How to Avoid Increased Costs in the New Parcel Delivery Market

Before the pandemic, forecasts for the future of the parcel delivery market were bright. Increased demand for last-mile services from a booming e-commerce sector promised steady growth and endless opportunities for carriers and shippers in the coming decade.

Post-covid, the outlook is still rosy. The world’s swift online migration turbocharged the sector’s expansion and spurred long-lasting—and in most cases permanent—shifts in consumer behavior. Between 2018 and 2020, the parcel market grew $50 billion according to Research and Markets—from $450bn to $500bn. Pitney Bowes’ Parcel Shipping Index reports global parcels in 2021 were up 21% at 159 billion from 131 billion in volume during 2020.

But this boon hasn’t come without growing pains. Final mile delivery carriers struggled with the pandemic’s erratic consumer demand and the challenges posed by chaotic supply chains, labor shortages, and constrained capacity. Service quality suffered, and shippers were often left in the dust while coping with soaring rates.

Right now, the parcel delivery market is at an influx point. The sector is still reeling from the effects of the pandemic while contending with surging inflation and slowing consumer demand. Disruptions, volatility, and sky-high costs will mostly likely stick. To weather these challenges, shippers must develop flexible parcel management strategies to meet evolving market needs and pivot quickly when conditions change.

The state of the parcel delivery market in 2022

Today, the parcel delivery market looks drastically different than it did in March 2020. The pandemic accelerated trends such as the shift to alternative carriers and the demand for technology facilitating supply chain visibility. It also created new challenges in higher rates, constrained capacity, and disruptions. 

  • Single-carrier strategies are a thing of the past. 

For years, businesses relied on exclusive shipping contracts with a single carrier to handle all their parcel deliveries. In 2022, such a strategy will leave shippers at the mercy of carriers’ whims—which have proven to be a major headache for shippers throughout the pandemic in the shape of rate increases, volume caps, and last-minute service cuts. 

With better access to real-time rates data from third-party logistics providers (3PLs), multi-carrier parcel management strategies are becoming the norm across industries. Rather than relying on a single carrier, businesses now mix and match providers based on which fits their needs best in each situation.

Beyond cost savings and improved customer service, a diversified carrier network promotes flexibility and agility—both of which will be essential for weathering volatile market conditions. The ability to pivot between options will bolster contingency plans and help mitigate the risks that will dominate the post-pandemic landscape, such as service guarantee suspensions and supply chain disruptions.

  • Alternative carriers are disrupting the parcel delivery market.

Before the pandemic, small and regional carriers had already been answering shippers’ calls for more flexible and affordable alternatives to large multinationals. As more businesses embrace multi-carrier strategies post-pandemic, these alternative carriers will claim a growing share of the parcel delivery market.

In 2021, the combined parcel volumes delivered by carriers outside the top four (UPS, FedEx, Amazon, USPS) in the US grew by 94% according to industry estimates. The unprecedented spike largely drove this expansion in demand and shippers seeking to escape legacy carriers’ crushing rates and constrained capacity. 

Following the pandemic, small carriers are capitalizing on shippers’ frustrations and gaps in the market—especially in omnichannel delivery—by expanding their networks and optimizing operations. Combined with greater flexibility and the ability to innovate, these moves will help small carriers sustain momentum and position themselves as attractive alternatives for shippers of all sizes.  

  • Rising costs are spurring a move toward third-party logistics providers.

High volumes, tight capacity, and non-stop disruptions have translated into historically-high rates and surcharges for shippers over the past two years. Carriers passed increased costs on everything from labor and fleet optimization to fuel to overstretched shippers. And those costs have started trickling down to consumers in the form of steeper shipping charges and fees on returns.

Inflation will continue driving rates and surcharges to historical highs. FedEx recently announced a 6.9% general rate increase for 2023, and UPS may follow through with a similar rate hike. 

While shippers have stemmed some of these costs by choosing alternative carriers, the UPS-FedEx duopoly still holds much sway in dictating what rates will look like across the market. As a result, many small and medium-sized shippers have turned to third-party logistics providers to increase their leverage when negotiating rates with carriers and accessing volume discounts.

Optimize your parcel management strategy

While parcel delivery promises to continue posing challenges, there are steps shippers can take to mitigate costs and ensure they’re getting their money’s worth in terms of value and service quality. Josh Miller, VP of Sales at CTSI-Global, recommends that shippers consider the following moves to navigate the parcel market’s current conditions: 

  1. Diversifying carrier bases
  2. Integrating alternative carriers 
  3. Developing contingency plans 
  4. Verifying carriers’ credentials and reliability
  5. Ensuring good relationships with carriers 

CTSI-Globals’ Parcel Management can help businesses meet all of these goals. Powered by ShipEngine’s API tool, our platform streamlines every step of the parcel process for shippers—from label creation and parcel manifesting to predictive analytics. And with real-time rate information from a vast network of certified carriers, shippers can rest assured that they’ll make the optimal choice in every situation.

Contact us to learn more about how our technologies can support your parcel management strategy—and every other aspect of your logistics ecosystem.