Parcel delivery carriers will be confronting massive excess capacity during the peak shipping season and will face severe financial repercussions if they don’t align their resources with what are expected to be flat year-over-year volumes, transportation consultancy ShipMatrix said Monday.
In its annual forecast for peak season activity, ShipMatrix said the market will be saturated with 110 millions of parcel capacity per day. However, daily demand is likely to average 92 million parcels per day. This will create an 18 million daily capacity surplus that will be difficult for carriers to offset without cost reductions.
The 2022 forecasts are in sharp contrast to the 2020 and 2021 peak seasons, when daily demand exceeded capacity by 7.2 million and 1.3 million parcels, respectively, ShipMatrix said.
The flat year-over-year demand is due to more consumers returning to in-store shopping and changes in delivery patterns to reflect more shipments going to stores instead of residences, ShipMatrix said.
Delivery demand will be hit by rising inflation, which will curb consumers’ discretionary buying power, ShipMatrix said. In addition, more consumer spending is being directed to services such as travel and entertainment and away from goods purchases, ShipMatrix said.
The potential of slowing holiday demand has yet to be reflected in the carriers’ network utilization plans, however. The U.S. Postal Service, for example, said last week it plans to expand its delivery network to handle 60 million daily parcel deliveries. That is up from 53 million last year and will account for 54% of capacity despite the Postal Service controlling 38% of market share by volume, according to ShipMatrix data.
FedEx Corp. (NYSE: FDX) and UPS Inc. (NYSE: UPS) have said they plan to emphasize utilization of their existing assets rather than focus on peak season expansion. However, both will still bring abundant resources to the table this holiday, ShipMatrix said.
The good news for parcel shippers is that they should have more leverage in beating back the plethora of escalating delivery surcharges, according to Satish Jindel, ShipMatrix’s founder and CEO.
In addition, shippers and consumers should experience a higher level of on-time delivery performance because carrier networks will not be as stressed as they have for the past two years, Jindel said.