Dynamic pricing is gradually being introduced into parcel delivery
FedEx and UPS have started making strides toward dynamic pricing over the past year, and they plan to further implement it in their operations going forward.
Dynamic pricing would benefit both carriers and their customers. If a carrier is under capacity and has extra space in its network, it could lower prices to attract more volume. If capacity is tight, it could increase prices to dampen demand.
The industry is a long way off from that prospect as these days base shipping rates are a static affair until carriers roll out their annual price hikes.
Experts say, FedEx and UPS do already leverage surcharges to hike prices in a dynamic fashion. The two delivery giants are now advancing their capabilities beyond tacking on surcharges during high-demand periods though. FedEx used a dynamic pricing program to help bring in $150 million in profit from home delivery fees during peak season.
“You can imagine some of the obvious ones would be more day-of-week pricing, more customized in certain hotspots or constraints to work around them from a pricing perspective,” - Brie Carere (FedEx Chief Customer Officer)
UPS, meanwhile, is progressing toward dynamic pricing after the launch of Deal Manager last year.
The next step in carriers’ dynamic pricing journey could have a variable charge based on the street or ZIP code the carrier is delivering in, said Dean Maciuba, managing partner USA at Crossroads Parcel Consulting.
“I don’t think you’re talking 5% or 10% [price increases], I think you’re talking 1% to 3% swings. But the key is, if you look at that cost across the U.S., it’s significant in terms of the bottom line.” - Dean Maciuba (managing partner USA at Crossroads Parcel Consulting)
To Nucleus, as a 4PL Supply Chain as a Service provider this sounds like a real opportunity for optimization.