Small Parcel Costs to Increase Despite Softening Freight Market

While other freight costs are coming down, expect small package freight to increase in 2023. Much of the freight market is driven by competitive pressures and is experiencing decreasing demand YoY. Small Parcel, however, is dominated by the UPS and FedEx duopoly, and these carriers have implemented their largest price increases in memory for 2023.

FedEx and UPS Show Double-Digit Small Parcel Increase for 2023

UPS and FedEx are increasing prices to compensate for a decline in volume. They have implemented the largest general transportation increase we have seen in decades: up 6.9% for 2023.

Express services (overnight, 2-day, and 3-day) and longer distances/zones are experiencing higher increases. On top of that, the carriers are raising numerous fees that will lead to double-digit increases in Small Parcel freight costs:

  • Additional handling charges ↑ 14.5%–18%
  • Weekly pickup rates ↑ 35%
  • Residential/DAS ↑ 8-10%
  • Ground minimums ↑ 8%

USPS is Competitive Small Parcel Option

While FedEx and UPS costs have increased by double digits, the US Postal Service (USPS) has reduced rates for small parcels. Both Priority Mail and Parcel Select Ground have seen reductions, on average. USPS will be a competitive solution this year, especially for direct-to-consumer shipments of small packages.

On-Time Delivery Improves For UPS, FedEx, and USPS

All three carriers achieved greater than 94% on-time delivery performance during the 2022 peak holiday season, due largely to lower shipping volume and abating COVID-related challenges, according to ShipMatrix. This is a particularly welcome improvement for FedEx, which struggled with on-time performance during the 2021 holiday season.

ERA Helps Decrease Small-Package Spending, Despite Rising Costs

Even in this rising-price environment, there are still ways to reduce costs. While most companies focus solely on negotiating better discounts, ERA has found that adding operational enhancement to negotiations yields even bigger savings.

Our approach of assessing clients’ operational needs and analyzing pricing options that meet those specific needs has generated substantial savings. Additionally, making informed operational adjustments further reduces accessorial and transportation charges. By combining these changes with expert rate renegotiations, ERA has helped clients achieve more than an 18% reduction in express and parcel costs.

About the Author

Dileep Kulkarni is a Senior Principal Consultant with Expense Reduction Analysts (ERA). Based in Portland, Dileep focuses on unique customer needs to craft small package freight solutions that deliver saving while improving quality and service.