29 Nov How To Save Money On Your Parcel & Freight Expenses
Are you wondering how to save money on your parcel and freight expenses in 2024? If so, you’re in luck. Right now, shippers are experiencing a Goldilocks moment, as parcel, trucking, ocean, and air cargo carriers are all navigating through a capacity surplus. So, this is an ideal time for supply chain, operations, and transportation managers to negotiate wisely and lock in carrier savings.
This post will explain what key factors are impacting the parcel, freight, shipping, and air cargo markets in a way which benefits your negotiating power with carriers right now.
FREIGHT RECESSION RUMBLINGS MAY HELP YOU REDUCE PARCEL & FRIEGHT EXPENSES
Per the recent CNBC Supply Chain Survey, a global freight recession will continue in 2024 and may remain into 2025.
51% of the logistics executives who participated in the survey expect full freight rates to drop anywhere from 5% to 15% next year. Only one-third expect rates to be up by 5%.1
So, if you have global supply chains, many of your carriers around the world are experiencing this freight recession. They are hungry for business and if you negotiate hard, they will provide discounted rates to secure your business.
In the US, parcel and freight volumes have also been declining. So, in the midst of this freight recession, we encourage you to take action now to secure low contract rates for the year ahead.
WILL GLOBAL FREIGHT VOLUMES INCREASE IN 2024?
Referring back to the supply chain survey, it is fair to say uncertainty looms large regarding global volumes. In the first half of the 2024, the opinions of the supply chain survey respondents are evenly split into thirds. 33% believe volumes will be up 5%, another third believes volumes will be unchanged. The rest believe volumes will be down anywhere from 5% to 10%.
Yet, the same respondents are much more optimistic regarding the second-half of 2024. 50% believe volumes will be up 5%. One-third believe volumes will be up 10%. A small contingent of more bullish respondents (17% of those surveyed) forecast volumes to be up by 15%.2
In the US trucking market, several carrier executives recently expressed optimism that the freight cycle may soon take a turn for the better. One leader mentions seeing smaller, less financially stable carriers exiting the market every week. A different company’s CEO points to strong automotive and industrial demand that is picking up the slack from the softer consumer retail segment. Learn more here.3
WHY ARE YOUR CARRIERS INCREASING RATES DURING A FREIGHT RECESSION?
Most every carrier is announcing 2024 General Rate Increases (GRIs) and surcharge hikes. Of course, after enduring a year of high operating costs, eroding margins, and ongoing economic uncertainty, the transport companies are hopeful to make these higher prices stick.
We will provide a synopsis of relevant facts by carrier type below. Also, you can learn important details about GRIs and surcharges, how they might affect your business, and the money-saving benefits of GRI Analysis Services in our recent blog post entitled, What is a general rate increase (GRI) in parcel & freight shipping?.
NOW IS THE TIME TO TAKE ACTION & SAVE MONEY ON PARCEL & FREIGHT EXPENSES
We’re at a moment in time where most carriers are feeling the full weight of the freight recession described above.
With that said, there are a number of factors in play that may soon lighten their gloomy outlook.
- For 8 straight months, US imports have risen – up by 33% from their recent low in February.
- The US imported 2.31 million twenty-foot equivalent units (TEUs) of containerized goods in October.
- By volume, this was the third best October for imports in US history.4
The steady rise in import figures may be a signal that the US freight market will rebound sooner than many realize.
Further, economists are becoming more optimistic about the US economy, per The Wall Street Journal’s Economic Forecasting Survey.5 The optimism springs from three factors.
- Inflation is declining.
- The Federal Reserve may be done raising interest rates.
- A strong labor market coupled with economic growth have outperformed expectations.
Taken together, the good news regarding imports and the US economy means parcel and freight companies may be emboldened in the future to toe the line on rate increases.
That’s why now is the time to negotiate and lock in competitive contract rates!
See the SSI carrier contract negotiations page to learn how we can help you lower your shipping spend, increase your profits and remove the hassle from contract negotiations.
A RARE OPPORTUNITY TO SAVE MONEY ON PARCEL SHIPPING
Regarding parcel, UPS and FedEx have a virtual duopoly in the US. Because of their market dominance, these carriers have been consistently successful in raising their rates and surcharges year after year.
Yet, a rare, surprising price war is brewing between the two parcel-shipping titans!
Per this article published by FreightWaves, FedEx and UPS “are pushing discounts that are extraordinary in their depth and breadth, according to parcel consultants who have reviewed contract proposals presented to their shipper clients.”
Shippers of all sizes may benefit from the parcel-company price breaks being offered to win new business and retain existing accounts.
The discounts are especially surprising because they extend beyond base rates. Shippers have a rare opportunity to possibly receive discounts for surcharges on fuel, oversized packages, demand/peak, additional handling, and more.6
FREIGHT/TRUCKING GENERAL RATE INCREASES
Of course, compared to parcel, the less-than-truckload and truckload carriers have a great deal more competition, which may limit their ability to make higher rates stick.
