Carriers are worried this year, they haven’t a clue what parcel volumes they are going to be hit with. Unlike previous years where their biggest problem was high volumes, for Peak 2023 they are just as worried that the deluge of parcels might not happen.
We’re hearing that major couriers and postal services are scratching their heads currently, seeing volumes significantly below capacity. That’s a big problem as they can’t reduce their fixed costs of infrastructure and staff. Having invested in distribution centres they need them filled with parcels or they are losing millions.
Equally, carriers can’t afford to be over capacity with undelivered parcels clogging up their warehouses, which is why they typically book additional trailers and tractor units months in advance and recruit additional seasonal staff to meet anticipated parcel volumes.
This year, many carriers from Royal Mail to Evri are imposing Peak Surcharges. Royal Mail’s will be roughly 10p for an average parcel (on top of a 2p Green Surcharge and an 8% Fuel Supplement). However we’re hearing that carriers worried about over or under anticipated volumes are due to impose even more punitive surcharges.
We understand Evri are to impose a surcharge of ~74p per parcel if volumes forecast by their customer goes more than 10% over OR 20% under forecast volumes in any single week. When you’re only paying a couple of quid (less for many large contracted businesses – this could represent a 50% surcharge for some!), this will be crippling. At 100,000 parcels a week, that’s a potential £74k a week hit to your profits in any week where volumes are too high or too low…. and there are businesses out there who’s volumes are well in excess of these levels.
The problem is that this payday weekend is when we’d normally expect parcel volumes to start rising, but the smart money is on consumers spending more than in previous years, but on fewer goods. Inflation means that many households simply can’t afford to purchase the equivalent products they purchased last year, so more money but fewer parcels is likely.
But, for those businesses with very low value goods that might not hold true, we could see decline in high value purchases but lower value stocking filler volumes remain robust. The problem is that no one really knows what’s going to happen and no one can forecast when the parcel volumes will land.
It’s simple to think that if a business hits or slightly exceeds their parcel volume forecast with say Evri, that they can simply divert the excess through other carriers or Royal Mail, but in Peak that’s often easier said than done. Royal Mail would probably welcome the volumes at the moment, but even then they don’t know what profile of parcels they’d get, and we all know that they want parcels, not letters, so too many of the wrong type of traffic would probably still be loss making… but Royal Mail can’t refuse traffic as they’re effectively the carrier of last resort and have to deal with what comes their way.
However, if volumes are to low and retailers fail to hit their contract volumes, that’s a real issue. Fall 20% below forecast with Evri and some very large penalty surcharge bills will be coming your way. And it’s not like most businesses can walk away from Evri as there are few alternatives that can cope with the volumes at the price points they’re willing to accept.
It’s a critical time of year for carriers as they all have investors and some would like to be sold or acquired and for this they need a healthy balance sheet. Rather than take all the risk of being under or over capacity, this year, the most volatile for many years, they are looking to pass the risk to retailers. That’s why the surcharges are coming in.
For next year, expect to see large retailers attempting to manage their volumes by splitting contracts between at least three or more carriers in an attempt to further mitigate volatile and unpredictable volumes and to protect against surcharge penalties.