saw all the restaurants were closed and people weren’t going out. And now we’re seeing rates bumping up if not exceeding $2 a mile for the spot market. That’s just tremendous. Unprecedented levels of rate increases.”
Jim Nicholson, vice president of carrier sales and operations at Loadsmart, said there is reason to believe there will be prolonged demand through the rest of the year with the strength in imports leading into the holiday retail season.
“Consumer spending remains healthy,” Nicholson said, “supported by stimulus and shifting spending patterns, including from services to retail.”
Source: Transport Topics
Parcel Market Update - UPS' Profit Soars to Record
Article Summary:
Earnings per share almost doubled what was expected (Expected: $1.07 Actual: $2.13)
This was driven primarily by the increased accessorial charges assessed to the thriving e-commerce segment of their delivery network
Domestic Delivery spiked 65.2% which caused them to assess the $0.30 e-commerce surcharge and a handful of “hidden” accessorial charges
UPS reported their Q2 earnings this morning, and we wanted to bring a couple items to your attention:
Earnings per share almost doubled what was expected (Expected: $1.07 Actual: $2:13).
This was driven primarily by the increased accessorial charges assessed to the thriving e-commerce segment of their delivery network.
Domestic Delivery spiked 65.2% which caused them to assess the.30 e-commerce surcharge and a handful of “hidden” accessorial charges
What this means for distributors:
UPS has figured out how to dramatically increase profitability in a COVID-19 world.
UPS knows UPS shippers have had to change their delivery network and business strategy towards e-commerce.
UPS knows most shippers can’t change to FedEx (and vice versa) or strategically renegotiate due to the changing network and environment.
What this means for the bottom line:
UPS has levied accessorial charges and made it very difficult for parcel shippers to change and/or not pay these increased charges. Most customers are having to eat the charges and don’t have the staff to recoup any money.
We would love to talk more about this as part of your overall distribution chain/transportation strategy and about how we’re helping other distributors to offset these increases. For more information, please reach out to us at eShipping.biz.
Source: Business Insider
