Tactics to Navigate Parcel Carrier Rate Hikes

Parcel carriers are making big changes.

USPS, UPS, and FedEx are raising prices and reworking their networks to keep up with the growing demands of e-commerce. 

For instance:

• USPS raised rates for Ground Advantage by 3.9% and Parcel Select by 9.2%, making smaller shipments more expensive.

• UPS ended its SurePost partnership with USPS, taking full control of last-mile deliveries. This shift comes with rate increases of up to 9.9% for lighter packages.

• FedEx increased prices by an average of 5.9% and introduced new fees, such as a charge for processing U.S. imports.

For shippers, these changes mean higher costs, tighter capacity, and potential disruptions to operations. The impact on your bottom line could be significant.

So, what can you do to adjust to this new reality?

I turned to industry expert John McClymont for his thoughts. With over 20 years of experience in supply chain and operations, John has deep expertise crafting strategies to help companies cut costs and streamline operations.

In our conversation, John shared why carriers are making these changes, how to integrate regional carriers into your shipping strategy, actionable steps you can take to adapt, and more.

Let’s dive in 👇

Table of Contents

1. Implications of Carrier Changes

2. Choosing the Right Carrier Strategy

3. UPS’ SurePost changes

4. Tactical Advice to Optimize Shipping

Connect with John on LinkedIn or his website.

This conversation has been edited for length and clarity. If you're short on time, skip to the key takeaways & actionable steps section.

1. Implications of Carrier Changes

Let’s start with UPS. They’ve announced a lot of changes recently. Can you break down the biggest ones for e-commerce shippers focused on last-mile delivery

JM: UPS has been in the spotlight with a range of updates, from general rate increases to surcharges like delivery area fees and peak-season costs. While these announcements often make headlines, they’re not just about raising prices arbitrarily.

A big driver behind these changes is their effort to improve efficiency and expand infrastructure. For example, UPS is optimizing their network to handle higher volumes, particularly as the e-commerce landscape grows more demanding. They’re investing heavily in automation and rethinking their delivery zones to increase density and cut costs in the long run.

Ultimately, it’s about future-proofing their operations. As consumer behavior shifts towards smaller, low-cost items, UPS and other carriers are ensuring they have the capacity to meet demand efficiently without compromising on speed or reliability.

Shippers are often concerned about how these changes translate to costs and reliability. What trade-offs should they expect over the next six months?

JM: If you’re relying on a national carrier like USPS, UPS, or FedEx, you’re likely prioritizing convenience and reliability. These carriers excel at offering a streamlined experience: one invoice, one point of contact, and consistency across geographies.

However, that comes with higher costs. 

For example, if you’ve built your business around a one- to two-day delivery promise, you’ll need to decide whether to stick with a single national carrier or explore alternative models, such as regional carriers or zone-skipping strategies. The trade-off here is balancing cost with reliability, especially for businesses with tight budgets but high service expectations.

2. Choosing the Right Carrier Strategy

At what point should shippers consider diversifying their carrier relationships rather than sticking to a single carrier?

JM: There’s no one-size-fits-all answer. Smaller businesses often benefit from using rate-shopping platforms to consolidate volume and access better pricing. However, this approach can limit their control over contracts and service levels.

As businesses grow, they gain the leverage to negotiate directly with carriers based on their specific shipping profiles—package sizes, destinations, and volume. Diversifying makes sense when it aligns strategically with your business. For example, a company shipping 15,000 packages a month might benefit from peeling off a few thousand packages to regional carriers to save costs or improve delivery speeds in specific geographies.

The key is to evaluate how your shipping strategy supports your overall business goals. If diversification allows you to scale sustainably, it’s worth exploring.

Regional carriers are becoming more prominent. How do they fit into the e-commerce landscape, especially for under-two-pound shipments?

JM: The growing demand for small, lightweight shipments in e-commerce has exposed some challenges in how carriers manage costs and capacity.

National carriers like UPS and FedEx use dimensional (DIM) weight pricing to account for the space packages take up in their trucks. For example, a one-cubic-foot box weighing 100 pounds and a five-cubic-foot box weighing one pound both strain capacity differently but impact the truck’s space in similar ways.

The real constraint for carriers, however, is not space - it’s time. Trucks are rarely filled to their full cubic capacity. Instead, they reach their limit based on the time it takes for drivers to make stops. Whether the package weighs one or two pounds, the time investment is nearly identical, but lighter packages often generate less revenue.

This imbalance has driven disproportionate price increases for smaller shipments. While regional carriers may offer niche solutions in specific markets, the broader challenge remains for all carriers: balancing time, capacity, and delivery costs in a landscape increasingly dominated by small-package e-commerce.

3. UPS’s SurePost Changes

UPS has made significant changes to its SurePost program, taking back last-mile deliveries from USPS. What does this mean for shippers?

JM: UPS’s decision to end its reliance on USPS for SurePost deliveries stems from USPS’s push for higher fees. UPS decided to bring last-mile delivery back in-house to gain more control over volume, capacity, and customer experience.

While this shift has created short-term challenges for UPS, including increased workload for drivers, it’s a long-term win. Controlling more of the delivery process enables UPS to optimize density, innovate, and manage costs better.

