Dynamic Pricing Is Changing the Parcel Shipping Industry | Harvard Business Review

Originally published in Harvard Business Review

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During the past few years, parcel shipping has undergone a dramatic shift in pricing strategies: The industry is moving from static periodic rate adjustments toward dynamic pricing, where rates continuously recalibrate based on demand, capacity, and shipper characteristics. This change mirrors the transformation seen in industries such as airlines, hotels, and ridesharing.

The stakes are significant for every business using package carriers, from Fortune 500 companies to startups. They stand to not only affect logistics teams but also reshape cost structures, pricing strategy, and the consumer experience across nearly every major industry. In 2024, U.S. companies spent an estimated $203.2 billion on parcel shipping, the equivalent of close to 4% of total U.S. retail sales.

UPS and FedEx have led the way in surge pricing. A shipment from Washington, D.C., to a residential customer used to cost the same whether shipped in March or December, but since 2017 both carriers have now implemented “demand surcharges” for packages shipped in Q4, making December shipments significantly more expensive. Both carriers have also introduced “dimensional weight charges,” where both size and weight factor into the rate, either driving higher revenue per package or pushing shippers to reduce package sizes.

Given that these two carriers together control more than 65% of the market (by revenue), this shift to dynamic pricing will have significant consequences. For giant retailers such as Walmart and Target, which have sophisticated fulfillment networks, adapting to this new pricing volatility may be achievable. But for companies with leaner or more basic operations, it could pose serious margin risks. These evolutions will impact everyone in the supply chain, including consumers who will feel the shift through reduced free shipping, larger order minimums, slower deliveries, and higher prices. And this isn’t just an e-commerce issue. Pharma, telecom, auto parts, industrials: anyone who moves high volumes of parcels is exposed.

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Read the full article in Harvard Business Review.

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