Parcel Carriers Adapt to Shifting E-commerce Landscape, Prioritize Cost Savings

In a surprising move, the US Postal Service recently announced plans to lower rates on certain packages, marking a departure from the usual upward trajectory of parcel rates. With e-commerce shippers grappling with steep rate hikes year after year, cost savings have become a top priority. The escalating costs have been deemed unsustainable, prompting parcel carriers to adopt more competitive pricing strategies and cut their own expenses.

As consumer purchasing power is affected by a soft market and inflation, parcel carriers are shifting their focus to reduce costs, particularly in the realm of air transport. With surface networks regaining efficiency, there is less reliance on air transport to meet delivery deadlines.

FedEx serves as a prime example of how the e-commerce slowdown has prompted changes in operations. The company aims to divert deferred air shipments to ground networks while reducing flying hours. Through restructuring its air network, FedEx anticipates saving $700 million annually. This includes retiring or parking aircraft, increasing point-to-point flying, and leveraging partnerships with commercial airlines to handle a larger portion of its traffic. The company has already reduced aircraft utilization by 8% in the most recent quarter, grounding nine freighters and downsizing equipment on select routes. Furthermore, FedEx plans to retire its MD-11F fleet by the end of the year.

The US Postal Service also reduced its spending on FedEx by 11% in the previous year, while UPS has eliminated its MD-10-30Fs and indicated a phased retirement of its MD-11s. Cargojet, a prominent player in parcel transportation, is currently negotiating the sale of a third Boeing 777-300, initially intended for conversion into a freighter. Earlier plans for eight freighter conversions have been scaled back to four due to the softening market.

Cargo carriers remain optimistic about the long-term prospects of e-commerce. However, it remains to be seen how heavily the sector will rely on air transport. The increasing shift toward deferred services suggests a changing balance between speed and cost. Meanwhile, operators are striving for shorter delivery windows by strategically placing goods closer to their target markets. As the e-commerce landscape continues to evolve, parcel carriers are adapting their strategies to optimize cost-efficiency and meet the evolving demands of the industry.