Lessons Learned from the 2020 Peak Season

In 1997 there was a 13-day UPS strike that took out a massive majority of both ground and air capacity. This strike opened the door for a small, regional carrier named RPS. RPS didn’t fade back into the background when the strike was over, they were actually acquired by FedEx and eventually rebranded to become FedEx Ground.

What we have today is much more than a 13-day strike, it is a worldwide pandemic. If a two week strike opened the door big enough for FedEx Ground to be born, then a massive pandemic has the ability to completely shift the tectonic plates of the shipping landscape.

This peak season, FedEx and UPS have flexed their muscle with the lack of capability in the marketplace. In other words, they have moved away from being value-added partners and are leveraging their strength as a duopoly, a practice that is not sustainable long term. Likewise, FedEx and UPS are changing the commercial terms of some of their strategic clients with the direct goal of improving carrier margins-- leaving shippers with few options.

Performance issues, capacity constraints, punitively raising rates, and firing clients from FedEx and UPS is forcing clients to look elsewhere. The issue with a duopoly is that FedEx and UPS have historically gotten away with rate increases that are far beyond the normal rate of inflation, and the untouchable mentality of both carriers has been around for 25+ years. 

To the defense of the carriers, the world has shifted overnight and carriers have to determine if they want to be better OR bigger. UPS CEO, Carol Tome, stated that they want to be better not bigger, and in the coming months they are moving emphasis away from enterprise accounts and placing it on small to medium shippers because they are more diverse and offer a higher margin. Despite this coming shift, changes will still be tough on regional carriers and shippers will still be held accountable to contract values. 

What are the consequences of all of this? FedEx and UPS are becoming increasingly difficult to work with and constraining, and this is opening up an opportunity for regional carriers to quickly become more relevant, just as RPS rose to become FedEx Ground in 1997. The only hiccup with regional carriers is that it is difficult to utilize regional capabilities if you do not have the luxury of local distribution centers. Even with local capabilities, it is still more expensive to leverage regional carriers. In 2021 we will see other carriers get creative with their solutions and grow the possibility of a third large carrier entering the market. 

Moral of the 2020 peak season? When planning or optimizing your small-parcel carrier strategy, try to take a more sophisticated approach and don’t put all of your eggs in one basket.

Image source: https://www.tdu.org/lessons_from_the_1997_ups_strike