In the third quarter, ground parcel rates saw their first year-over-year decline since 2019, as revealed by the TD Cowen/AFS Freight Index released on October 17. The ground parcel rate per package in Q3 was 23.2% higher than the January 2018 baseline, a decrease from the 26.9% of the previous year. This decline in the index can be attributed to larger pricing discounts, reductions in additional fees, and decreased fuel surcharges.

Micheal McDonagh, President of Parcel at AFS Logistics, noted that after a period of pricing discipline by carriers in the last two years, negotiating power has shifted back in favor of shippers.

Parcel carriers such as FedEx and UPS are intensifying their efforts to attract customers by offering reduced rates, especially as delivery demand remains below the levels seen during the height of the pandemic. The index reported a 1 percentage point increase in the average discount per package quarter-over-quarter, the largest increase for the year. The softer demand for parcel delivery, coupled with competition from regional carriers and the USPS, has led to pricing becoming a lever used more frequently to maintain and expand volume.

Shippers are capitalizing on the favorable market conditions, with some, like Macy’s and Rent the Runway (UPS customers), securing more advantageous delivery contracts that have resulted in reduced expenses. This is part of UPS’s strategy to recover from volume losses experienced during union negotiations.

The softer pricing environment for ground parcel deliveries is expected to continue for the rest of the year. The Q4 rate per package is projected to decline year-over-year due to expectations of a less robust peak season compared to previous years, although shippers should remain cautious of potential peak season surcharges.

In contrast, the Q3 rate per package for express parcel volume increased year-over-year, reaching 1.4% above the January 2018 baseline. However, this figure marked a decline from the previous quarter’s 3.8%, primarily due to a decrease in average billed package weights and an increase in discounts.

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