Consultant’s Insight: Will express carriers benefit from shorter peak season?

Expectations of tight air cargo capacity during the fourth quarter have rates climbing. For express carriers such as FedEx and UPS, not only are rates climbing but so are surcharges. Have express carriers priced themselves out of the market? “We announced several pricing actions that we expect to improve yield in the coming quarters,” FedEx Executive Vice President and Chief Customer Officer Brie Carere told analysts in September. “We have increased our U.S. and international fuel surcharge tables and announced new demand surcharges, which take effect in the coming days and weeks. The broader approach to demand surcharges reflects the requirement to cover our incremental peak costs to deliver an outstanding service during the holiday season.” [caption id="attachment_57146180" align="aligncenter" width="2560"] FedEx has implemented new surcharges. (Photo/Cargo Facts)[/caption] This year’s holiday season is also more compact than usual. Thanksgiving is Nov. 28 this year, significantly shortening the window between Black Friday and Christmas. As such, UPS Chief Executive Carol Tome told analysts in July, “We are expecting on our peak day, which is Dec. 18, to have the highest volume ever in our network. “Now when you have that kind of volume flowing to your network, you have to charge to service them well because you have to hire people and lease aircraft and delivery vehicles, and so on. So, we think that the prices are going to stick because of what the environment is telling us from a demand perspective.” However, the shorter peak season has led retailers — including Walmart, Target and Amazon, as well as China's Shein and PDD Holdings' Temu — to introduce early deals to garner sales and perhaps avoid higher peak shipping costs. In addition, according to a recent update from freight rate analytics company Xeneta, "E-commerce volumes out of China during the upcoming peak season should be expected to set new records as consumers in the West look to the Far East for low-cost goods in the run-up to Christmas and New Year.” Price-conscious consumers Indeed, expectations of a more price-conscious consumer have also been noted by the National Retail Federation (NRF) and shippers. "We expect consumers will continue to be more price conscious and pragmatic in their spending decisions, looking for discounts and better value for holiday goods, as still-high interest rates and lingering inflation in some categories continues to be on their minds," NRF CEO Matthew Shay said. “I think consumers are spending, but they're being choosy on where and how they spend their money,” Noel Geoffroy, CEO of El Paso, Texas-based consumer products firm Helen of Troy, told analysts on Oct 2. “And I think it will be similar in the holiday season.” U.S. holiday sales are expected to grow as much as 3.5%, the slowest pace in six years, according to the latest NRF forecast. Holiday sales are set to rise between $979.5 billion and $989 billion from November through December while online and other non-store sales are expected to expand up to 9% to $297.9 billion. Express expectations Returning to the question — have express carriers priced themselves out of the market? — one should consider the definition of an express carrier. Speed is at the heart of express services and the willingness of shippers to pay for that speed. Manufacturers in need of a machinery part or inventory, for example, usually fit this model. But manufacturing activity has been muted, at best, for the past year. Retailers also are willing to pay for speed, particularly during the peak season, if they face an unexpected shortage in inventory. As of August, retail inventories were up 0.5% from June and higher compared to August 2023, up 6.3%. The increase in inventory suggests retailers prepared early for a potential East and Gulf Coast port strike. The bulk of retail inventory typically moves by ocean freight. A three-day strike started Oct. 1 before the sides agreed to return to the negotiation table and extend the current contract to Jan. 15. However, if the holiday season is successful for retailers and if negotiations between the International Longshoremen’s Association and the United States Maritime Alliance are not successful by the deadline, we could see demand for express services pick up during the peak season and into January ahead of the Lunar New Year (Jan. 29) holiday closures.

Consultant’s Insight: Will express carriers benefit from shorter peak season?

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