The three major international express delivery giants have raised their freight rates one after another. What is the intention? And under the appearance of rising prices, what changes are hidden in the global parcel market?
Freight increases hit record highs
In September, when FedEx (FedEx) released its financial report for the first quarter of fiscal year 2023, it announced that starting from January 2, 2023, the rates of FedEx, FedEx Ground and FedEx Home Delivery will increase by an average of 6.9% .
Depending on the size of the customer’s shipping rate, FedEx shipping rates will increase by an average of 6.9%-7.9%. FedEx will also charge higher surcharges for home deliveries, oversized packages, and express and ground shipping packages that require additional handling.
In October, UPS announced on its official website that starting from December 27, UPS’s freight rate will increase by an average of 6.9% net. The price increase range includes US air transport, land transport services and international services, and heavy cargo transportation between the United States, Canada and Puerto Rico. Air freight rates will average a net increase of 6.2%. Additionally, the late fee will increase from 6% to 8%.
In the past, the price increases of FedEx and UPS were between 4.9% and 5.9%. This increase to 6.9% is the first time in history, breaking the historical record of the two major international express delivery giants.
Unlike FedEx and UPS, DHL has different price increases according to different countries/regions. Including: a 7.9% increase in tariffs on all U.S. exports from January 1, 2023; a 5.9% increase in shipping rates to Japan and Singapore;
Shipping rates for Australia, New Zealand, South Korea, Indonesia, India, France, Italy, and Denmark are up 7.9%; shipping rates for Austria are up 9.9%. Certain services and surcharges in certain countries will also be adjusted over time.
Pressure on the consumer side VS pressure on the cost side
The three major international express delivery giants raised freight rates mainly to cope with the impact of various cost inflation and the slowdown of the global express delivery business.
Changes in economic policy, fluctuations in consumer demand, supply chain bottlenecks, etc. are fueling inflation. European inflation hit 10.9 percent in September, continuing a surge since the start of the year, according to Eurostat.
According to data released by the U.S. Bureau of Labor Statistics, the U.S. CPI in October fell to 7.7% unexpectedly. Although the year-on-year increase in CPI in a single month has declined for four consecutive months, considering that the year-on-year increase in CPI in the United States has seriously deviated from the normal level after the epidemic. , Relevant institutions generally believe that the inflationary pressure in the United States is far from being relieved, and the basis for a rapid decline in inflation has not yet been seen.
Under inflationary pressures, people’s consumption costs rise to unsustainable levels in some cases, and the ensuing uncertainty and insecurity drive changes in people’s behavior and way of spending money, and consumption behavior gradually decreases .
The reduction in consumer demand has led to an overall decline in global parcel business volume. According to the third quarter financial report released by UPS, although the operating profit achieved a 7.5% increase, most of it came from the increase in single-package revenue in the United States.
The volume of sea freight and air freight decreased, the average daily business volume of international business decreased by 5.2%, and the operating profit of the overall international business decreased year-on-year.
Satish Jindel, founder of consulting firm ShipMateix Inc., said the U.S. package market is now at risk of stagnating demand, which will lead to higher rates for large package shippers.
And operators have pledged to add capacity, which could put their networks at risk of overcapacity
In addition to the impact of inflation on the consumer side of the increase in freight rates, there is another important factor that comes from the cost side.
First of all, the labor force participation rate in the United States has been declining year by year, and inflation has just played a role in promoting each other. After the epidemic, the mentality of many people has changed. They are unwilling to work or resign after working for a few months, resulting in less and less labor supply.
Coupled with inflation, employers are willing to pay higher wages, and employees can quickly find jobs after resigning. This leads the market to fall into a cycle of “inflation, wage increases, resignation and re-employment, and wages rise again”, and labor costs gradually rise.
Second, international crude oil prices soared. Affected by geopolitics, epidemic control, etc., the supply of crude oil is insufficient, especially after the outbreak of the conflict between Russia and Ukraine, the global crude oil supply has dropped sharply, the bottleneck problem has intensified, and the price has accelerated;
At the same time, energy is highly correlated with the price of the US dollar, and the oversupply of the US dollar directly stimulates price increases. In 2022, crude oil prices rose to $123.21 a barrel, second only to $147.27 in the summer of 2008.
Changes in crude oil are directly reflected in the logistics and transportation industry, because most of the fuel oil prices used for transportation rise and fall with the trend of crude oil. As the price of crude oil rises, the price of fuel oil will inevitably rise, which will have an impact on shipping companies, express delivery companies, etc. .
In order to offset the rise in inflation, improve the quality of income, and deal with the risk of overcapacity in the face of slowing demand for parcels, the three major express delivery giants have all embarked on the road of raising freight rates and announcing cost cuts.
For example, FedEx plans to reduce the number of flights and temporarily store the aircraft by reducing the cost of the aviation and international departments and the U.S. ground delivery department. In October, FedEx canceled 8 to 9 daily international flight frequencies and about 23 domestic flights. frequency to help deliver accelerated savings of $2.2 billion to $2.7 billion
Where is the global parcel market headed in the future?
The price increase of the express delivery giants reflects that due to the impact of geopolitics, repeated epidemics, and inflation in various countries, global trade is in a state of volatility, and the global parcel market and service providers have responded and adjusted the market in a timely manner. It can also be seen from this that changes in global trade are closely related to changes in the global parcel market.
