Dive Brief:
- Ground delivery costs reached a record high in Q2 as FedEx and UPS surcharge hikes persisted, discounting activity cooled and shippers tapped alternative services, according to the TD Cowen/AFS Freight Index.
- Per-package ground delivery rates were 32% above the index's January 2018 baseline in Q2 2025, exceeding previous projections and up from 26.2% in Q2 2024. Prices are expected to remain elevated versus last year, with TD Cowen and AFS Logistics forecasting rates to land at 29.2% in Q3.
- In response to ongoing FedEx and UPS surcharge pressures, shippers shifted some lower-value, lightweight packages to slower-but-cheaper services in Q2, per the index. The volume transition led to a higher average billed weight for shipments tracked by the index, fueling elevated per-package rates.
Surcharges fuel higher ground shipping rates
Dive Insight:
Shippers are taking a greater interest in less-pricey deferred services like FedEx Ground Economy, UPS Ground Saver and U.S. Postal Service offerings to blunt the impact of surcharges, said Mingshu Bates, AFS' chief analytics officer and president of parcel.
"They are just fed up with all the fees and the incremental changes that the carriers are bringing to the market, so they are absolutely actively seeking alternatives," Bates said in an interview.
Fuel surcharge hikes have been a key lever pulled by FedEx and UPS throughout the year to boost profitability for the volume it has retained, according to the index. Ground fuel surcharges increased 5.1% quarter-over-quarter in Q2 despite a 1.9% drop in diesel prices, it said.
FedEx and UPS are also easing up on their discounting activity, swinging the pricing power pendulum further away from shippers, per the index. Additionally, the carriers have installed a mix of new surcharges, with the index highlighting UPS as taking a particularly aggressive approach on this front.
"The upcoming UPS changes to the Additional Handling surcharge could impose substantial cost burdens on shippers," according to the index. "FedEx’s lack of an immediate matching response suggests system constraints and hints a possible 'me too' move later."
Express shipments are also seeing price pressures. The express parcel rate per package is projected to land at 2.3% in Q3 amid continued fuel surcharge hikes, up from 0.7% in Q3 2024, according to the index.
