As traditional parcel carriers face rising competition from an increasingly diverse array of carriers, UPS has published a white paper aimed at discrediting last-mile delivery companies that utilize gig drivers even though it owns a crowdsourced delivery platform. Not discussed is the possibility that shippers are looking for delivery alternatives because of frustration over the size and frequency of rate increases from FedEx and UPS.

The paper, published on Monday, serves as a promotional vehicle for UPS Capital’s InsureShield Shipping Insurance, which the company says can help merchants mitigate last-mile risks. However, it also offers valuable insights for merchants into the habits of e-commerce buyers.

Online merchants are struggling to meet customer expectations for ultra-fast, reliable delivery and control over their delivery experience, while containing costs, but gig logistics providers have not proved to be a reliable solution, UPS Capital, the financial services division of UPS, said in the paper.

Sixty-two percent of merchants reported an increase in damage, theft or delays tied to gig-driven deliveries. Only 12% of respondents expressed confidence in gig carriers’ service quality compared to 69% in 2022 who believed gig services provided superior customer satisfaction over traditional carriers, according to the research by Dynata commissioned by UPS Capital. 

Dynata polled 500 e-commerce vendors and 1,000 U.S. consumers for the survey. 

“Brands that fail to proactively manage shipping visibility, customer communication, and risk mitigation will bear the brunt of consumer dissatisfaction,” the white paper said.

Consumer sentiment has also shifted from 63% preferring retailers that offer same-day gig delivery to 55% now favoring traditional carriers, with just 20% actively choosing gig-powered delivery. The most common consumer complaints about gig delivery companies and apps – like Uber Courier, Shipt (a Target company), Postmates and Dispatch – include delayed packages, lack of timely communication, and missing or damaged shipments, the paper said. 

UPS owns Roadie, a delivery platform with independent drivers that use their own automobiles to provide last-mile, on-demand and same-day delivery services.

Nearly a third of consumers rated delivery speed as their top shopping priority, over cost and product selection. Demand for speed is even more pronounced among younger consumers, with 51% of Gen Z respondents prioritizing quick shipping compared to only 15% of people age 62 and older. 

Personalization is also a key consideration, with 44% of shoppers surveyed wanting the ability to customize their shipping preferences and 84% saying they’re more likely to buy from merchants that offer the ability to set delivery options. Consumers are more likely to purchase from a merchant that offers the ability to track packages in real time, pick the package arrival day and time, and guarantee insurance coverage for all packages in case of mishap, according to the white paper.

Nearly all surveyed merchants agreed that the negative delivery issues – late or missed deliveries, packages left in unsafe locations, or lack of real-time tracking – can heavily influence future purchasing decisions. If a brand fails to resolve a shipping issue, a quarter of surveyed consumers hesitate to shop with them again, and nearly 44% of Gen Z respondents demand issue resolution before considering a repeat purchase, the paper said.

The rise in popularity of shopping directly through platforms like Instagram, TikTok and Facebook is transforming e-commerce, but only 19% of surveyed shoppers trust social media storefronts for deliveries and 39% have never attempted a social commerce purchase at all.

Consumers no longer solely blame carriers when things go wrong, UPS Capital and Dynata said. In 2022, 83% of surveyed consumers blamed delivery providers for delivery mishaps. This year, that number has dropped to 39%, as more shoppers now hold merchants accountable for ensuring a seamless delivery experience.

UPS Capital said merchants can regain control of last-mile logistics by using advanced tracking technologies for real-time shipping status, conducting regular performance reviews and feedback loops to ensure service quality, and gathering customer feedback through satisfaction surveys. It also recommended choosing reliable carriers that ensure quality and secure delivery, as well as leveraging comprehensive shipping insurance – like its own InsureShield – to protect against financial losses.

More than 40% percent of surveyed merchants report that 2% to 5% of their shipments suffer from damage, loss or theft each quarter. Larger enterprises with revenues exceeding $50 million face even steeper losses, the paper said.

The insurance offered by UPS Capital protects shippers against lost or damaged shipments, allowing them to cover their cost to refund or replace a purchase when this occurs, said John Costanzo, who heads parcel and freight consultant LDK Global Logistics.

“They’d make a better case if they could show how using well established carriers like UPS reduced delays and damages, in addition to a more consistent delivery experience. That would tie their value proposition to the main elements identified in the survey – cost, visibility and speed of delivery. Shipper insurance really only is a protection for when last mile delivery fails in a pretty dramatic way,” he said by email. 

TD Cowen/AFS Logistics Freight Index details parcel rate escalation

But the incentive to partner with gig logistics companies could be growing as legacy express carriers take a more aggressive pricing approach.

Parcel carriers no longer are announcing rate increases on a predictable, annual cadence with plenty of advance notice. Over the past 18 months, FedEx and UPS have introduced more frequent, subtle price changes that take effect more quickly as the fight for revenue in a low-demand environment intensifies, said AFS Logistics and investment bank TD Cowen in their freight index report last week.

During the first quarter, UPS announced new ZIP code zone alignments, new fees on print and paper invoices, fees for check and wire payment, an increase to the late payment fee, and a new payment processing fee. Both carriers have also continued to make fuel surcharge changes, the net result of which is the UPS ground fuel surcharge increasing 15% and the FedEx equivalent rising 12% from Q1 2024 to Q1 2025 — even as the price of diesel fuel fell 8.4% over the same period, according to the analysis.

“These latest changes introduce even more complexity for shippers to digest and negotiate. If they overlook any one of these subtle updates, they can find themselves subject to punitive provisions like a blanket payment processing fee that’s in effect a 2% price hike,” said Mingshu Bates, chief analytics officer and president of parcel at AFS. “If you look at the state of the market, these changes fit the carriers’ stated aims of prioritizing network efficiency and revenue quality. Competition from the Postal Service and regional carriers has FedEx and UPS looking to defend their slice of a soft market while trying to shift away from the discount-heavy dynamics of the past year and a half.”

Ground parcel pricing remained extremely strong, as the cost per package rose 4% quarter over quarter to a record-high average, driven by rate increases, surcharge adjustments and higher billed weight. The ground parcel rate-per-package index is expected to decrease from 31.3% in the first quarter to 29.5% in the second, which still represents a 2.6% increase year over year.

Express parcel pricing grew in line with seasonal trends in the first quarter, with general rate and fuel surcharge increases powering a 5.2% sequential quarterly increase in cost per package. But volume growth remains a challenge in the domestic express parcel market, which is partly due to carriers’ own success in optimizing ground networks, enabling shippers to shift volume to less expensive ground service for similar performance. 

But, said AFS/TD Cowen, volumes have also been challenged by competition from an increasingly diverse carrier landscape. The U.S. Postal Service, for example, recently launched priority next-day service in 54 markets. 

Click here for more FreightWaves/American Shipper stories by Eric Kulisch.

RELATED READING:

FedEx begins its first direct Singapore-US air cargo service

Hongkong Post to stop handling US-bound packages amid tariff conflict

UPS hires Delta Air Lines to maintain Boeing 757 engines

The post UPS white paper casts shade on e-commerce gig delivery providers appeared first on FreightWaves.