Ben Emmrich, co-founder and CEO of Tusk Logistics, wants package transportation costs to fluctuate with supply and demand.
“It’s absurd that our industry hasn’t been able to get there yet in a meaningful way,” he remarked.
Dynamic pricing would help carriers and customers, Emmrich believes. A carrier with excess network capacity may decrease pricing to increase traffic. Tight capacity may raise prices to reduce demand.
Achieving those capacities is difficult for the sector. Base shipping prices are unchanged unless carriers raise them annually.
FedEx and UPS have been implementing dynamic pricing for a year and expect to continue.
Delivery giants pre-price
Researchers argue FedEx and UPS use fees to dynamically raise pricing.
Because the pandemic-fueled home delivery surge taxed carriers’ networks, demand surcharges like UPS’ have increased. According to Transportation Insight Chief Strategy Officer John Haber, most shipper contracts limit rate increases but not surcharges.
Haber stated COVID-19 caused a surge in new charges. “You have that annual rate increase, everybody’s still doing that, but then there are changes to pricing that are made way more often.”
The two delivery titans are moving beyond fees at peak times.
FedEx employed dynamic pricing to make $150 million in peak season home delivery fees. Its fees changed weekly based on consumer volume.
Chief Customer Officer Brie Carere told investors in June that the business will deploy new dynamic pricing capabilities every ten weeks.
Deal Manager last year helped UPS go toward dynamic pricing. In an April 2022 earnings conference, CEO Carol Tomé claimed the digital platform will let small and medium-sized businesses negotiate shipping arrangements with UPS without human pricing.
Deal Manager uses price science to bypass sample data in the quote process and conclude transactions rapidly.
On a January earnings call, the CEO reported that Deal Manager had a 22 percent greater “win rate” in the U.S. UPS wants Deal Manager in more than 40 countries this year.
Tomé also cited UPS’s recent “systematic day-of-week pricing” test.
Dynamic pricing is unlikely to raise transportation costs, but Maciuba believes it will help carriers in the long term.
Dynamic pricing’s future—and limits
Dean Maciuba, managing partner USA at Crossroads Parcel Consulting, said carriers’ next step in dynamic pricing might be a variable rate based on the street or ZIP code they deliver in. He offered New York City as an example of a metro region that’s hard to deliver in—FedEx and UPS have paid huge parking charges there—and should charge more.
Thomas Andersen, partner and senior vice president of supply chain services at LJM Group, said major carriers will limit dynamic pricing despite its promise.
Due to contractual obligations, he does not expect shippers to pay various prices for the same service each day. A shipper may wait onto packages until prices drop.
Andersen said pricing increases would be easier to implement across the board than market-by-market modifications to accommodate for, say, distribution center staffing difficulties limiting throughput.
Andersen thought it would be too narrow, difficult, and controversial for the payoff.