In the short term, global trade fluctuations will continue, and freight rates may still usher in multiple adjustments. But in the long run, global trade will gradually develop towards granular trade, that is, from the original traditional trade model to a B2B model, and then to a granular B2C model. The global package logistics market will also change accordingly.
First, e-commerce parcels are delivered by express delivery. In the past, global trade was dominated by sea freight. Now, with the changes in global trade patterns and the advancement of cross-border e-commerce and the economy, global trade units will increasingly shift from containers to high-frequency small packages, and the market will also It will gradually evolve into container + small package.
According to Statista’s tracking data for packages weighing no more than 70 pounds (31.5kg) in 13 countries, global package shipments will reach 131.2 billion in 2020 and 157.9 billion in 2021. It is estimated that in 2026, the global package transportation volume will reach 266 billion pieces.
According to the data of the State Post Bureau, in 2021, my country’s express delivery business volume will reach 108.3 billion pieces, and the scale of international, Hong Kong, Macao and Taiwan express delivery business will reach 2.1 billion pieces. From 2016 to 2021, the number of parcels in my country has more than tripled.
As business and logistics units become smaller and smaller, the efficiency and speed of global economic operations are getting faster and faster, and global parcels are also showing a trend of express delivery, the advantages of express delivery giants are further highlighted, and this is why shipping companies such as Maersk and MSC have acquired Reasons for express delivery companies and airline companies.
Second, the e-commerce platform builds its own logistics. A large part of global parcels come from cross-border e-commerce platforms. After the outbreak of the epidemic, the business volume of the platforms ushered in explosive growth. In order to cater to the development of business volume, major e-commerce platforms have begun to build their own logistics systems.
For example, Amazon, the world’s largest e-commerce platform, started to build its own logistics in 2013. By establishing a super self-operated closed loop, it built a global logistics network. At present, Amazon has surpassed FedEx to become the third largest package delivery company in the United States; another example is the domestic SHEIN, It mainly focuses on domestic direct mail delivery and builds overseas warehouses.
Now SHEIN has more than 200 logistics and supply chain partners around the world, and has signed a cooperation agreement with China Southern Airlines Logistics to increase the construction of supply chain and logistics system. As the e-commerce platform grows stronger, the e-commerce platform’s self-built logistics may become a force that cannot be ignored in the parcel logistics market.
Third, the postal system is commercialized. For a long time in the past, the Postal Service has dominated the package shipping market. With the vigorous development of cross-border e-commerce, there are more and more competitive participants in the dynamic global trade B2C market. In order to adapt to the ever-changing market and demand, postal services in various countries have also taken the initiative to integrate and develop with cross-border e-commerce, embarking on the road of commercial development.
For example, the U.S. Postal Service has launched a “loyalty program” project for mid-line customers, provided priority mail express cold chain packaging services, updated customers’ commercial package interception APP, etc., increased interaction with customers, and directly or indirectly promoted the development of package delivery services ;
Through increased investment and process research and development, the US Postal Service has upgraded mobile delivery equipment and oversized delivery trucks, improved package scanning, transportation tracking capabilities, and optimized network efficiency. At present, for cross-border e-commerce platforms and sellers, USPS has provided services for cross-border e-commerce markets in more than 190 countries.
As another example, China Post has been actively developing the cross-border e-commerce market since 2010, mainly through model pilots, enriching product systems, and actively participating in the construction of cross-border e-commerce industrial parks. Including the use of more than 60 postal international exchange offices and border trade ports across the country, and access to more than 220 countries and regions around the world through the UPU system and commercial channel network.
In terms of services for commercial channels, in addition to products such as international parcels and e-mail packages that meet the needs of low-end and light-sized items, there are also products such as international EMS that serve the mid-to-high-end market, and products such as Yisubao for medium-speed express delivery.
In order to boost the large platform for the development of cross-border e-commerce, China Post will further integrate internal and external resources, provide multi-mode warehouse distribution solutions such as bonded warehouses and overseas warehouses, and provide cross-border e-commerce with multi-field, multi-channel, and multi-level solutions. Integrated services.
In addition, in addition to the above three typical representatives, major domestic logistics giants have also made frequent efforts in the international parcel market in recent years. Zongteng and others are actively developing a global layout, adding more possibilities for the future development of the global parcel logistics market.
For example, according to data released at the end of 2021, Cainiao International’s average daily volume of cross-border parcels has reached 4.5 million, covering more than 200 countries and regions around the world. Second only to FedEx, DHL and UPS. In 2022, Cainiao International Freight will provide port-to-port services in more than 100 countries and regions around the world, and door-to-door services in 64 countries and regions.
Another example is SF Express, which is currently focusing on Southeast Asia for its layout. As of September, the fleet size of SF Express’s all-cargo aircraft has reached 75, which ensures the timeliness and stability of the first-leg transportation in the cross-border logistics business;
The acquired Kerry Logistics has a complete distribution network and dense distribution sites in Southeast Asia, and can provide different specifications of last-mile delivery services; after the first professional cargo airport in Asia, Hubei Ezhou Huahu Airport was put into operation, SF Express has been operating as a whole in recent years The gap with the “top three” of global express delivery companies is also gradually narrowing
The future development of the global parcel market is still full of uncertainty and unpredictability. Before the freight rate finds a new balance, whether it is an international express delivery giant or a domestic logistics giant, there may still be a long way to go. Preparing for an eventuality is an absolute must to recover from future variables