The rise of e-commerce in the 1990s signaled a shift in how consumers buy consumables and even some durable products. Today, the online shopping channel parallels “brick and mortar” retailing and is expected to make further incursions into total retail sales as shopping platforms such as Amazon, eBay, Walmart, and Target drive expansion. Without the shipping logistics networks to deliver smaller parcels to the doorsteps of businesses and consumers, however, innovation and growth in e-commerce would not be possible.
Many consumers take the speed and efficiency of today’s sophisticated national, regional, and “last-mile” parcel delivery networks for granted. But it is not lost on them that for as many options as they have in online shopping, competition in parcel shipping matters just as much. Indeed, the e-commerce and parcel shipping markets are inextricably linked and over the last several years, they have undergone significant change. Carriers now compete on multiple fronts — shipping rates, speed and tracking capability, ease of claims resolution, and choice in carriers for delivery, especially in the harder-to-reach, rural parts of the U.S. Competition in parcel shipping directly affects the prices that consumers ultimately pay for delivered e-commerce goods.
The injection of competition in parcel shipping in the U.S. has come not from the largest legacy carriers, UPS and FedEx, or the U.S. Postal Service, which has a universal service obligation. Rather, competition has been spurred by smaller or disruptive players like DHL, OnTrac, Veho, and Amazon. This transformation has chipped away at the market power of the UPS-FedEx duopoly. Nonetheless, this two-firm stronghold still accounts for a substantial share of the parcel shipping market, elevating the importance of competition to benefit consumers and spur innovation and growth.
This Progressive Policy Institute (PPI) report unpacks the state of competition in the parcel shipping market. It reveals changes over time that parallel the rise of e-commerce. The analysis reveals market dynamics associated with a concentrated market that features the UPS-FedEx duopoly of legacy parcel carriers. After setting the table on the state of competition, the analysis takes up novel questions, including the benefits of expansion by non-traditional business models that can deliver benefits to consumers, and keep prices down in the important e-commerce retail channel.
