To quote Jerry Garcia, what a long, strange trip it's been. 2010 has been a challenging year for shippers for a number of reasons. Costs are up. Demand is down. Shipping managers are being asked to do more with less. These are things we've all had to deal with. However, one typically doesn't expect a vendor and "trusted business partner" to take advantage of a situation. Nevertheless, that appears to be exactly what UPS and FedEx are positioning themselves to do. Let's review some of the significant happenings of 2010:
October •09 FedEx and UPS announce their intention to disallow the use of consultants/advisors by their customers for purposes of negotiating pricing agreements. This is arguably the largest change for large shippers with complex supply chain networks.
January Both carriers implemented general rate increases, which purportedly passed along an effective increase to shippers of 4.9%. However, the impact was demonstrably greater when surcharges, minimum package charges, accessorials, etc. were considered.
FedEx followed UPS in adding an "Extended Area Surcharge" for some rural residential deliveries.
February UPS files 2009 Annual Report showing net income of over $2.1 billion.
July FedEx files 2010 Annual Report showing net income of nearly $1.2 billion
September FedEx announces the merger of their FedEx Freight and FedEx National LTL networks
October FedEx announces a 3.9% effective air rate increase for January 2011. More importantly, FedEx announces increases to several key accessorials and surcharges and significant changes to dimensional rating logic.
November UPS announces Ground and Air increases; with a 4.9% average air increase and virtually mirroring FedEx's accessorials and surcharges, and DIM rating logic changes.
Rumors began circulating concerning significant changes to UPS' Basic service in 2011.
December FedEx announces 2011 Ground increases of 4.9% (on average)
Federal District Judge Robert Miller rules in favor of FedEx in most driver categorization lawsuits. In 20 of the remaining 28 remaining certified class cases the court agreed that FedEx has not improperly classified drivers as independent contractors rather than as employees. In three of the remaining eight cases the court ruled against FedEx on one or more claims. However, this seems to be a significant step forward in FedEx's bid to protect their Ground business model.
What can we learn from the events of the past twelve months? While space does not allow us to take a deep dive into all of the industry occurrences of the past year, we can draw some conclusions from the list above.
• We see no material new service offerings, service improvements or value adds from the carriers.
• What we see are cost cutting efforts on the carriers' part by degrading services and consolidating networks.
• While carrier profits are soaring, they are passing through unprecedented rate increases in the form of higher transportation costs, disproportionate increase on accessorials and surcharges, and brutal changes to DIM logic. While we don't yet have Consumer Price Index numbers for December, the CPI is up only 0.98% from January through November 2010. This makes the carriers' 2011 GRI increases of 3.9-4.9% seem excessive, to say nothing of the 18% increase the 2011 GRI could represent to some high residential / low density shippers.
• The carriers' attempts to separate shippers from those best positioned to assist them in cost reduction / cost containment is a transparent attempt to conceal predatory pricing practices (even the IRS lets you bring a CPA to your audit).
To put it bluntly, the carriers are starting to move from a service approach to more of a duopolistic mentality. The carriers believe they have more leverage in the vendor/customer relationship than at any point since deregulation. Shippers need to aggressively pursue their interests, and make the most of the fact that we still have two competitors in this marketplace.
Otherwise, the scales will tilt farther as time goes by until a tipping point is reached from which, barring government intervention, there will be no return.
October •09 FedEx and UPS announce their intention to disallow the use of consultants/advisors by their customers for purposes of negotiating pricing agreements. This is arguably the largest change for large shippers with complex supply chain networks.
January Both carriers implemented general rate increases, which purportedly passed along an effective increase to shippers of 4.9%. However, the impact was demonstrably greater when surcharges, minimum package charges, accessorials, etc. were considered.
FedEx followed UPS in adding an "Extended Area Surcharge" for some rural residential deliveries.
February UPS files 2009 Annual Report showing net income of over $2.1 billion.
July FedEx files 2010 Annual Report showing net income of nearly $1.2 billion
September FedEx announces the merger of their FedEx Freight and FedEx National LTL networks
October FedEx announces a 3.9% effective air rate increase for January 2011. More importantly, FedEx announces increases to several key accessorials and surcharges and significant changes to dimensional rating logic.
November UPS announces Ground and Air increases; with a 4.9% average air increase and virtually mirroring FedEx's accessorials and surcharges, and DIM rating logic changes.
Rumors began circulating concerning significant changes to UPS' Basic service in 2011.
December FedEx announces 2011 Ground increases of 4.9% (on average)
Federal District Judge Robert Miller rules in favor of FedEx in most driver categorization lawsuits. In 20 of the remaining 28 remaining certified class cases the court agreed that FedEx has not improperly classified drivers as independent contractors rather than as employees. In three of the remaining eight cases the court ruled against FedEx on one or more claims. However, this seems to be a significant step forward in FedEx's bid to protect their Ground business model.
What can we learn from the events of the past twelve months? While space does not allow us to take a deep dive into all of the industry occurrences of the past year, we can draw some conclusions from the list above.
• We see no material new service offerings, service improvements or value adds from the carriers.
• What we see are cost cutting efforts on the carriers' part by degrading services and consolidating networks.
• While carrier profits are soaring, they are passing through unprecedented rate increases in the form of higher transportation costs, disproportionate increase on accessorials and surcharges, and brutal changes to DIM logic. While we don't yet have Consumer Price Index numbers for December, the CPI is up only 0.98% from January through November 2010. This makes the carriers' 2011 GRI increases of 3.9-4.9% seem excessive, to say nothing of the 18% increase the 2011 GRI could represent to some high residential / low density shippers.
• The carriers' attempts to separate shippers from those best positioned to assist them in cost reduction / cost containment is a transparent attempt to conceal predatory pricing practices (even the IRS lets you bring a CPA to your audit).
To put it bluntly, the carriers are starting to move from a service approach to more of a duopolistic mentality. The carriers believe they have more leverage in the vendor/customer relationship than at any point since deregulation. Shippers need to aggressively pursue their interests, and make the most of the fact that we still have two competitors in this marketplace.
Otherwise, the scales will tilt farther as time goes by until a tipping point is reached from which, barring government intervention, there will be no return.
