New Competitors Arise, Ending the De Facto Duopoly of FedEx and UPS?

For decades, FedEx and UPS have held a de facto duopoly in the U.S. parcel delivery market, facing little to no competition and reaping significant profits. Now, with the rise of new competitors and the dominance of B2C, the de facto duopoly has come to an end, forcing FedEx and UPS to adapt to the rapidly changing parcel landscape.

1、FedEx and UPS See Decline in Daily Shipment Volumes

On July 23, UPS released its second-quarter earnings report. The quarter's operating revenue was $21.8 billion, $440 million below expectations and down 1% year-over-year. Adjusted operating income was $2 billion, down 29.3% year-over-year and 11% below consensus estimates. This data shocked many investors, causing the stock to plummet 12% within minutes of the earnings call.

Additionally, UPS customers are downgrading from air to ground transport and from ground transport to the lower-priced SurePost service. SurePost is an economical service that injects parcels into the U.S. Postal System for last-mile delivery. This shift resulted in a 7.8% decline in UPS's daily air shipment volume, while daily ground shipment volume grew by 2.3%.

In recent years, both FedEx and UPS have been touting their improved ground transport services, which offer faster delivery times compared to their competitors. In doing so, they've also created competitors for their own Express and Deferred services.

Since 2019, UPS has improved ground transport efficiency, reducing delivery times on 12% of routes from three days to two days, and on another 22% of routes from three days to two days, allowing more Express and Deferred packages to be converted to ground transport. Even SurePost, which typically delivers one to two days later than ground transport, has seen a 7% reduction in delivery times, prompting customers to downgrade their service options.

In fact, the decline in Express and Deferred volumes began over 20 years ago. It started with FedEx's acquisition of RPS (rebranded as FedEx Ground) and the industry's shift to guaranteed date ground transport services. In 2000, FedEx Express handled 2.92 million packages daily. As of May 31, 2024, this figure had decreased to 2.58 million packages. Over the same period, FedEx Ground's daily volume grew from 1.52 million packages to 10.7 million packages.

2、E-commerce Drives the Rise of New Competitors

The changing volume of FedEx and UPS is largely due to a significant turning point: the explosive growth of e-commerce over the past decade, which has led to 65% of domestic parcels in the U.S. being delivered directly to consumers. In 2010, online retail sales accounted for less than 5% of total sales. Over the past ten years of rapid e-commerce growth, this figure has more than doubled to 18%, with much of the increase occurring in 2020 during the pandemic, when U.S. e-commerce sales grew fivefold.

Globally, the growth of e-commerce has been even more astonishing. Since 2010, global e-commerce sales have increased by nearly 800%. This explosive growth has not only driven an increase in e-commerce parcel volume but has also led to a transformation in global logistics models.

In the context of global e-commerce growth, on the one hand, an increasing number of online orders are being fulfilled by local stores; on the other hand, Chinese e-commerce platforms like TEMU and SHEIN are bringing orders into the U.S. through gateway airports such as Miami, Los Angeles, Dallas, and Chicago. These major airports enable quick customs clearance and distribution, with the final mile delivery being completed by smaller companies like Better Trucks, Jitsu, Veho, Uni-Uni, and SpeedX.

While these regional carriers may eventually lose business to FedEx and UPS, intensified regional competition has forced these giants to operate in lower-margin, shorter shipping zones, resulting in reduced revenue per parcel.

In addition to these regional carriers, e-commerce retail giants like Amazon and Walmart are also emerging as formidable forces in the parcel delivery sector. For example, Amazon delivers over 22 million parcels daily through its Delivery Service Partner network of drivers.

Walmart CEO Doug McMillon stated during a May earnings call, "In the past 12 months, Walmart has delivered 4.4 billion items in the U.S. with same-day or next-day delivery, about 20% of which were delivered within three hours." This means Walmart is delivering more than 4 million parcels daily from its 4,600 local stores, using gig workers employed by companies like Uber Eats and DoorDash, which are traditionally known for food delivery.

Over the past decade, as companies have increasingly fulfilled online orders closer to consumers, the proportion of parcels traveling shorter distances (less than 300 miles) has increased from 45% to 68%, while the proportion of parcels traveling 1,400 miles or more has decreased from 17% to 10%.

However, now that major e-commerce retailers are shifting from ground transport to SurePost and UPS is introducing cheaper ground services (Ground Saver) with a delivery time of ground + 3 days, these changes indicate that consumers are willing to accept slower delivery services at lower prices. Even Amazon, which has consistently pushed the limits of fast delivery, is responding to low-cost competition from Chinese e-commerce platforms TEMU and SHEIN. Amazon recently announced a discounted marketplace for low-priced items, which are shipped directly to consumers from China within 10 days of ordering, bypassing the need for stocking in more expensive U.S. distribution centers.

Given these changes, by the peak season of 2026, some major retail giants’ delivery teams, along with regional carriers, may be able to deliver more parcels daily than the combined total of FedEx and UPS. The monopoly is being broken, and the landscape of global parcel delivery may be redefined. Traditional logistics giants like FedEx and UPS will need to prepare for this future. How they find their place in this transformation could determine their future market position and competitiveness.