The ability to optimize routes utilizing algorithms, artificial intelligence and other technology tools has been around for a while, replacing manual tools such as spreadsheets and, in some cases, nothing at all. Dynamic pricing can soon become a reality for last-mile deliveries. By adding dynamic pricing to dynamic routing, a carrier can reduce costs and save time and provide more accurate pricing based on demand.

UPS could become the first national last-mile carrier to introduce dynamic pricing, based on technology investments in recent years and its focus on achieving profitable volume.

UPS introduced its Dynamic ORION (On-Road Integrated Optimization and Navigation) in 2020, which reoptimizes routes in real time and in changing conditions. It’s just a matter of time before pricing is incorporated into ORION.

During UPS’s investor and analyst virtual conference in June, 2021, executives discussed their Next Generation Profit initiative, a cross-functional program that, among other things, allows the carrier to “optimize pricing for each customer and better align our cost to serve with the value we create.” According to UPS chief financial officer Brian Newman, “We are continuing to evolve the platform to leverage technology that will adjust pricing in a more dynamic manner to maximize overall profitability.”

While it’s unclear if FedEx is also working toward dynamic pricing, its announcement of FedEx Dataworks in 2020 might provide some insight.

Dataworks is focused on “harnessing the power of the rich FedEx data ecosystem to transform the digital and physical customer experience,” the company said in a statement. “This includes capturing information at every delivery stage a package passes through, from creating a label and scanning it through to its last-mile delivery. Algorithms are created from this data and build the best possible routes. FedEx Dataworks will create solutions that build the network for what’s next by collaborating across the enterprise to integrate the technology and services customers expect and deserve.”

It may take a while before FedEx introduces dynamic pricing. Still, as FedEx Dataworks chief executive officer Sriram Krishnasamy told the online publication Business Insider in 2021, “We have between 17 million and 19 million packages a day. And each one of those packages is extremely rich in data from across the world to 220 countries in every single industry vertical.”

For shippers, dynamic pricing could provide some relief to the more than 100 additional fees or surcharges that FedEx and UPS typically apply to shipments. However, these fees will likely be incorporated into pricing algorithms based on lane pairing, available capacity, and demand.

As such, carriers will need to provide real-time breakdowns in rates for shippers via an online platform or shippers’ transportation management systems (TMS) to ensure contract compliance and planning purposes. Real-time rate sharing such as this will also help shippers challenge potential errors more quickly and thus, in theory, receive refunds in real-time if the errors are proven true.

Outlook:

As consumers, we already experience dynamic pricing when taking an Uber or Lyft, and it’s also in use by other transportation modes such as ocean freight and trucking. While still limited, it will likely become the norm across all modes of transportation, including last-mile deliveries. Shippers will need to prepare by investing in technology such as a TMS with good business analytics to manage and forecast rates.

John Haber is president, Business Unit, with Transportation Insight.