The parcel pricing environment is softening, according to a parcel survey from Morgan Stanley of more than 400 express and parcel shippers. Shippers expect average rates over the next 12 months to rise 1%-2% for most parcel products, which is a lower rate of growth than Morgan Stanley had anticipated.
Morgan Stanley conducted its survey in mid-March and canvassed express/parcel shippers (who primarily use DHL, FedEx, United Parcel Service (UPS) and the U.S. Postal Service) for their feedback on market dynamics as well as their future expectations for pricing and volumes.
The survey revealed that:
- Shippers expect the largest rate increases from UPS (roughly 1.8% on all products), followed by FedEx at 1.4% and 0.7% for ground and air products. While pricing is still expected to rise, this is a lower expected increase than most of the Morgan Stanley shipping surveys of the past few years.
- DHL seems to have little pricing power, as shippers expect the company to take up rates by only 0.4%. This could become a bigger factor if it improves service and aggressively seeks to win back market share, but shippers tell Morgan Stanley that despite improving service levels, DHL’s service still lags behind that of FedEx and UPS.
- Shippers expect parcel volume growth to moderate over the next three months. This is consistent with near-term economic concerns over a slower manufacturing sector and a consensus GDP growth estimate of only 1.7% for the second quarter of 2007. But, unlike the 2002 surveys, shippers are not expecting air volume to fall, suggesting the parcel industry is not likely on the verge of recession. Moreover, respondents to the survey have historically been more conservative with regard to volume expectations relative to what FedEx and UPS have actually reported in volume growth.
- Shippers expect parcel volume with the U.S. Postal Service (USPS) to grow modestly by 1% over the next three months. This is a marked decline from the previous survey, in which shippers expected to grow volumes with USPS by 4.4%.
Morgan Stanley believes the USPS volume expectations may reflect USPS’ postage rate increase. While the more modest expected growth rate at USPS may look like a negative, we note that it is not significantly lower than what shippers expect volume growth to be at the private carriers, so the USPS may lose minimal share despite the rate increase.