Consultant Insight: FedEx unveils dynamic pricing

Revenue quality and management are among the top priorities in FedEx's Network 2.0 strategy revealed during the company's June 27 investor conference . However, these priorities will likely not be well-received by many shippers who already face high supply chain costs. FedEx's technology investments are going beyond its facilities to surcharges in the form of dynamic pricing. Instead of expecting one annual general rate increase from FedEx, shippers will face several more increases each year based on demand, capacity availability and shippers' forecasted capacity requirements. [caption id="attachment_69752" align="alignright" width="433"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] A "more granular peak surcharge" will be rolled out in August "to manage customers in an automated way if [customers] are not hitting the requirements that they are giving us," said FedEx Executive Vice President and Chief Customer Officer Brie Carere, who also serves as co-president and co-CEO of FedEx Services. This pricing strategy will be fine-tuned every 10 weeks to include such changes as day-of-week pricing and will be "more customized in certain hotspots or constraint areas" within FedEx's network, Carere said. As a result, "we reduce some waste, we improve our margins, [customers] reduce their costs.” Whether customers will indeed be able to reduce costs will be a big concern and could result in a departure from FedEx to other carriers. UPS’ similar strategy Dynamic pricing is also in its first inning at UPS. In 2020, UPS introduced its updated Dynamic ORION (On-Road Integrated Optimization and Navigation). This version reoptimizes routes in real time based on changing conditions. As routes are optimized, it’s just a matter of time before pricing also will be optimized, in real time, based on these routes. In addition, during UPS’ investor and analyst virtual conference in 2021 , UPS executives discussed their Next Generation Profit initiative, a cross-functional program that, among other things, allows UPS to “optimize pricing for each customer and better align our cost to serve with the value we create.” “We are continuing to evolve the platform to leverage technology that will adjust pricing in a more dynamic manner to maximize overall profit in real-time,” UPS Executive Vice President and Chief Financial Officer Brian Newman said. Dynamic pricing outlook “I think from a dynamic pricing perspective, the industry is in the first innings,” FedEx’s Carere said. “I am confident we're ahead from an industry perspective, but I think it's a win-win, quite frankly, for the whole industry.” Dynamic pricing is already part of other aspects of the supply chain . Passenger airlines have been among the first to embrace dynamic pricing based on the demands of destinations and time. Uber and Lyft utilize dynamic pricing, also known as “surge” pricing, during high-demand times. The trucking market also utilizes dynamic pricing in various ways. C.H. Robinson, for example, announced in June that it delivered 1 million digital quotes in Q1, a 54% year-over-year increase. Two-thirds of C.H. Robinson's spot rate business was priced through its dynamic pricing engine that provided real-time rates and capacity assurance from its network of truckload carriers in North America. Implementing dynamic pricing, of course, is not easy. Still, thanks to technology solutions such as artificial intelligence and cloud-based technologies, dynamic pricing is gaining in popularity, particularly as costs and capacity across supply chains remain a concern.

Consultant Insight: FedEx unveils dynamic pricing

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