As the holiday season approaches, FedEx and UPS find themselves in a competitive battle for parcel volume from smaller businesses. With Thanksgiving arriving later than usual this year, shippers are facing a shortened holiday shopping period—five fewer days from Black Friday to December 31—making this the shortest peak season since 2019. This limited time frame has created urgency among retailers, leading some, like UPS Chief Executive Carol Tomé, to predict a potential rise in in-store shopping as consumers look to avoid shipping delays.
Adding to the pressure? The cooling of the pandemic-driven e-commerce boom, leaving carriers with excess capacity. According to ShipMatrix, UPS, FedEx, USPS, and Amazon collectively have the ability to deliver over 110 million packages daily, while actual demand hovers closer to 70 million per day—the largest imbalance seen in decades. To attract more volume, both FedEx and UPS are now engaging in fierce price competition, extending substantial shipping discounts that were previously reserved for bulk shippers to their smaller customers as well.
Onset of Discounts: Swing in Power Dynamics
In a significant shift from recent years, both FedEx and UPS are now leveraging substantial discounts that were once exclusive to high-volume shippers. Robert Persuit, an executive at ShipMatrix, emphasizes this shift: “No customer is too small to be considered for discounts.”
This new pricing dynamic is driven by heightened competition to secure holiday season parcel volume in a market experiencing an excess of capacity.
Discounts at Record Levels
According to AFS Logistics, the average cost of ground parcel shipping dropped by 4.7% in Q3 2024 compared to the previous quarter, marking a 2.5% decrease compared to the same period in 2023.
This decrease is driven by several key factors, including lower package weights and increased discounts. These factors contributed to a significant reduction in the overall shipping index, which reached its lowest level since 2021. Kenneth Moyer, a partner at LJM Consultants and former UPS pricing negotiator, noted, “They have to fight for every package right now; it’s great for shippers.”
Case Studies in Discount Competition
For smaller businesses, this shift is creating exciting new opportunities. Michael Goldblatt, whose Pennsylvania-based company ships tire chains, experienced this firsthand. FedEx, in its efforts to lure him from UPS, offered him a double-digit percentage discount, even though his shipping expenses total around $500,000 annually. Not to be outdone, UPS countered with an even larger discount, allowing Goldblatt to lower prices on some of his products and stay competitive.
Similarly, Lori Machiorlette, co-founder of Worth Home Products, has benefited from this price war. Her company, which spends around $400,000 annually on shipping for products like pendant lighting, saw FedEx offer her a significant $7 discount on each $29 shipment of large packages. “We were excited that they were willing to court our business,” Machiorlette said, explaining that the savings helped her subsidize return-shipping fees and improve customer service.
The changes go beyond base rates and discounts, extending even to fuel surcharges. In the past, only high-volume shippers with over $500,000 in annual shipping expenses could benefit from fuel surcharge discounts. Now, smaller shippers are also seeing relief in these charges, making shipping costs more manageable for a broader range of businesses.
The Impact on Shippers and the Shift in Power
This new era of discounts represents a stark change from 2021 and early 2022, when UPS and FedEx had the upper hand. Back then, they could afford to dismiss discount requests and focus on their most profitable customers. The rapid shift in power dynamics is striking; Moyer’s firm recently won a UPS customer $6.8 million in savings. Just earlier this year, the same customer’s request for a $500,000 discount was rejected—a sharp reminder of how quickly the market has evolved.
Mark Taylor, senior director of transportation consulting at Körber Supply Chain, highlights that most shippers are now reaping savings of 8%-12% compared to previous agreements, marking a win-win situation for businesses looking to stay competitive.
The ultimate beneficiaries of these discounts may be the consumers themselves. With companies able to reduce shipping expenses, there is potential for lower product prices, free or cheaper shipping options, and faster, more accessible return services.
This downward trend in shipping costs, fueled by intense competition, has effectively shifted the market in favor of shippers and consumers alike—a stark reversal from the pre-pandemic environment.
Note: While UPS and FedEx are extending discounts to smaller customers, both carriers have already implemented a general peak season surcharge for all shippers, starting at the end of September. For large-scale shippers experiencing volume spikes, both FedEx and UPS are charging an additional fee ranging from $1.45 to $8.25 per package. The surcharge amount depends on the service used and how much a shipper’s volume exceeds their typical shipping activity.
FedEx vs. UPS: Competing Pricing Strategies
FedEx and UPS are adopting distinct yet competitive pricing strategies to appeal to smaller customers and improve profitability. Both carriers are making targeted adjustments to their approaches to attract business while protecting their profit margins.
FedEx: Strategic Customer Acquisitions
FedEx looks for customers that align with specific transportation profiles that fit well into their network. As Mark Colombo, FedEx’s Senior Vice President of Strategy, Sales, and Solutions, states, "We’ve been very selective at going after smaller and mid-sized accounts." The company incentivizes its sales teams to acquire customers that meet these criteria, ensuring both operational efficiency and expansion of its client base.
UPS: Boosting Productivity
UPS has adjusted its discount strategy to offer better pricing for parcels that travel longer distances, particularly from areas where the company aims to boost productivity. This targeted approach allows UPS to streamline its operations while passing savings onto customers in the right regions.
Competition for Market Share
Both companies have seen results from their strategic efforts. UPS has managed to increase parcel volume by 6.5%, thanks to the influx of new customers. However, the revenue per package has decreased by 2.2%. This shift is indicative of their focus on boosting parcel volume, even if it means accepting lower margins.
Meanwhile, FedEx has maintained flat revenue per package and domestic parcel volume, signaling a more cautious approach in managing their pricing structure.
In response to declining parcel volumes, both companies have implemented cost-cutting measures, including laying off tens of thousands of workers and closing numerous facilities. The competitive landscape is also changing, with the U.S. Postal Service gaining market share in ground parcels, and Amazon now delivering more than two-thirds of its own packages. With inflation continuing to impact consumers, many companies, including Amazon and Walmart, are opting for longer, cheaper ground services, further intensifying competition.
Both FedEx and UPS are adjusting their pricing strategies to attract smaller businesses and protect their profit margins. With the holiday season approaching, these carriers are fiercely competing for parcel volume by extending discounts that were once reserved for larger shippers. This shift has created new opportunities for smaller businesses, allowing them to benefit from more competitive rates. As the market evolves, these pricing strategies will continue to shape the carriers’ success in a rapidly changing logistics environment.
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