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Two years ago, the parcel delivery industry was booming. Some experts predicted an annual growth rate of over 20% for the industry, with e-commerce flourishing and transportation capacity exceptionally tight.

Fast forward to today, and although growth is slow, the economy continues to grow steadily. Inflation, though still high, has eased compared to last year's peak levels. Employment is at record highs, the unemployment rate is at a 20-year low, wages are rising, and consumers continue to spend, focusing more on value for money. However, these trends do not seem to translate into a rise for parcel carriers.

Currently, UPS is scaling down, closing facilities, and laying off employees; FedEx is undergoing what may be the largest restructuring in its history, including the Drive program; regional parcel carriers are expanding; new entrants are entering the market, creating profitable niche markets with lower costs, high-quality service, and flexible business models based on cutting-edge technology platforms. Additionally, Amazon, with a record number of parcels, has surpassed UPS and FedEx to become the largest non-governmental express delivery service company in the United States.

What does the future hold for parcel delivery companies? How should parcel shippers improve their strategies? If the first quarter earnings reports are any indication, challenges like weak demand, overcapacity, rate pressure, layoffs, and cost-cutting will continue to plague the parcel delivery market in 2024.

1. Return business becomes a new focal point

Due to changes in consumer spending habits, high attention to price and shipping costs, and the evolving market impact of operators, product and service portfolios, technologies, and revenue strategies, shippers and carriers are both grappling with declining parcel demand. In the first quarter of 2024, UPS's average daily volume fell 3.2% year-over-year, with U.S. domestic revenue at $14.2 billion, down 5% year-over-year, and revenue per piece remaining relatively stable.

UPS CFO Brian Newman stated during the company's first-quarter earnings call, "We continue to see a shift from air to ground as customers prioritize cost savings over transit time by leveraging our ground services." On the cost side, UPS closed 18 sorting centers, reduced downtime (aircraft operating hours) by 15.2%, cut 5,400 management and support positions, and reduced purchased transportation by 17%.

However, one bright spot for UPS is the return business. UPS CEO Carol Tomé noted, "We love the return business very much. These returns are often B2B (business-to-business) shipments. Customers bring packages to UPS stores and then send them back to the original shipper. For our largest customer, we accept thousands of returns and consolidate them into a single return shipment. This is a good business for us with very attractive margins."

FedEx Vice President of Marketing Ryan Kelly also agrees with UPS on one point: providing shippers with a simple, painless return experience is both a challenge and an opportunity. "We are seeing some interesting changes, especially regarding returns. Consumers are redefining what convenience and quality mean to them, and it's no longer just about speed. People need flexibility. Many are willing to engage more deeply with brands in exchange for additional benefits such as free shipping, which brings extra rewards for carriers providing cost-effective, consistent, high-quality service."

In the pre-e-commerce days, handling returns was a headache for retailers, but now, the return experience can mean the difference between retaining and growing customers or losing them altogether.

Unsatisfactory return policies, high fees, and strict return windows no longer meet consumer needs and are significant deterrents to doing business with a brand. Retailers now need to rethink their strategies to better meet customer expectations.

Even in the short term, while growth rates may slow, there is no doubt that e-commerce will continue to grow. For courier carriers to remain competitive and relevant, they must not only have impeccable operational fundamentals but also continuously improve and develop technologies that support their business, creating simple, easy-to-use, and lower-cost services for shippers.

2. Quality always comes first

Greg Hewitt, CEO of DHL Express U.S., noted that regardless of market conditions, the core fundamentals of operating parcel carriers and providing services will always exist and be the primary considerations for shippers.

What is the biggest "demand" from shippers today? While price is always part of the discussion, especially during periods of weak demand and low volumes, quality always comes first. This includes: efficient and reliable delivery services, ensuring customers' goods arrive on time and in good condition, reliable transit times and tracking, regular progress updates, knowing the last-mile status of shipments and confirming delivery, and being cost-effective, with transportation costs not exceeding the value of the goods.

Parcel carriers must also recognize that they may be a key factor in an e-commerce company's growth plan, especially in the fast-paced, ever-changing world of e-commerce. As new e-commerce companies seek growth paths, they need the flexibility and scalability of parcel carriers.

Today's small e-commerce players could very well be tomorrow's giants. New businesses just starting in e-commerce are often focused on product development and market expansion. While transportation and logistics are critical to success, they are not necessarily the core focus, nor where they want to spend valuable development funds.

Therefore, as a parcel carrier, you must grow with them, demonstrating flexibility and agility to effectively plan and adapt to surges in delivery volumes during peak seasons, major sales events, or new product launches. Additionally, as businesses grow and demands change, these companies may even need other services such as warehousing, product handling, fulfillment, or customized solutions, for which parcel carriers must be prepared.

DHL Express's U.S. network includes 120 facilities, operating approximately 3,500 routes daily, with 8,000 pickup and delivery drivers, and another 4,000 employees working at the Cincinnati hub. It operates 300 flights daily, connecting its distribution centers and collaborating with the U.S. Postal Service through its DHL eCommerce division for last-mile parcel delivery.

3. Surcharges Cause Discontent

In a market trending toward stability, parcel delivery companies are seeking every opportunity to generate revenue. One area that continues to irk shippers is surcharges. Satish Jindel, head of freight data analytics company ShipMatrix, noted, "When the market is out of balance, with demand exceeding capacity, I can understand peak surcharges. But today, the industry capacity is 120 million, with only 80 million in volume. Why charge peak surcharges?"

The surge of new and revised surcharges has made shippers' expenses more painful. For example, reclassifying certain postal codes, previously without extra fees, to apply "remote area" or other types of additional delivery charges. Shippers, tired of these new and extra fees, are actively leveraging the advantage of more available capacity, turning to carriers other than UPS and FedEx.

Looking ahead to the remainder of the year, Satish Jindel expects that the parcel market volume in the second, third, and even fourth quarters will not see significant changes compared to previous years. Due to continued inflationary pressures and increased consumer spending on services and entertainment rather than goods and physical products, the growth might be around 3%.

Michael McDonagh, President of Parcel at brokerage AFS Logistics, holds a similar view: "With weak demand, FedEx and UPS will continue to look for ways to increase revenue. Adding fuel, special services, or other surcharges does not incur additional costs for them, and I think this situation will persist."

As general rates and surcharges continue to rise, many customers are reassessing their shipping strategies to see how much they can shift to lower rates and service levels. It's all about delivery flexibility, with shippers scrutinizing costs more strictly but still requiring acceptable delivery times. Consequently, many companies are changing their shipping methods by planning and shipping orders earlier. For example, shipping on Tuesday with a two-day service instead of shipping on Thursday for next-day delivery.

Additionally, influenced by Amazon, consumers' demand for next-day or even same-day delivery seems insatiable. This reflects a shift in the supply chain regarding procurement locations, warehouse siting, and inventory staging. Over the past decade, inventory has moved closer to end users, accelerating the need for more, smaller warehouses in more communities; expanding opportunities for more localized, higher last-mile next-day deliveries; and fostering a host of new entrants carving out specific niches in the parcel busines.

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Public Account: Cross-Border E-commerce Logistics Baixiaosheng