For shippers, the impact depends on how they’ve built their pricing and delivery models around SurePost. Businesses that relied on lower costs for last-mile deliveries will likely face higher rates. However, the upside is potentially better performance and reliability as UPS integrates these deliveries into its network.

Given the union dynamics at UPS, are there risks shippers should be aware of?

JM: The relationship between UPS and the Teamsters union is critical. While the union supports higher volumes and job growth, any changes that push drivers beyond agreed-upon limits—like excessive overtime or longer routes—could create tension.

That said, shippers are unlikely to feel the effects of these negotiations in the near term. UPS has a vested interest in maintaining smooth operations to keep its competitive edge, so while internal challenges may arise, they shouldn’t significantly disrupt service.

4. Tactical Advice to Optimize Shipping

What strategies should shippers adopt to optimize costs and improve service for under-two-pound shipments?

JM: To begin with, get a clear picture of your current operations. Here are a few actionable strategies:

1. Audit Your Top Products: Go beyond revenue. Focus on activity levels—understanding which products drive the most shipments versus sales dollars. This helps ensure your shipping strategy is aligned with your actual volume.

2. Revisit Contracts: Shipping contracts often last years, but your business might have evolved. Review where you’re selling, your customer mix, and your order profiles. If things have changed, you may need to renegotiate to align contracts with your current needs.

3. Strategic Diversification: If your rebates depend on hitting a volume threshold, consider whether peeling off a portion of shipments to alternative carriers makes sense. For example, you could shift some volume to regional carriers in specific markets to grow capabilities while managing costs.

4. Leverage the Details: It’s easy to rate-shop or rely on platforms, but the true value comes from deeply understanding how your contracts, carriers, and delivery networks fit your goals. Aligning these details with your business strategy can help you extract maximum value.

Finally, how do Chinese e-commerce players like Shein and Temu affect the U.S. last-mile delivery market?

JM: Chinese e-commerce giants like Shein and Temu have fundamentally reshaped consumer expectations with low-cost, fast delivery. They rely heavily on subsidized rates and enormous volume to drive costs down.

While tariffs could shift some dynamics, these companies have already established themselves as dominant players. Their consolidation efforts could squeeze smaller carriers that depend on high-volume contracts. 

Domestically, this may lead to tighter capacity and higher prices for the U.S.-based shippers as carriers adjust to market demands.

Key Takeaways & Actionable Steps

1. Understanding Carrier Changes

Takeaway: UPS, USPS, and FedEx are raising rates and rethinking delivery strategies to handle growing e-commerce demands.

Action Steps:

• Review your reliance on national carriers and evaluate the trade-offs between cost and reliability.

• If you prioritize speed and consistency, consider sticking with national carriers. For cost savings, explore regional or hybrid carrier models.

2. Choosing the Right Carrier Strategy

Takeaway: Diversifying carrier relationships can help mitigate risks and optimize costs, but timing and volume thresholds matter.

Action Steps:

• Audit your shipping volumes to identify opportunities for diversification. For example, peel off a portion of shipments to regional carriers to improve flexibility.

• Use rate-shopping tools to compare options, but don’t sacrifice control over contracts or service levels.

• Align your shipping strategy with business goals, focusing on sustainable scaling.

3. Navigating UPS’s SurePost Changes

Takeaway: UPS has taken full control of last-mile deliveries by ending its SurePost partnership with USPS, which may lead to higher costs but better reliability long-term.

Action Steps:

• Review your shipping models if you relied on SurePost for lower-cost last-mile delivery or PO boxes that only USPS serves.

• Monitor union dynamics for any indirect effects on service reliability. But the risk of union action is pretty low.

4. Optimizing for Under-Two-Pound Shipments

Takeaway: Lightweight shipments pose unique challenges due to time-based delivery constraints, not weight.

Action Steps:

• Analyze which products drive the most shipment activity and adjust your shipping strategy accordingly.

• Regularly revisit and renegotiate contracts to ensure they reflect your current shipping profile.

• Explore alternative carriers or delivery models for specific geographies or weight categories.

5. Tactical Advice to Optimize Costs

Takeaway: Optimizing shipping costs requires a detailed understanding of your operations and a proactive approach to contracts and diversification.

Action Steps:

• Audit Your Products: Focus on activity levels, not just revenue, to identify which products drive the most shipments. This ensures your shipping strategy aligns with actual volume.

• Revisit Contracts: If your business has evolved, review and renegotiate contracts to reflect updated order profiles, geographies, or customer needs.

• Diversify Strategically: If your rebates depend on hitting certain volume thresholds, consider reallocating shipments to other carriers, like regional providers, in specific markets.

• Leverage the Details: Understand the nuances of your carrier agreements and ensure they align with your short- and long-term business goals.

6. Impact of Chinese E-Commerce Players

Takeaway: Companies like Shein and Temu dominate with low-cost, high-volume strategies that reshape capacity dynamics and costs for U.S. shippers.

Action Steps:

• Keep an eye on capacity shifts caused by these players’ consolidation efforts, which could lead to higher domestic shipping rates.

• Strategize around markets or products where competition with these players directly affects your shipping costs.