Two Low-Key Service Guarantee Announcements That Are Big News for Small Parcel Shippers
In long-awaited moves, UPS and FedEx have partially lifted suspensions on service performance guarantees. Here’s what that means — and signals — to the marketplace.
Since UPS and FedEx announced the suspension of their service performance guarantees in March of 2020 as a result of the pandemic, shippers have patiently waited for their return. That day has come (sort of), with both carriers reinstating parts of their service performance guarantees, effective this week.
Here is the announcement from the UPS website:
Effective April 5, 2021 the UPS Service Guarantee will be reinstated only for UPS Next Day Air services (UPS Next Day Air® Early, UPS Next Day Air® and UPS Next Day Air Saver®) and UPS Worldwide Express services (UPS Worldwide Express NA1®, UPS Worldwide Express Plus®, UPS Worldwide Express®, UPS Worldwide Express Saver®, UPS Worldwide Saver, UPS Worldwide Express Freight® Midday and UPS Worldwide Express Freight®). Note: Until further notice, the guaranteed delivery time for UPS Next Day Air Saver® deliveries has been extended to end-of-day (11:59 p.m. on the guaranteed day of delivery). The Service Guarantee remains suspended for all other UPS shipments from any origin to any destination.
To re-affirm our commitment to deliver the level of service you expect from FedEx, effective April 6, 2021, money-back guarantee will be reinstated for select FedEx Express services for US domestic and US import/export shipments (US payors only). Services include:
- FedEx First Overnight®
- FedEx Priority Overnight®
- FedEx Standard Overnight®
- FedEx International First®
- FedEx International Priority®
- FedEx International Priority® Freight
In order to balance our focus on service and safety, the FedEx money-back guarantee for all other FedEx Express®, FedEx Ground®, FedEx Freight® and FedEx Office® services will remain suspended until further notice.
While these announcements are good news for shippers, they fall far short of a complete return to the way things were. It’s hopefully a good first step, however. There are other details in the announcements that shippers should note — and what’s not included says a lot.
We held a Q&A with the Director of Operations at Transportation Impact, Branden Burt, to help explain.
Question: Now that both UPS and FedEx have announced a partial reinstatement of their service guarantees, what are the differences between the carriers’ current policies?
Burt: Other than the start date, the only difference is that the UPS Next Day Air Saver product has had its guaranteed delivery cut-off extended from 3:00 PM to 11:59 PM. This decision highlights one interesting long-term impact of the pandemic. It is that expectations in the marketplace have changed. Both B2B and B2C shippers appear to have recognized that the cost savings from deliveries made just four or five hours later are significant, and their customers seem to be okay with waiting a little extra time for their delivery.
FedEx has not announced any similar delivery-time extensions, but the UPS decision shows a confidence that the marketplace will continue to accept the absence of any guarantee at this service level, which continues to be among the highest growth products for both carriers. Many deferred-air and 2- or 3-day transit time products have benefited greatly over the past 13 months from this change in customer expectations.
Question: These announcements are very closely timed and inclusive of similar approaches; why is that?
Burt: Both UPS and FedEx have announced the return of guarantees on Next Day Services only at this point. At the same time, revenue-per-piece is extremely important in driving top-line revenue and, ultimately, the margin on the bottom line for the carriers. Therefore, Next Day Services included in this announcement make sense because they are likely to have the most impact on revenue-per-piece.
During COVID, the average consumer became more satisfied with 2- and 3-day delivery. Shippers reacted by using slower and lower-cost services because there was no actual guarantee of faster delivery with the more expensive options. With the return of the guarantee, the incentive for a shipper to use the fastest service group has now been re-established because the carrier is again accountable for meeting a due date.
Question: At some point, will the other services be guaranteed again by both carriers?
Burt: I speculate that all services will be guaranteed again eventually. The reason is that the service guarantees provide an incentive for shippers to upgrade the service level of shipments and pay a premium price for the additional speed. The return of guarantees is also relevant to Ground services, where there are already a lot of shippers trading transit time and delivery certainty to save money. A portion of that market will probably always want guaranteed delivery times and be willing to pay for them, however.
Question: Have any other COVID restrictions been lifted at this time?
Burt: As it relates to guarantees, fees, or surcharges – the answer is no. UPS and FedEx both suspended most signature requirements and options, and there have been no changes announced to these restrictions so far. Other fees, such as peak season surcharges, have also remained unchanged as of late, with the exception being small but frequent price updates for international shipping.
While these announcements are hopefully signaling better times ahead for the small parcel shipping industry, this is not a return to the way things were — not even close. What does stay the same is the need for companies to remain diligent and continue to audit their parcel invoices to recover all of the refunds they are owed. This announcement provides an immediate opportunity to increase the money all shippers can recover from UPS and FedEx for not meeting their service commitments.