Currently, overcapacity is a big problem for the carriers. For the freight volume being moved today, there are simply too many trucks available, as reported here.7
However, with operating costs rising, the carriers cannot let their rates drop much further than they already have in 2023. Why? In a recent article, FreightWaves CEO Craig Fuller, shared how some carriers need to be mindful of their margins, because they are struggling financially.
Fuller said, “when they’re underwater they have a choice. They can either leave the industry entirely or they can continue to run just for enough cash flow”. At this time, Fuller believes, “a lot of carriers can operate at a loss for a while and hope the market will return.” 8
Seemingly, in the aftermath of Yellow’s bankruptcy, the LTL carrier market had little difficulty absorbing Yellow’s market tonnage. In general, Yellow’s rates were below market norms, so shippers may already be paying more as they migrate to other carriers.
Saia, America’s ninth-largest LTL carrier announced a 7.5% GRI, effective December 4, 2023.9 Old Dominion was also an early mover, announcing a 4.9% GRI starting December 4th.10
It will soon be clear if other freight carriers will be as bold in raising rates. It’s likely they will do so, if for no other reason than to offer subsequent discounts that will still allow for revenue growth.
After raking in all-time record profits during the peak-Covid shipping era, some ocean carriers are now in a tough spot, according to this article11 published by The Loadstar, an international news source for shippers and their logistics partners.
Spot rates continue to fall and essentially, on many trade lanes, ocean carriers are fighting to fill their ships. As such, they are either undercutting competitor’s rates or accepting lower rates offered by freight forwarders.12
Seemingly, shippers and freight forwarders negotiating contracts may be able to extract lower rates than last year. However, an important caveat exists regarding on-time deliveries. Increasingly, carriers are blanking sailings.
The cancellations reduce capacity which helps carriers prop up spot rates and reduce their carbon footprint. But the canceled sailings create shipping and supply chain disruptions as thousands of containers that were scheduled to be sailing towards their destination are instead sitting at a terminal waiting for, well honestly, who knows how long.
AIR CARGO / AIR FREIGHT
If maritime shipping delays proliferate due to blank sailings, significant supply chain disruptions may result. That will motivate more shippers to migrate cargo to air freighters.
Air freight rates reached a peak during the pandemic when ocean reliability was at its lowest, according to a recent article in Air Cargo News.13
Of course, it is much more expensive to ship by air than by sea. However, when time is of the essence, many shippers will foot the bill to keep supply chains humming and to ensure products are in stock for their customers.
Lately, ecommerce businesses have been driving up demand for air cargo from China to the US and China to Europe. Rates jumped as high as 14% in one week recently.14
This increase may be a peak season boost, or a sign that air freight rates have bottomed out. While it is too soon to tell, there is no doubt air freight providers are hungry to fill the extra capacity they created in the aftermath of the Covid peak. This may be an ideal time to negotiate your air cargo carrier contracts.
SAVE MONEY ON PARCEL & FREIGHT EXPENSES BY NEGOTIATING WITH MULTIPLE CARRIERS
If you need expert advice to navigate this unique opportunity for savings, SSI offers carrier contract optimization services.
As part of a comprehensive review of your shipping requirements, our skilled team will identify areas that represent opportunities for big savings, offer authoritative advice on contract negotiations, and mitigate year-over-year rate increases.
SSI will empower you to fully optimize your carrier contracts. Our team is eager to help you out. Let’s talk.
1, 2. Lori Ann LaRocco, “The global freight recession will continue in 2024: CNBC Supply Chain Survey”, November 7, 2023, as published by CNBC.
3. David Taube, “What trucking execs have to say about the freight cycle”, November 14, 2023, as published by Trucking Dive.
4. Greg Miller, “What downturn? US imports still rising, highest since boom”, November 7, 2023, as published by FreightWaves.
5. Harriet Torry and Anthony DeBarros, “A Recession Is No Longer the Consensus”, October 15, 2023, as published by The Wall Street Journal.
6. Mark Soloman, “Are we in an unprecedented parcel rate war?”, November 20, 2023, as published by FreightWaves.
7. Craig Fuller, “Two charts explain why we’re in a freight recession”, November 13, 2023, as published by FreightWaves.
8. John Gallagher, “As economy motors along, trucking prepares to downshift”, November 7, 2023, as published by FreightWaves.
9. John Schulz, “LTL Saia Boosts General Freight Rate 7.5%”, October 30, 2023, as published by Supply Chain 24/7.
10. Todd Maiden, “Annual LTL GRIs slightly ahead of schedule”, November 13, 2023, as published by FreightWaves.
11, 12. Alexander Whiteman, “Ocean carriers are driving the rates race to the bottom – ‘they’re all at it’”, November 10, 2023, as published by The Loadstar.
13. Damian Brett, “Air cargo poised to benefit from ocean shipping issues in 2024”, November 10, 2024, as published by Air Cargo News.
14. Alex Lennane, “Forwarders losing out on the ecommerce business driving airfreight demand”, November 20, 2023, as published by The Loadstar.
SSI blog post entitled: How to save money on your parcel & freight expenses.